THE MODERATING EFFECT OF ENVIRONMENTAL DYNAMISM IN THE RELATIONSHIP BETWEEN INNOVATION CAPABILITY AND PERFORMANCE OF MANUFACTURING FIRMS IN NAIROBI CITY COUNTY, KENYA

Abstract

The manufacturing sector is well known for its significance in upholding the economic prosperity of many nations. However, the manufacturing sector’s contribution to the gross domestic product has been consistently falling across the last few years, giving rise to fears of a premature de-industrialization phenomenon in Kenya. A growing research literature posits that the innovation capability can be considered a theoretical answer to the question of how organizations in various industries are able to achieve and sustain superior performance in turbulent environments. However, scholars still lack a complete understanding of the specific innovation capability that sustain superior firm performance over time in the dynamic environment. The purpose of this study was to examine the moderating effect of environmental dynamism in the relationship between innovation capability and performance of manufacturing firms in Nairobi City County, Kenya. The study employed the correlational, cross-sectional survey research design. The proportionate stratified random sampling technique was used to select a sample size of 228 manufacturing firms from a target population of 526 manufacturing firms in Nairobi City County, Kenya. The Pearson’s product moment correlation analysis results indicated that product innovation capability, process innovation capability, marketing innovation capability and technological innovation capability had positive and significant relationship with performance of manufacturing firms in Nairobi City County, Kenya. The standard multiple regression results showed that product innovation capability, process innovation capability, marketing innovation capability and technological innovation capability had a positive and significant effect on performance of manufacturing firms in Nairobi City County, Kenya. The moderated multiple regression results showed that environmental dynamism had a significant moderating effect on the relationship between innovation capability and performance of manufacturing firms in Nairobi City County, Kenya. The study recommended that it is imperative for the managers to implement innovation capability and strategically manage the environmental dynamism to foster the performance of manufacturing firms. Policy makers should consider initiating policy review to encourage stakeholders to implement innovation capability and strategically manage the environmental dynamism to foster the performance of manufacturing firms. The study pointed to several intriguing paths for future research.