Innovation Strategy and Financial Performance of Tier 1 Commercial Banks in Kenya.

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Daystar University, School of Business and Economics

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The banking industry is volatile with its customers having diverse tastes and preferences and as such, there is need to innovate to keep up with the rapid technological changes. This research aimed to assess the effect of innovation strategies on the financial performance of Tier 1 commercial banks in Kenya. The research was guided by the following objectives; to assess the different innovation strategies that are adopted by Tier 1 commercial banks in Kenya; to measure the financial performance of Tier 1 commercial banks in Kenya; and to investigate the effect of innovation strategies on the financial performance of Tier 1 commercial banks in Kenya. The Diffusion of Innovation Theory, Resource-Based View Theory and the ConstraintInduced Financial Innovation Theory underpinned this study. The study employed the descriptive research design. The study population was the 9 Tier 1 banks in Nairobi County while the target population was the departments of finance, customer services, research and development, ICT, operations and marketing for each of the 9 Tier 1 banks. The sampling technique employed was stratified random sampling, the data was collected through structured questionnaires and analyzed using IBM SPSS statistics 26 and analyzed through descriptive and inferential statistics. The study found out that there is a statistically significant positive relationship between innovation strategies and financial performance of the Tier 1 commercial banks. Regression analysis findings showed the beta coefficients (β) for product, process and market innovation strategies as β=0.578, β=0.510 and β=0.310 respectively. The correlation analysis results revealed the correlation coefficients for the dependent variables product, process and market innovation strategies as r=0.663, r=0.635 and r=0.648 respectively at a significance level of 5%. Diagnostic tests such as normality and multicollinearity tests were conducted on the data sets. The tests revealed that the data sets were normally distributed and that there was absence of collinearity between the independent variables. The research recommends Tier 1 commercial banks must always embrace innovative strategies in order to boost their financial performance. The bank managers are encouraged to offer advice and trainings to the product and process developers in order to encourage innovation. Policy developers should offer advanced trainings to the innovators especially in the technological fields and support program exchange with like-minded people in order to achieve knowledge and technological transfers. Moreover, the policy developers should offer tax breaks in research and development to encourage an increase in innovations in the country, provide funding either through loans or grants to support tech developers as well as encourage the curriculum developers to incorporate STEM courses in schools to spur innovation.

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MASTER OF BUSINESS ADMINISTRATION in Finance and Strategic Management

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Jerotich, S. I. (2024). Innovation Strategy and Financial Performance of Tier 1 Commercial Banks in Kenya. Daystar University, School of Business and Economics.

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