EFFECT OF INNOVATION ON THE PERFORMANCE OF SMALL AND MEDIUM ENTERPRISES IN KENYA

Abstract

Purpose: The focus of the research was to measure the entrepreneurs’ innovation and how this attribute contribute to the performance of an SME. Methodology: The study adopted survey research design focusing on a population of 268,100 licensed small and medium enterprises in Nairobi County in Kenya, from which a sample of 400 firms were selected through a multi-stage probability sampling method where stratified sampling method was used first and then simple random sampling from the strata for the 17 constituencies under the Nairobi county. Quantitative data was collected using questionnaires and analyzed using Statistical Package for Social Science (SPSS) and Microsoft Excel. The study tested the research hypothesis on whether innovation had a significant effect on performance of small and medium size enterprises in Kenya. Results : The regression results established that innovation had positive and significant effect of performance of small and medium size enterprises in Kenya. Based on these findings a unit increase in innovations would results to increase in performance of small and medium size enterprises in Kenya. The study also concluded that adoption of latest innovations in product production, process improvement and marketing process differentiated high performing and sustainable SMEs from the rest. Unique contribution to theory, practice and policy: The study recommends that SMEs managers and owners should invest more in e-commerce which include buying or selling through the Internet to reduce the transactions cost and cost associated with keeping inventory.