Effect of Strategic Innovation on Fim Performance in Commercial Banks Sector in Kenya

Abstract

The dynamic performance of the banking sector has been attributed to many factors, a good portion being common to firms in all industries, including social, economic, political, environmental, and cultural. In general, the banking sector is susceptible to the environmental factors, as well as internal factors. This dissertation sought to study the implementation of strategic innovation and its influence on firm performance. The scope of the study is commercial banks in Kenya. The research objective was to determine the effect of strategic innovation on the firm performance of the commercial banks sector in Kenya. Specific research objectives were: to determine the influence of innovation process management on the firm performance;to evaluate the effect of strategic alignment on the firm performance; to establish the influence of industry foresight on the firm performance; and to determine the impact of customer insight on the firm performance of commercial banks in Kenya. The study was anchored of the Resource Based Theory of the firm, Disruptive innovation theory and the Blue Ocean Strategy. An analysis of both primary and secondary data was undertakenthrough multilinear regression with the help of Statistical Package for Social Sciences tool.Firm performance of the banks was informed by the Return on Assets for a period of five years. Strategic innovation was approached from the four dimensions of a managed innovation process, industry foresight, strategic alignment and customer insight. The study followed the descriptive research design. Data collection was carried out through semi-structured self-administered questionnaires for primary data and tabulated forms for the secondary data. The administered questionnaires tested reliable returning a Cronbach’s alpha coefficient of 0.7. The study population was 41 banks from which 10 were sampled using stratified sampling through proportionate and simple random sampling. 60 respondents across the 10 banks were targeted, with a response rate of 83 percent. From the findings, the study concludes thatcommercial banks’implementation ofinnovation process management, strategic alignment, industry foresight and customer insighthad a significant and positive effect on the firmperformance of commercial banks in Kenya. The results of the analysis was presented using tables, figures and narratives.The study recommends that the management of commercial banks in Kenya should adequately finance the innovation process management which is capital intensive to accrue the benefits from this process full implementation. Management should continuously build the capacity of the employees to effectively execute the bank’s strategy that should be adaptable to the dynamic market forces.Another recommendation is the institutionalization of research to inform decisions being made from industry foresight.The management of commercial banks in Kenya should move away from brick and mortar model of banking to more customer centric banking model like commercial mobile banking. Further research was recommended to replicate the study across other financial institutions including insurance companies, SACCOs and micro-finance institutions.