Strategic Innovation and Competitiveness of Regulated Microfinance Institutions in Kenya: A Case of Branch Microfinance Bank

Abstract

Strategic management recognizes the vital role of strategic innovation as a key organisational choice for establishing sustainable competitiveness. Strategic innovation involves creating and implementing a new concept, process, product, or service designed to generate value and maintain a competitive edge for an organisation. Despite growing calls to incorporate strategic innovation into organisational strategic management processes to enhance competitiveness, the concept remains largely misunderstood. The purpose of this study was to examine the effect of strategic innovation on competitiveness of regulated microfinance institutions in Kenya, focusing on Branch Microfinance Bank. The objectives of the study were to assess the effect of value creation innovation processes on competitiveness at Branch Microfinance Bank; to determine the effect of value propositions on competitiveness at Branch Microfinance bank; to examine the effect of value capture models on competitiveness at Branch Microfinance bank and to establish the moderating effect of organisational structure on the relationship between strategic innovation and competitiveness of regulated microfinance institutions, with a focus on Branch Microfinance Bank. The study was supported by three theories: Schumpeter’s Innovation Theory, Resource-Based Theory, and Dynamic Capabilities Theory, which underpin the research on strategic innovation and organisational competitiveness. A descriptive correlational research design was employed, utilising quantitative analysis of performance metrics to explore how Branch Microfinance Bank applies strategic innovation. Data was collected from a target population of 108 respondents using structured questionnaires designed to systematically gather quantitative data. A pretest was conducted with 10% of the target population comprising ten employees from Faulu Microfinance Bank, which operates similarly to Branch Microfinance Bank, to ensure accurate and consistent data collection. The questionnaire comprised close-ended questions, selected for their ability to systematically elicit quantitative data. Data analysis was performed using SPSS Statistics version 28.0. Descriptive statistics was used to summarise the data, while inferential analyses such as correlation and regression tests were utilised. The findings demonstrated that value creation had a positive and significant effect on competitiveness (β = 0.542, p < 0.001), making it the most influential predictor of competitiveness. This highlights the importance of value creation innovation processes to drive sustained competitiveness. Value proposition also exhibited a strong and significant effect (β = 0.311, p = 0.001), reflecting a customer centric culture, suggesting that effectively communicating and delivering clear customer value enhances competitiveness. Similarly, value capture significantly influenced competitiveness (β = 0.267, p = 0.004), demonstrating the ability of Branch Microfinance Bank to convert innovation into financial returns and sustainability, though with room for improvement in monetizing innovation outputs. Collectively, the three constructs explained 76.6% (R² = 0.766) of the variation in competitiveness. When organisational structure was introduced as a moderating variable, the model’s explanatory power increased from R² = 0.766 to R² = 0.792, indicating a 2.6% improvement. This finding confirms that flexible and responsive structures enhance communication, decision making, and organisational agility, translating innovation into competitive outcomes.