DYNAMIC CAPABILITIES AND ORGANIZATIONAL PERFORMANCE OF SMALL AND MEDIUM ENTERPRISES IN LAMU COUNTY, KENYA

Abstract

The general objective of this study was to examine the influence of dynamic capabilities on organizational
performance of small and medium enterprises in Lamu County, Kenya. The study’s specific objectives were to
determine the influence of sensing capability on organizational performance, to assess the influence of learning
capability on organizational performance, to analyze the influence of reconfiguration capability on organizational
performance, to establish the influence of relational capability on organizational performance and to examine the
moderating influence of environmental dynamism on dynamic capabilities and organizational performance of
small and medium enterprises in Lamu County, Kenya. The study’s theoretical framework included review of
dynamic capabilities theory, resource based theory, organizational learning theory, and relational view theory. This
study adopted descriptive survey design since it aids in identifying characteristics in the target population. The
study targeted 335 licensed and operational small and medium enterprises based in Lamu County as at 31st
December 2023, from which a sample of 124 was derived. Proportionate stratified random sampling technique was
used to select respondents and self-administered questionnaires based on a five-point Likert type scale were
distributed through drop and pick-up method for collection of primary data. Pilot testing was carried out and the
research instrument was found to have data that were normally distributed, Cronbach alpha scores were above the
recommended value .70 hence all variables were reliable, and the validity scores indicated the data was sufficient
and correlated to measure the individual variables. The study established that the influence of the chosen variables
under dynamic capabilities namely sensing capability, learning capability, reconfiguration capability and relational
capability had a significant influence on organizational performance of small and medium enterprises. The study
recommended that small and medium enterprises must embrace dynamic capabilities for strong interaction
response capacity to attract and maintain customers and also to have a well-established database to serve customers
better.