Digital Transformation Capabilities and the Competitive Advantage of Commercial Banks in Kenya

Abstract

The purpose of the study was to determine the effect of digital transformation capabilities on the competitive advantage of commercial banks in Kenya. The study adopted a post-positivist research philosophy and an explanatory research design, guided by Dynamic Capability Theory. The target population consisted of 370 respondents drawn across the 37 commercial banks in Kenya. Stratified random sampling was used to select 192 CEOs and heads of key departments from commercial banks. Primary data were collected using self-administered questionnaires and analysed using descriptive and inferential statistics in Statistical Package for the Social Sciences version 25, statistical software. Descriptive statistics involved frequency distribution, means and standard deviation. The inferential statistics used were Pearson’s coefficient for correlation analysis, Chi-square test, one-way ANOVA, and ordinal logistic regression for hypothesis testing. The descriptive results indicated a high level of Digital Transformation Capabilities among commercial banks (M = 4.322, SD = 0.731), suggesting that organisational restructuring, process reengineering, and cultural change were widely embedded in the banks. The ordinal logistic regression model demonstrated strong explanatory power (Nagelkerke Pseudo-R² = 0.741), while Digital Transformation Capabilities had a positive and statistically significant effect on Competitive Advantage (Estimate = 6.855, p < 0.001). The study concludes that stronger Digital Transformation Capabilities increase the likelihood of higher Competitive Advantage. The findings imply that bank managers should move beyond technology adoption by prioritising organisational restructuring, process reengineering, and cultural change, while the Central Bank of Kenya can strengthen policies and supervisory frameworks that support banks’ digital transformation and organisational readiness.