EFFECT OF INNOVATION STRATEGIES ON FINANCIAL PERFORMANCE OF THE BANKING INDUSTRY IN KENYA

Abstract

Globalization and increasing market competitiveness have driven financial institutions toward innovativeness in their operation to gain sustainable competitive advantage and improve their financial performance. Financial institutions are not only competing on the basis of services but also on the basis of physical products as it is hard to distinguish between products of competing brands in a given product category. The increased competition in the banking industry in Kenya has led to the players in the industry to find alternative ways of surviving and performing well such as adopting innovative strategies. This study sought to establish effect of innovation strategies on financial performance of firms in the banking industry in Kenya. The study specifically focused on product innovation and organizational innovation and its effect on financial performance in the banking industry in Kenya. This study adopted a descriptive survey as the research design for the purposes of data collection. The population targeted 153 managers in ICT department, retail banking department and corporate banking departments from the 51 financial institutions headquarter in Nairobi. The study made use of both secondary and primary data that was obtained from the study respondents using a structured questionnaire. The study used both descriptive statistics such frequency distributions, percentages, frequency tables and pie charts to summarize and relate variables obtained from the administered questionnaire as well as inferential statistics of correlation and regression for analysis. Findings revealed that product innovation and organizational innovation strategies positively and significantly affect the financial performance of firms in the banking industry in Kenya. The study recommends the banking industry in Kenya to introduce new products and services, improvement of existing products and services since it improves their financial performance. There is also need for the banking industry in Kenya to offer a wide range of products than their competitors. The study recommends the banking industry in Kenya to adopt E-customer information data base as well as call centres and floor management. There is also a need for the firms in the banking industry to adopt computerized loan document generation, automated voice response, and automated cheque reconciliation systems as it increases the financial performance. The study further recommends the firms to centralize their loan application system and Electronic trading of shares so as to increase their competitive advantage. JEL: G21, L23, M21 Article visualizations: