EFFECTS OF INNOVATION STRATEGY ON FIRM

PERFORMANCE IN TELECOMMUNICATIONS INDUSTRY: A

CASE OF SAFARICOM KENYA LIMITED

BY

ALICE NJERI

UNITED STATES INTERNATIONAL UNIVERSITY AFRICA

FALL 2017

EFFECTS OF INNOVATION STRATEGY ON FIRM

PERFORMANCE IN TELECOMMUNICATIONS INDUSTRY: A

CASE OF SAFARICOM KENYA LIMITED

BY

ALICE NJERI

UNITED STATES INTERNATIONAL UNIVERSITY AFRICA

A Research Report Submitted to the Chandaria School of Business in

Partial Fulfillment of the Requirement for the Degree of Masters of

Business Administration (MBA)

FALL 2017

i

STUDENTS DECLARATION

I, the undersigned, declare that this is my original work and has not been submitted to any

other college, institution or university other than the United States International

University in Nairobi for academic credit.

Signed: __________________________ Date: _____________________________

Alice Njeri (ID No.641839)

This project has been presented for examination with my approval as the appointed

supervisor.

Signed: __________________________ Date: _____________________________

Juliana Namada

Signed: __________________________ Date: _____________________________

Dean, Chandaria School of Business

ii

COPYRIGHT

No part of this work may be reproduced, stored in a retrieval system or transmitted in any

form or by any means, electronic, mechanical, photocopying, recording or otherwise

without the express written authorization from the writer.

Alice Njeri © 2016

iii

ACKNOWLEDGEMENTS

I am grateful to all persons who have supported the successful completion of this project

report and specifically my heartfelt gratitude goes to my supervisor Dr. Juliana Namada

who supported and guided me throughout the development of this proposal. All peoples

not named on this page but who supported me during my writing of this report in one way

or another, I express my heartfelt gratitude and appreciation to them.

I also wish to thank all who took the time to fill in questionnaires for this study.

iv

TABLE OF CONTENT

STUDENTS DECLARATION ....................................................................................................... i

COPYRIGHT ................................................................................................................................. ii

ACKNOWLEDGEMENTS .......................................................................................................... iii

TABLE OF CONTENT ................................................................................................................ iv

LIST OF TABLES ......................................................................................................................... vi

LIST OF FIGURES ...................................................................................................................... vii

ABSTRACT ................................................................................................................................. viii

CHAPTER ONE ............................................................................................................................. 1

1.0 INTRODUCTION .................................................................................................................... 1

1.1 Background of the Problem ..................................................................................................... 1

1.2 Statement of the Problem ........................................................................................................ 4

1.3 General Objective ..................................................................................................................... 5

1.4 Specific Objectives .................................................................................................................... 5

1.5 Justification of the Study ......................................................................................................... 6

1.6 Scope of the Study .................................................................................................................... 6

1.7 Definition of Terms................................................................................................................... 7

1.8 Chapter Summary .................................................................................................................... 7

CHAPTER TWO ............................................................................................................................ 8

2.0 LITERATURE REVIEW ........................................................................................................ 8

2.1 Introduction .............................................................................................................................. 8

2.2 Product Innovation and Performance .................................................................................... 8

2.3 Process Innovation and Performance ................................................................................... 13

2.5 Chapter Summary .................................................................................................................. 23

CHAPTER THREE ..................................................................................................................... 24

3.0 RESEARCH METHODOLOGY .......................................................................................... 24

3.1 Introduction ............................................................................................................................ 24

3.2 Research Design ...................................................................................................................... 24

3.3 Population and Sampling Design .......................................................................................... 24

Table 3.1: Sampling Frame of the Study .................................................................................... 25

3.4 Data Collection Methods ........................................................................................................ 26

3.5 Research Procedures .............................................................................................................. 26

3.6 Data Analysis Methods........................................................................................................... 27

3.7 Chapter Summary .................................................................................................................. 28

CHAPTER FOUR ........................................................................................................................ 29

4.0 DATA RESULTS AND FINDINGS ..................................................................................... 29

v

4.1 Introduction ............................................................................................................................ 29

4.2 Response Rate ......................................................................................................................... 29

4.3 Demographic Information ..................................................................................................... 29

4.4 Product Innovation Strategy on Performance in Safaricom (K) Limited ......................... 33

4.4.1 Descriptive Statistics ........................................................................................................... 33

4.4.2 Regression Analysis ............................................................................................................. 35

4.5 Process Innovation Strategy on Performance in Safaricom (K) Limited .......................... 36

4.6 Market Innovation Strategy on Performance in Safaricom (K) Limited .......................... 38

4.6.1 Descriptive Statistics ........................................................................................................... 38

4.6.2 Regression Analysis ............................................................................................................. 40

4.7 Correlation Analysis of Innovation Strategies and Performance ...................................... 40

4.8 Chapter Summary .................................................................................................................. 41

CHAPTER FIVE .......................................................................................................................... 42

5.0 DISCUSSION, CONCLUSIONS AND RECOMMENDATIONS ..................................... 42

5.1 Introduction ............................................................................................................................ 42

5.2 Summary of Findings ............................................................................................................. 42

5.3 Discussion ................................................................................................................................ 43

5.4 Conclusion ............................................................................................................................... 48

5.5 Recommendations .................................................................................................................. 49

REFERENCES ............................................................................................................................. 51

APPENDIX I: COVER LETTER ............................................................................................... 65

APPENDIX II: QUESTIONNAIRE FOR SAFARICOM (K) LIMITED CUSTOMER

DEPARTMENTS STAFF ............................................................................................................ 66

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LIST OF TABLES

Table 3.1: Sampling Frame of the Study ........................................................................... 25

Table 4.1: Effect of Product Innovation on Performance at Safaricom ............................. 34

Table 4.2: Effect of Process Innovation on Performance .................................................. 37

Table 4.3: Effect of Market Innovation on Performance ................................................... 39

Table 4.4: Correlation of Innovation and Performance at Safaricom (K) Limited ............ 41

Table 4.5: Model Summary ............................................................................................... 35

Table 4.6: ANOVA (b) ........................................................................................................ 35

Table 4.7: Coefficients (a) ................................................................................................... 35

Table 4.8: Model Summary ............................................................................................... 37

Table 4.9: ANOVA (b) ........................................................................................................ 38

Table 4.10: Coefficients (a) ................................................................................................. 38

Table 4.11: Model Summary ............................................................................................. 40

Table 4.12: ANOVA (b) ...................................................................................................... 40

Table 4.13: Coefficients (a) ................................................................................................. 40

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LIST OF FIGURES

Figure 1: Age Group of Respondents ................................................................................ 30

Figure 2: Gender of Respondents ...................................................................................... 30

Figure 3: Education Level of Respondents ........................................................................ 31

Figure 4: Work Experience of Respondents ...................................................................... 32

Figure 5: Staff Department of Respondents....................................................................... 33

viii

ABSTRACT

The general objective of the study was to examine the effects of innovation strategy on

firm performance in the telecommunication industry taking Safaricom (K) Limited as a

case. The study was guided by three specific objectives. To determine the influence of

product innovation strategy on performance in Safaricom Kenya Limited; establish the

effect of process innovation strategy on performance in Safaricom Kenya Limited and

determine the influence of market innovation strategy on performance in Safaricom

Kenya Limited.

The research adopted a descriptive survey research design. The population for the study

was customer service departments at Safaricom (K) Limited. These included the Retail,

Care Centre/ Customer Operations and Consumer Business departments. The stratified

random sampling procedure was used for the study and the sample size was established at

181 staff. The questionnaire was adopted as the primary tool for data collection.

Descriptive analysis, correlation analysis and regression analysis were used to analyse the

data. Data was presented in charts and tables and the researcher’s own interpretation.

The correlation analysis showed that there was a positive and significant correlation

between product innovation strategy and performance. The multiple regression analysis

confirmed an increase in product innovation led to an increase in performance and this

was significant. That there was a positive association between process innovation and

performance but this was not significant. Regression analysis confirmed that there was a

linear relationship between process innovation and performance but this was not

significant. That there was a positive and significant association between market

innovation and performance and regression analysis confirmed that there was a strong and

positive relationship between market innovation and performance.

The study concludes that among the innovation strategies included in the study, product

innovation strategy had the most influence on performance of Safaricom (K) Limited.

The concluded that process innovation had the least impact on performance of Safaricom

(K) Limited. The study concluded that market innovation strategy was the second most

significant innovation strategy to affect performance of Safaricom (K) Limited.

CHAPTER ONE

1.0 INTRODUCTION

1.1 Background of the Problem

This paper aims to investigate the relationships between innovation and organisation

performance in the telecommunication industry. The relationship between innovation

and organisation performance is receiving attention in the academic world since the

arguments of Schumpeter (1934) that continuous innovation activity is the main basis

for long term firm success (Rosenbush et al., 2011). Scholars have argued that

organisations that do not choose to innovate are placing their firm at risk (Kotler,

2000). The ability of firms to generate innovations for shortened life cycles and level

of competition to generate innovations are important in allowing organisations to

maintain competitive advantage and improve performance (Artz et al., 2010).

D’cruz and Rugman (1992) argue that an organisation would be more competitive if it

is able to produce, design, market services and products superior to those provided by

its competitors. Market needs and changes reveal why it almost unlikely to find any

industrial player who decides not to innovate (Hurley & Hult, 1998). According to

Kaplan and Warren (2007) organisations should not only use innovation as a luxury

but is a necessity. Most studies focus on the performance and innovation association

give a positive appraisal of higher innovativeness that leads to increased firm

performance. Several empirical studies have been done to investigate the relationship

between innovation strategy and organisation performance (Geroski et al., 1993;

Roberts, 1999; Artz et al., 2010; Therrien et al., 2011; Gunday et al., 2011).

Geroski et al. (1993) found that innovations that are achieved by firms have a positive

effects on their profits. The study also found that the influence of particular

innovations on organisation profit was modest in size and innovative organisations in

general as more profitable than non-innovative organisations. Roberts (1999) research

on product innovativeness on sustainable profitability of organisations in the United

States pharmaceutical industry and found that high product innovation propensity and

sustained superior profitability. On a study on effect of patenting and product

innovation on organisation performance, Artz et al (2010) found that product

innovation had a positive and significant impact on organisation performance.

2

Therrien et al. (2011) conducted a study on innovation on organisation performance in

service industry which indicated that in order to gain sales from innovations and

organisations need to come to the market early to introduce new products with higher

levels of innovation. Gunday et al. (2011) study on marketing, process, product and

organisation innovations on organisation performance such as achievements in

finance marketing and production by conducting an empirical study of Turkish firms

in different sectors. The research found that marketing, product and organisation

innovations have positive impacts on organisation performance in manufacturing

sector.

Innovation refers to the transformation of creative ideas in a business. Schumpeter

(1934) is credited to have coined the term innovation in the start of the 20th century

and defined innovations as organisational, process and product organisation changes

that do not emanate from scientific discovery but also come from a mix of already

existing technologies and their application in a new way (Zizlavsky, 2011). Abdi and

Ali (2013) define an innovation strategies as a means that promotes the

implementation and development of new services and products.

Shqipe, Gadaf and Veland (2013), opined that there are distinctively two types of

innovations; these are incremental and radical innovations. An incremental innovation

is one that focuses on feature or costs improvements of already existing services,

products and processes. On the other hand, radical innovation however focuses on the

services, processes and product with unprecedented performance features. Innovation

is advantageous for an organisation performance in several ways. Yilmaz et al. (2005)

described that there are four dimensions are used to measure innovation performance

in organisations. These include market performance, innovative performance,

financial performance and innovative performance. Innovations have an effect on

corporate performance by producing enhanced market position that shows superior

performance and competitive advantage (Gunday, Ulusoy Kilic & Alpkan, 2011).

The measurement of firm performance has often been a complex one for researchers

and scholars. Meeting the internal and external goals of an organisation are the

outcomes for firm performance (Lin et al., 2008). Murphy et al. (1996) argues that

firm performance is a multidimensional concept whose dimensions can be marketing,

3

departmental, finance, production or related to profit and growth (Sohn et al., 2007), it

can be measured with objective or subjective indicators. According to Rosli and Sidek

(2013) depending on organizational goals, different methods are adopted by different

firms to measure their performance.

Organisational performance can be measured through non-financial and financial

means (Bagorogoza & Waal, 2010; Bakar & Ahmad, 2010). Majority of organisation

often prefer to use financial means to measure their performance. Average annual

occupancy rate, net profit after tax, Return on Assets (ROA) and Return on

Investment (ROI) are the mostly used means of measuring organisation performance

Tavitiyaman et al. (2012). However, other used measures are of firm performance

include profitability, productivity, growth, stakeholder satisfaction, market share and

competitive position (Marques et al., 2005; Bagorogoza & Waal, 2010). Moreover,

other researchers have proposed other indicators as such as being able to combine

non-financial measurements to meet the changes of external and internal

environments (Krager & Parnell, 1996).

The sector enjoys a penetration growth rate of over 50 percent which was projected to

increase to 70 percent (Karanja, Muathe & Thuo, 2014). In 2012, the telecom industry

in Kenya saw a huge growth which was expected to continue to 2017. The increasing

fixed line sectors and mobile subscribers are expected to influence a healthy growth

rate in the industry in the next coming years. The competitive environment of the

telecommunications sector has seen organisation consistently experience growth in

terms of asset base and customers. The rapid changes of the telecoms sector and has

seen the four mobile operators which are global operators and Internet Service

Providers (ISPs) such as Jamii Telkom and Wananchi.

The competition in the telecoms sector has greatly increased in data and voice service

provision (Oteri, Kibet & Ndung’u, 2015). Safaricom was incorporated as a private

company, with limited liability, under the Companies Act in 1997 to provide

communication services. However, in 2002 following the Kenya Government’s

purchase of 60 percent shares in the company it was converted into a public company

with its 60 percent controlling shares held by Telkom Kenya Ltd, a state corporation.

Telkom Kenya Ltd continued holding controlling shares in Safaricom, for the Kenya

4

Government until 2008 when in a public share offer the Government sold 25 percent

of its shares to the public by which act Safaricom ceased to be a state corporation

(Kasuni, 2016). Safaricom performs five core functions, namely; Voice

communications (Talk-Time) services, Mobile money transfer services, M-Shwari

banking, and Messaging and Mobile data services. These five services are conveyed

to the customers through one network, the Safaricom Broadband. Safaricom is the

leading provider of converged communications solutions in Kenya. It has the widest

mobile network in the Country with a subscriber base of over 25.2 million and market

share of 64.7 percent (Oteri et al., 2015).

Safaricom (K) Limited business operations have been able to maintain and keep pace

with the worldwide telecoms sector by having strategic business association which

often adds value to the mobile telecoms global environment assists to meeting the

dynamic barriers of the global telecoms industry. This strategic collaborations with

retailers in mobile sector has created a niche in the Kenyan market today. There are

many reasons that are quoted explaining the growth of Safaricom Kenya Limited but

one most highlighted is the commitment and motivation of key individuals, including

the neutrality and determination of some key entrepreneurs responsible for initiating

the innovation (Njuguna, 2012).

1.2 Statement of the Problem

The relationship between innovation and performance has been well documented in

past studies in selected industries across the globe. These include the Turkish

automotive industry (Atalay et al., 2013); Canadian service sector (Therrien et al.,

2011) and Somalia’s telecommunication industry (Abdi & Ali, 2013). There is further

evidence of studies focusing on the relationship between innovation and performance

of telecoms players. In Vietnam, daisy and deqing (2014) found that innovation had a

positive and significant effect on customer satisfaction and customer retention. In

Nigeria, Oluseye, Ibidunni, and Adetowubo-King (2014) found that innovation

strategies had a positive effect on creating new market and expanding market share of

telecommunication industry companies.

Letangule and Letting (2012) conducted a study on effect of innovation strategies on

performance of firms in the telecommunication sector in Kenya. The study concluded

5

that innovation strategies contributed to improved organisational performance among

telecommunication firms. Mathenge (2013) conducted a study on the effect of

innovation on competitive advantage of telecommunication companies in Kenya. The

study concluded that financial innovation positively affects the competitive advantage

of telecommunications companies to a great extent. The study focused on effect of

innovation on competitive advantage. This study focused on firm performance and

was limited to the financial innovation strategy. Njoroge et al (2016) did a research on

the influence of technology on the performance of mobile sector in Kenya which

found that there is need for mobile telephony firms to invest more in new technologies

to address the changes that are needed to improve performance. Onguko and Ragui

(2012) research on the role of strategic positioning on products performance in the

telecommunications industry in Kenya concluded Safaricom has invested heavily in

innovation as compared to other companies in the same industry. Ngugi and Mutai

(2014) study on determinants influencing growth of mobile telephony in Kenya in

Safaricom Limited concluded that innovation positively affect the growth of mobile

telephony in Kenya.

As a telecommunication industry player, Safaricom requires to maintain the

competitive advantage that it has in the sector. New technologies, customer demands,

emerging customer product services mean that innovation should be a strategic

objective and thus this research seeks to investigate the effects of product innovation,

process innovation, market innovation and organisational innovation strategies on

firm performance using Safaricom (K) limited as a case for the study.

1.3 General Objective

The general objective of the study was to examine effects of innovation strategy on

firm performance in telecommunication industry.

1.4 Specific Objectives

The study was guided by the following specific objectives;

i. To determine the influence of product innovation strategy on performance in

Safaricom Kenya Limited

ii. To establish the effect of process innovation strategy on performance in

Safaricom Kenya Limited

6

iii. To determine the influence of market innovation strategy on performance in

Safaricom Kenya Limited

1.5 Justification of the Study

1.5.1 Scholars and Academia

The study is significant to scholars and academia as it will contribute to the body of

knowledge on innovation and firm performance which can be used for references. The

study will also make contributions to the study of effect of innovations and firm

performance among telecommunications sector by making suggestions for areas of

further study.

1.5.2 Government

The study is significant to the government in regards to policy making and regulation

of the telecommunication sector. The study examined the innovations that are

pertinent in the telecommunication industry in Kenya and this will assist policy and

decision making in regulation of the telecommunication sector to enhance the

performance of the industry while safeguarding the consumer experiences.

1.5.3 Safaricom (K) Limited Management

The study will be significant to management of Safaricom (K) limited given its role as

the implementers of strategies in the firm. The study will make recommendations for

implication which can be adopted by top management in the firm to enhance

performance of the Safaricom (K) Limited in regard to innovation strategies adoption.

1.6 Scope of the Study

There are several Mobile Network Operators (MNOs) in the telecommunication

sector in Kenya. The study limits its interest to Safaricom Kenya limited. Previous

studies have focused on employees and consumers in measuring the effects of

innovation strategies on firm performance. This study limits its scope to the

employees and staff of Safaricom Kenya limited. There are several definitions and

types of innovation that are described in the literature. The study only used product

innovation, process innovation, market innovation and organisational innovation. The

study was conducted from July 2016 to March 2017.

7

1.7 Definition of Terms

1.7.1 Market Innovation

Market innovation is referred to encompass the mix of targeting markets and how

selected markets are best served and seeks to identify and provide new and better

markets and better strategies to reach target markets (Johne, 2003).

1.7.2 Process Innovation

Process innovations refer to implementation of significantly or new enhanced delivery

and production method. This also includes major changes in software, equipment and

techniques (Abdi & Ali, 2013).

1.7.3 Product Innovation

A product innovation is the introduction of a good or service that is new or

significantly improved with respect to its characteristics or intended uses (Bakar &

Ahmad, 2010).

1.7.4 Firm performance

Firm performance is the outcomes achieved in meeting internal and external goals of

a firm (Lin et al., 2008).

1.8 Chapter Summary

This chapter presented the background of the problem, statement of the problem,

general objective, specific objectives, and justification of the study, scope of the study

and definition of Terms as used in the study. The next chapter of the study presents

the literature review and the research gaps the study intended to fill. Chapter two

presented the literature review. Chapter three of the study presented and discussed the

rationale for the selected research techniques. These included the research design,

target population and sample size of the study, data collection methods, data

collection procedures, ethical considerations and data analysis and presentation.

Chapter four of the study presented the results and findings of the study. These were

presented in charts and tables and researchers own interpretation. Chapter five of the

study presented the discussion of findings, conclusions of the study and

recommendations for implication and for future research.

8

CHAPTER TWO

2.0 LITERATURE REVIEW

2.1 Introduction

This chapter presents the literature review of the study. The literature is presented in

terms of the study variables product innovation strategy, process innovation strategy

market product innovation strategy and firm performance.

2.2 Product Innovation and Performance

Polder et al. (201) alludes to product innovation as the introduction of new

services/products or the bringing of important improvements in the prevailing

services/products. In product innovation, the product should either be a significantly

improved features of a product or new product, its user-friendliness, intended use,

material and component. There are several dimensions of product innovation. First, in

the perspective of the organisation, the product is new to the firm. Second, from

customers’ perspective, a product is new to customers and third, product changes

which refer to brining product variation in the existing products of the organisation

(Atuahene-Gima, 1996). The product innovation is introduced to foster efficiency in

the business (Polder et al. 2010). In the global competitive era of today more firms

have had to develop new products for customers’ needs (Olson et al., 1995).

Zhou and Wu (2010) have stressed that innovation is very critical to enable firms to

adapt to turbulent environments and achieve a sustainable competitive advantage.

They further noted that whereas firms need a continuous innovation process to

respond to the ever-fast changing environmental conditions, the goal of sustainability

requires new ways of doing business. According to Zizlavsky (2011), innovation can

be referred as process, product, and firm changes that have not originated form

discoveries but arise from a combination of existing applications and technologies in

modern contexts. Zemplinerova (2010) also notes that creative research and human

capital are considered to be two of the most important determinants of innovation.

Kiraka (2013) opined that product innovation involves idea exploitation. Product

innovation is the main sources of gaining competitive advantage for micro and small

enterprises. Innovation leads to the enhancement of product quality which leads to

better organisation performance and growth (Hafeez, 2013). The potential protection

9

for a firm is provided by product innovation from market threats and its competitors.

Most organisations take up product innovation to compete with other organisations in

the market or industry (Ettlie & Reza, 1992). Olson et al. (1995) argued that

organisations introduce product innovation to meet their customer needs. Thus

product innovation is seen as one of the key determinants that lead to the success of a

firm. New product innovation and new product development is a significant strategy

for enhancing the performance and market share of the business.

According to Kotelnikov (2008), product innovation is a strategy which organisations

use to bring new life to the new way of addressing consumers’ problem that will

benefit both the organisation and the customer. Both internal and external factors lead

to the development of innovative products designed to special niches and specific

needs. The internal factors can relate to monitoring and evaluation of existing

products, in-house development of new products and feedbacks from consumers and

employees (Sharma, 2004).

Studies have shown that product innovation is associated with financial gain (Cozza et

al. 2012) and growth in revenue (De Faria & Mendonça, 2011). There are several

meta-analyses that have supported the positive effect if product innovation on firm

performance (Calantone et al. 2010; Bowen et al. 2010; Szymanski et al. 2007).

Bayus, Erickson and Jackson (2003) showed that product innovation had significant

and positive links with firm performance. Hernandez-Espallardo and Ballester (2009)

also revealed a significant and positive effect of product innovation and organisational

performance. Alegre, Lapiedras and Chiva (2006) indicated that the dimensions of

product innovation (efficiency and efficacy) are positively and strongly associated to

organisational performance.

Atalay, Anafarta and Sarvan (2013), conducted a survey of top management of 113

organisations in the turkey automotive industry which showed that product innovation

has had positive and significant effect on organisation performance. Rosli and Sidek

(2013) conducted a study on the impact of innovation on the performance of small

and medium manufacturing enterprises in Malaysia. The study found that the

dimensions of product innovation (worth and effectiveness) influence and are related

to wine firms performance.

10

The aim of product innovation is to appeal to new customers. Organisations modify

existing products or introduce new products according to the new customers (Adner &

Levinthal, 2001). Due to the short life cycle of product it forces organisations to

introduce innovation in the products by enhancing or introducing new products

(Duranton & Puga, 2001). Harrison (2002) stressed that product innovation is

important to remain competitive but is not adequate to create a differentiation in the

market. In the competitive environment organisations introduce product innovation to

contest in the market. Product innovation in the market faces low competition when

introduced and then earns the organisations high profit (Roberts, 1999). In a

comparative study on the effects of process innovation and product innovation, Wolff

and Pett (2004) conducted comparative research for the effects of product and process

on organisation performance and found that product changes are positively related to

firm growth and profitability.

Oke, Prajogo and Jayaram (2013) conducted a study of 207 organisations in Australia

and had a conclusion that product innovation and product quality performance were

positively associated with firm performance. Conversely, Hall (2011) found a

standard positive association between product innovation productivity and activities.

Similarly, Augusto, Lisboa and Yasin (2014) used regression analysis and factor

analysis techniques to provide insights into the association between firm performance

and the different types of innovation and concluded that product innovation was the

most important in promoting firm performance than firm wide innovation.

Furthermore, Ar and Baki (2011) used structural equation modelling (SEM) with data

from SMEs managers in Turkish Science and Technology Parks (STPs) and revealed

that product innovation had a positive and strong relationship with firm performance.

In a study involving 284 SMEs in the food and beverage, clothing and textiles, and

wood-based sub-industries, Mohamad and Sidek (2013) validated the hypothesis that

product innovation influenced organisation performance in a major way by adopting a

hierarchical regression analysis in the validation. Product innovation is one of the

important source of competitive advantage to the organisation (Camison & Lopez,

2010). Through innovation, an organisations competitive advantage can be enhanced

11

through product quality which enhances organisation performance and eventually its

competitiveness (Garvin, 1987; Forker et al., 1996).

Product innovation provides a potential protection to an organisations from market

competitors and markets (Hult et al., 2004). Bayus et al. (2003) showed that product

innovation had a significant and positive link with firm performance. In a survey of

744 Spanish firms, Espallardo and Ballester (2009) found a positive impact of product

innovation on organisation performance. Similarly, Alegre et al. (2006) found that

both efficiency and efficacy as product innovation dimensions are positively and

strongly associated to organisation performance. The introduction of new products is

categorically related to organisation performance (Varis & Littunen, 2010). In a

longitudinal study of the pharmaceutical industry in the United States, Roberts (1999)

found evidence to support the expected association between product innovation rates

and prolonged high profitability. Arz et al. (2010) conducted a study on the effect of

patents acquired and product innovations and organisation performance in different

sectors of Canada and the United States were investigated and found product

innovation had a significant effect on organisation performance.

According to Porter and Van der Linde (1995) emphasizes the use of raw materials

which for green product innovation which results on the low costs for raw materials

and thus lead organisations to establish strategies to transform waste into products that

can be sold and provide additional revenues. Organisations can increase effectiveness

of resources through green innovation to make up with environmental costs (Chen et

al., 2006). Research conducted by Carrion-Flores and Innes (2010) with data from

127 firms among United States manufacturing sector was remarkable about the

association between environmental innovation and environmental performance.

Gluch et al. (2009) conducted a study among Swedish construction firms and revealed

that firms can affect their capacity to use green innovations and enhance firm

performance. A study conducted by Pujari (2006) on environmental new product

development projects in United States reported that eco-innovation processes had a

positive effect on market performance. Similarly, Ar (2012) research found that green

product innovation positively affected that organisation performance and competitive

12

capacity. The results demonstrated significant and strong influence of green product

innovation on organisation performance.

Bowen et al. (2010) and Calantone et al. (2010) admitted that based on the foregoing

arguments that there is a positive effect of product innovation on revenue growth.

Moreover, as supported by earlier researches, (Ibid.) gathered that product innovation

have been shown to generate exceptional profits (Artz et al., 2010). More so, when

products are introduced they face little or no direct competition which in the end leads

to higher product margins.

In their study, Gökkaya and Özbağ (2015) found that significant impact on

organisation performance was from innovation. The organisations efforts in

developing processes and products enhance the performance of the firm including

quantitative and qualitative performance. The literature review revealed that there are

studies which confirmed that there is a positive association between product

innovation and organisation performance including market growth and share and sales

ratio (Bayus, Erickson & Jacobson, 2003; Tung, 2012). Gökkaya and Özbağ (2015)

argued that capability of the firm’s to introduce some new product, idea or process

that stimulated market share as well as the organisation capacity to cope with

competitive market conditions which led to a conclusion that an organisation

performance is dependent on organisational innovativeness.

There are several studies that have been conducted in Kenya to show the relationship

between product innovation and firm performance. Karanja (2014) conducted a study

on innovation strategies effect on competitive advantage in United Bank of Africa.

The findings suggested that there was adoption of product innovation strategies and

enabled UBA to offer a differentiated products. Letangule and Letting (2012)

researched on innovativeness in the telecommunication sector and found that product

innovation had a positive effect on profitability.

Ngirigacha & Bwisa (2013) conducted a study on the relevance of entrepreneurial

innovation on SMEs’ market competitiveness in Thika town. The findings provided

evidence that there is a positive and notable relationship between product innovation

and firm performance. Soi (2016) study on effect of innovation strategies on

performance of organisations in the telecommunication industry in Kenya discloses

13

that product innovation improved performance of telecommunication businesses in

Kenya.

2.3 Process Innovation and Performance

Organisations in obtaining an output they are involved in converting input such as

labour and raw material (services or products). This process is defined as a connection

of a set of activities tailored to convert input into output which is offered to the

consumer (O’Sullivan & Dooley, 2009). Bergfors and Larsson (2009) define process

innovation as a development driven by internal production objectives. Also, process

innovation refers to improve the effectiveness and efficiency of the way the firm

operates. Therefore, a process innovation can be seen an improvement method or

newest internal process to achieve the greatest goals and performance of the firm.

Process innovation can be seen as the execution of improved production or new

delivery method that includes changes in equipment, techniques and software

(Omachonu & Einspruch, 2010).

According to Polder et al. (2010), process innovation refers to bringing together

logistically production methods and important improvements in supporting activities

such as computing, accounting, purchasing and maintenance. The OECD (2005)

defined process innovation as implementation of the delivery method or production

that is significantly improved or is new. The new or improved method must be new to

the organisation and have never been used before. The organisation can develop new

processes by itself or with the assistance of another firm (Polder et al., 2010).

Organisations normally adopt process innovation in order to produce innovative

amendments and products in their processes for them to produce the new products

(Adner & Levinthal, 2001).

According to He and Wong (2004), process innovation refers to improved or new

organisations processes which are introduced via new equipment, materials or through

the re-engineering of the operational processes. Process innovations target consumers

within the organisation who are normally involved with new processes and usually

have a second-order effect on new product performance when compared to product

research and development through which the product can be created at first (Bauer &

Leker, 2013). Damanpour et al. (2009) defined process innovation as the bringing of

14

new methods or changing the arranging processes which directs efforts, procedures or

work structures in firms as well as changes in individual and group behaviour roles.

Technological innovations are being introduced within services as process

innovations. A study conducted among service firms portrayed that process

innovations were mostly technological (He & Wong, 2004).

Process innovation in achieving economies of scale does not present any economic

impact as it only brings changes to the whole operations of delivering services,

producing products, distribution and manufacturing with efficiency (Collins & Smith,

2006). Process innovation measurement is done through customer satisfaction surveys

focusing on such elements like after sales service, delivery time, quality and

assistance given to customers (Day, 1994). Operational effectiveness and efficiency

are also a result of process innovation. The outcomes of process innovation that

enables organisations to launch technical innovative and enhanced products with more

value and cost effective for them to meet consumer needs which are less expensive,

reliable and quality products are sales growth, market ranking and image

improvement (Noorani, 2014).

The product cost is often portrayed in the process innovation (Olson et al., 1995).

Organisations adopt new processes to compete with other organisations and also aim

to satisfy their consumers. Past case studies have shown that automation in the

production strategies has increased productivity and efficiency of the firm (Ettlie &

Reza, 1992). According to Sipos and Ionescu (2015) companies improve goods

quality and efficiency in the organisation through process innovation. Process

innovation contributes to improvements on certain aspects such as delivery strategies,

technologies, equipment’s and which can also lead to a cost reduction.

The extent to which a firm decides to adopt a process innovation is influenced by the

size of the firm. Specifically, process innovation investment share are significantly

related to organisation size. Reichstein (2006) argues that the composition and

activities of the R & D is impacted by the organisation size and in turn impacts the

innovation strategies. The bigger in size the organisation, the more the incentives to

invest in process innovation strategies as this has an increase in cost efficiency. Large

organisations have more incentives to adopt process innovation as it increases cost

15

efficiency. Furthermore, large organisations possess more diversified set of

capabilities and skills and have a large range of products. Hence, the introduction of

process innovation reduces cost efficiency along the diverse lines of production

(Fonseca, 2014).

Process innovation is the adoption of significantly improved or new delivery or

production method. Process innovation is meant to decrease unit costs of delivery and

production, deliver new or to produce new significantly improved product and

increase quality (Gunday et al, 2011). Process innovation focusing on improving the

efficiencies and effectiveness of production and also improve or change the way firm

perform. Azis (2015) agreed that process innovation is a significantly improved

delivery method or adoption of a new production process Thus also includes a

significant change in equipment and software and techniques.

Process innovation influence a significant approach where the economic efficiency of

firms that are highly technology intensive. For example, Safaricom (K) Limited is an

organisation that is highly dependent on existing and emerging technologies in

delivering its services. Thatcher and Oliver (2001) opined that investments that reduce

the fix costs via technology contribute to higher profits which enhance the

productivity of the organisation. Van Auken (2008) research among Spanish

manufacturing SMEs innovation and performance indicated that process innovation is

positively related to the managers’ ranking of performance.

According to Minai and Lucky (2011), process innovation embodies business process

reengineering and quality function deployment. A supplier who is efficient and

constantly works on the productivity gains can expect in time to develop products that

give similar performance at lowered costs. The cost reduction may be passed or may

not be passed to customers in lower prices. Thus, process innovation is a benefit for

the supply side of main product and the support part of products. Both parts of

product offer provide quality standards that can be acquired and maintained. For

services, which by their nature often rely on personal interactions to achieve the

results, the process innovation management is a challenging environment (Johne &

Storey, 2008).

16

Process innovation is referred to as an execution of a notably or novel improvement

on delivery and production methods such as noteworthy technique changes in

software and also in equipment (Cooper, 2009). Process innovation involves several

aspects of a business day to day functions such as human resource, manufacturing,

commercial activities and management, technical design and commercial activities. In

India, Tether (2003) conducted a study on the wine industry and revealed that process

innovation was positively related to firm performance. Atandi and Bwisa (2013) study

found that where technology adoption was used as a prospective for process

innovation a major relationship exists between new technology and firm performance.

Habidin, Khaidir, Shazali, Ali and Jamaludin (2015) defined process innovation into

three different categories. These were: service process innovation, incremental

process innovation and radical process innovation. O’Sullivan and Dooley (2009)

refers to the service process innovation as a method of improvement that helps firms

to meet their goals. Service innovation refers to making changes to intangible

products which influences to a high degree the customer demand and interaction. The

incremental process innovation is referred to as the making of minor changes or

improvements in firms’ elements of internal process but will have no effect to

industry (Reichstein & Salter, 2006).

According to Kim et al. (2012) the radical process innovation involves levels of

change whether these major improvements or new changes on the firms’ elements of

internal process are related to industry. According to Pratali (2003), the incremental

on process and product from technological innovation helps improve firm

competiveness with the main justification being to increase organisation value or

productivity which is important to the manufacturing sector and that process

innovation should be encouraged as a major strength for achieving competitive

advantage to the firm (Oke et al., 2013).

Organisation growth is positively associated to process innovation (Massa & Testa,

2008). Varis and Littunen (2010) study among SMEs in Finland affirmed that process

innovation had a direct effect on firm performance. Ar and Baki (2011) affirmed a

significant and positive effect on organisations performance from process innovation.

Raja and Wei (2014) revealed that process innovation has a strong linked influence on

17

customer results and innovation results. Process innovation was revealed to be

positively related with organisation growth (Morone & Testa, 2008). Consistent with

this finding was Anderson (2009) who also found a significant association between

new technology and organisation performance.

In Finland, Rosli and Sidek (2013) report that SMEs agreed that organisation

performance is positively associated to process innovation. This finding was affirmed

by Olughor (2015) in a study that revealed that process innovation is an important

feature in both market and financial performance. Talageta (2014) holds an opposing

view, reporting that lack of skilled workforce, lack of finance, inadequate research

and development are mostly impeding process innovation in the SME sector. In

Kenya, Martin and Namusonge (2014) found that 75 percentile of businesses revealed

a significant effort in making investments of modern machineries of production as a

strategy of process innovation even through the findings showed that SMEs found this

very difficult and expensive to cope with. The study found that 56 percent agreed that

process innovation contributed to cost reduction.

In the banking sector, Karanja (2011) conducted a study on the relationship between

innovation strategies and competitive advantage in the United Bank of Africa Limited

in Kenya. The research revealed that UBA aimed to serve the Kenyan financial sector

by market segmentation. The UBA was able to offer customized financial services to

offer for the different market segments. Letangule and Letting (2012) investigated the

relationship between market innovation and performance of organisations in the

telecommunication sector. Their study revealed that Kenyan telecommunication firms

adopted process innovation and this contributed to organisations profitability.

Augusto et al. (2014) found a significant relationship between the size of the

organisation and process innovations for organisational performance. Soi (2016)

research focused on the influence of innovation strategies on performance of firms in

the telecoms sector in Kenya and found evidence that process innovation had a direct

effect on organisation performance.

18

2.4 Market Innovation and Performance

According to Ul Hassan et al. (2013), market innovation us adopting a new approach

of marketing which includes major changes in the product and pricing, packaging,

design, placement or promotion strategy. The rationale for market innovation is to

grow the sales, market share and opening up of markets. The peculiar difference of

marketing innovation from other innovation strategies is that it is adopting a new

marketing innovation that the organisation has never used before. Marketing

innovation is seen as an attractive strategy in an environment as it focuses design and

extension changes, low-risk product modification and hence provides a quick

innovative solution (Naidoo, 2010).

Bloch (2007) defines marketing innovation as the process of implementing novel

marketing strategies involving major changes in packaging, product design, product

promotion, product placement or pricing. The OECD/Eurostat (2005), defined

marketing innovation as the “implementation of a new marketing method involving

significant changes in product design and/or packaging, product placement, product

promoting or pricing” (p. 49). In the 2005 Oslo manual, there was an important

changes to the definition of innovation. Before, technological process and product

innovations were defined as the two forms of innovation considered in measuring

innovation. The third edition of the Oslo manual, other two forms of innovation were

included at the same level as technological innovation, that is, organisational and

marketing innovation.

Market innovation involves the market mix and selection so as to meet customer’s

buying preference. The consumer expectations, wants and needs change from time to

time. An important part of business success is meeting the demands and the

responsiveness to a dynamic market which are the changes to consumer expectations

and needs (Anderson & Nelgen, 2011). Responsiveness to the changing market

required calls for continual market innovation and a business reason being the high

technological marketing tools such as the web make it possible for competing firms to

be able to acquire prospective consumers across the globe very fast. According to

Cooper (2009), market innovation plays an important role in meeting the needs of the

market and responding quickly to new market opportunities.

19

According to Anderson (2010), the most important responsibility of marketing

professionals is to have such insights on the market dynamics to changing consumer

needs and expectations. Often this responsibility is observed to mean solely in

identifying of likely and present future geographical market opportunities. The

geography is that there is a simple approach for segmenting markets. A several range

of criterion that exist for stretching from objectives criteria and segmenting based on

life style interpretations of business and customer buying trends and behavior (Neely,

2002). Neely (2002) learned that there was a positive association on the increase in

sales of an organisation through conducting market innovation. Similarly, Zhang &

Duan (2010), revealed a strong evidence in Japan which was indicated that market

innovation have positive impact on a firm growth and performance.

The market innovation process is defined as planned changes in marketing activities

(OECD, 2005) to communicate and/or deliver services and products that provide

value to customers (Varadarajan, 2010). Marketing innovation gratifies customer

needs and develops a competitive advantage through differentiation along more or

one of the following: usability, desired product design and features, price and time,

size in other words is the implementation of new marketing strategies that involve

significant changes in product packaging or design, product pricing or promotion,

product placement (Reguia, 2014).

The product design only makes changes the appearance of the product and may not

change the functionality and a feature of the product is also marketing innovation

(OECD, 2005). Market innovation is not a technological innovation for firms that are

operating in the telecoms sector. However, organisations use market innovation to

enhance their efficiency in business operations (Polder et al., 2010). Market

innovation involves firms developing new methods of marketing, developing new

techniques, tools and methods for marketing which have a significant effect on firms.

The examples of market innovation is changing ways for collecting consumers’

information and today organisation can use computer technology to collect consumer

information.

Marketing innovation is looked upon as a powerful tool in gaining sustainable

competitive advantage by combining inimitable certain marketing factors that provide

20

both profit and value (Ren et al., 2010). Marketing innovation stresses design changes

and extensions, low-risk product modifications that provide quick innovative

solutions and is therefore considered as an attractive approach for sale increase

(Naidoo, 2010). Marketing innovation is a type of incremental for of innovation that

focuses on improvements in product placement, product pricing or promotion,

packaging and product design (Bloch, 2007; Ren et al., 2010; Naidoo, 2010).

The main objective of firms adopting innovation is the realisation of basic

entrepreneurial values such as growth and revenue (De Vrande et al., 2009). In this

sense, the aim of marketing innovation specifically on organisation customer value

and performance has been acknowledged in the literature (Mavondo et al., 2005;

Blazevic & Lievens, 2004). Naidoo (2012) researched on the influence of market

innovation can help in withstanding the constraints of operating under the present

economic conditions and revealed that marketing innovation helped in sustaining and

developing competitive advantages.

Johne and Davies (2000) proposed that marketing innovations enhanced sales by

increasing product consumption to earn more profits to organisations. (Ibid) explained

that an increase in market innovation is about modern ways of serving and reading

current markets which ensure that organisations to provide appropriate offers that

earns greater avenues. Sandvik and Sandvik (2003) found that market innovation has

a direct effect on the growth of sales of an organisation.

Varis and Littunen (2010) adopted an estimated model and confirmed a highly

significant and positive association between a markets related innovations and

organisational performance. De Vrande et al. (2009) study also found that marketing

innovation in SMEs is essential for growth and in achieving the target revenues. This

is maybe the essence of marketing innovation in that it ensures SME survival in the

present dynamic environment and has then considered as a significant variable that

has a strong influence sustained competitive advantage.

According to Johne (1999), market innovation in meeting a consumers buying

preference involves the market selection and establishing a market mix. A continued

market innovation has to be done to an organisation for the novel and modern

marketing tools through the internet and make it possible for other competitive firms

21

to reach their potential consumers across the world in a fast speed. Rodriguez-Cano et

al. (2004) affirmed that market innovation has a significant role to fulfil market needs

and respond to market opportunities. In this view, market innovation needs to be

aimed at meeting consumers’ satisfaction and demand (Appiah-Adu & Satyendra,

1998).

Sandvik and Sandvik (2003) revealed that market innovation has a direct impact on

increasing the sales of an organisation. Johne and Davies (2000), conquer that market

innovation can enhance sales growth by an increase in product demands which leads

to additional profit to innovative organisations. In the same vein, Otero-Neira et al.

(2009) study findings indicated a positive influence of market innovation on business

performance. This was supported by Varis and Littunen (2010) results which affirmed

a direct relationship between market-related innovation and organisation performance.

In Turkey, Atalay et al. (2013) conducted a study in the automotive supplier industry

involving 113 organisations and did not find any relationship of a positive and

significant association between firm performance and market innovation. In Nigeria,

Olughor (2015) revealed that market innovation had a significant and positive effect

on organisation performance. Raja and Wei’s (2014) study found that marketing

innovation had a stronger influence on organisations society results and consumer

results as marketing innovations can assist organisations to create a better image for

its potential and current customers and assists in improving the firm overall image in

the society.

Researchers (Soltani, Azadi, Hosseini, Witlox, & Passel, 2015) agreed that marketing

innovation is crucial for small organisations to transform their services and products

to profits. The choice to participate in marketing innovation relies on the activities of

an organisation and distinctions between the service and manufacturing sectors are

significant (Medrano & Olarte-Pascual, 2016). Organisations in the service sector are

more prone to engaging in the innovative areas of price promotion and placement than

manufacturing firms. In their research, Rosli and Sidek (2013) found that market

innovation did not contribute much to the change in organisation performance.

22

Epetimehin (2016) views marketing innovation as involving delivering insurance,

creating new services and promoting those services and delivering them to consumers

in the right place and time since speed and time are crucial. (Ibid.) study on marketing

innovation and competitive advantage in the insurance sector found a statistical

association between achieving competitive advantage and creativity and market

innovation.

In Kenya, Karanja (2011) conducted a study on the relationship between innovation

strategies and competitive advantage in the United Bank of Africa Limited in Kenya.

The research revealed that UBA aimed to serve the Kenyan financial sector by market

segmentation. The UBA was able to offer customized financial services to offer for

the different market segments. In a study among commercial banks, Simiyu (2013)

found that commercial banks adopted market innovation strategies which included

creating and nurturing strong bands, creating value by pricing, customer retention and

satisfaction, aggressive anti-competitors marketing efforts and environmental

response and analysis to changes.

In their study, Letangule and Letting (2012) investigated the relationship between

market innovation and performance of organisations in the telecommunication sector.

Their study revealed that Kenyan telecommunication firms adopted environmental

analysis and response to change and adopted aggressive anti-competitors marketing

campaigns. Mugo (2015) conducted a study on performance and innovation among

firms in the wine industry and revealed that product innovation enabled firms to

provide a wide array of products that met the satisfaction quality using channels that

shorten the duration of getting a service or product, market survey and adoption of

product development that is incentive, radical and offer greater rewards.

In Tanzania, Senguo and Kilango (2015) investigated the relationship between

marketing innovation and improving customer satisfaction at Vodacom. The study

revealed that marketing innovation was adopted by telecommunication organisations

to improve business performance and achieve competitive advantage. In Kenya, Soi

(2016) studies the effect of innovation strategies on performance of organisations in

telecommunications sector and found that market innovations had a strong positive

association with firm performance.

23

2.5 Chapter Summary

This chapter presented the literature review section of the research. The section was

presented in tandem with the study research objectives. The literature was presented

by first providing definitions of product innovation, process innovation strategies and

market innovation strategies and followed by citations of past studies showing the

effect of each innovation strategy and firm performance. The next chapter of the study

presents research methodology of the research.

24

CHAPTER THREE

3.0 RESEARCH METHODOLOGY

3.1 Introduction

This chapter gives the rationale for selecting the research methods and discusses how

these are implemented to achieve the study objectives. These research methods are the

research design, population and sampling design, data collection methods, research

procedures and data analysis methods.

3.2 Research Design

A research design is a conceptual structure within which a study is conducted (Mbizi

et al., 2013). Research design is a masterplan or blueprint through which research a

study is to be conducted. The research used a descriptive survey research design as it

sought to present current information about innovation strategies and their effect on

firm performance. The advantage of using the descriptive research survey design for

this study was the researcher intends to collect data from a selected population and the

data collected will be used to measure the relationships between the independent and

dependent variables.

3.3 Population and Sampling Design

3.3.1 Population

A population refers to a selection of things, services, events and set of people that are

selected for a study (Kombo & Tromp, 2006). The population for the study is

customer service departments at Safaricom (K) Limited. These include the Retail,

Care Centre/ Customer Operations and Consumer Business departments. These

departments were selected for the research due to their involvement and engagement

with customers. The target population for the study is therefore 2,970 staff of

Safaricom (K) Limited.

3.3.2 Sampling Design and Sample Size

3.3.2.1 Sampling Frame

According to Cooper and Schindler (2006) a sampling frame is a list of all population

units from which the sample of a study is drawn. The sampling frame for the study

was customer departments of Safaricom (K) Limited Shops in Nairobi County as

shown in Table 3.1.

25

Table 3.1: Sampling Frame of the Study.

Customer Service Departments Male Female Total

Retail 323 475 798

Care Centre/ customer operations 540 835 1,375

Consumer Business 243 554 797

Total 1,106 1,864 2,970

Source: Safaricom (K) Limited (2016)

3.3.2.2 Sampling Technique.

Tailor (2005) defined sampling techniques as methods adopted by researcher to select

their sample from a population. the stratified sampling process works when the

population is divided into subgroups that each belongs to a specific strata from which

a sample is selected (Teddlie & Yu, 2007). The study adopted the stratified random

sampling procedure. The target population of the study was divided into employee

departments. The customer service departments include Retail, Care Centre/

Customer Operations and Consumer Business of Safaricom (K) Limited.

3.3.2.3 Sample Size.

A sample size refers to the selection of a portion of the selected target population to

be included in a study (Singh & Masuku, 2014). In order to determine the sample size

for the study, the researcher adopted Yamane (1967) sample size determination

formula. The established sample size for our study is 352 staff.

n= N

1+N (e2)

Where;

n = sample size,

N = study population,

e = tolerance at the preferred level of confidence, take α = 0.05 at 95percent

confidence level.

n = 2,970 / 1 + 2,970 (0.05)2

= 2,970 /8.425

= 352

26

3.4 Data Collection Methods.

Data collection is the process of gathering information from a selected population for

a subject or phenomenon under study (Greene, 2006). The researcher adopted the

questionnaire as the tool for data collection. A questionnaire that has high reliability

will receive the same answers over and over again by other studies (Bryman & Bell,

2011; Saunders et al., 2007). The questionnaires are suitable for they can easily and

suitably administered with a sample. The cost effectiveness of questionnaires, their

less time consuming nature in comparison with interviews make them appropriate for

the study.

The researcher used a structured questionnaire which will have items represented five

categories: demographic information of respondents, product innovation strategy (10

items), process innovation strategy (10 items), market innovation strategy (10 items)

and firm performance (6 items). The respondents were asked to indicate their degree

of how firm performance is influenced by each of independent variables on five point

Likert scale. The researcher used past studies (Gunday et al., 2011; Soi, 2016)

innovation type strategies measurement scales. These indicators were measured by 5

point Likert scale ranging from 1 = strongly disagree, 2 = disagree, 3 = neutral, 4 =

agree, 5 = strongly agree.

The measurement of firm performance has often been a complex one for researchers

and scholars. Meeting the internal and external goals of an organisation are the

outcomes for firm performance (Lin et al., 2008). Murphy et al. (1996) argues that

firm performance is a multidimensional concept whose dimensions can be marketing,

departmental, finance, production or related to profit and growth (Sohn et al., 2007), it

can be measured with objective or subjective indicators. In this study, the subjective

measures of performance were preferred. Venkatraman’s (1989) subjective measures

of firm performance were adopted for this study.

3.5 Research Procedures

Research procedures are the steps and processes that a researcher undertakes in the

course of a study to gain knowledge (Kumar, 2005). The questionnaire was pilot

tested before the actual data collection to ensure the validity and reliability. The

concept of validity means the meaningfulness and accuracy of an instrument which

27

rely on study results while reliability is the extent to which an instrument can produce

the same results or information after several trials.

Mugenda and Mugenda (2003) assert that reliability is done using Cronbach’s Alpha

Model on Statistical Package for Social Sciences (SPSS). The questionnaire was pilot

tested among 10 percent (35 staff) of the sample size and Cronbach Alpha was used to

measure the reliability of the instrument. Validity of the research instrument was done

using guidance and assistance from the university supervisor. The researcher attached

an introduction letter to the respondent with the questionnaire detailing the purpose of

the study, duration of the filling the questionnaire, a guarantee of the anonymity and

confidential nature of the data provided as it was only accessible to the researcher.

The questionnaire was personally and also electronically administered to the

respondents. The researcher approached selected staff in the organisation to fill the

questionnaire. This approach was favoured as the researcher has the opportunity to

motivate the respondents to fill the questionnaire and also answer any query that the

respondents may have. Electronic administration of the instrument was used to reach

employees who may not be available physically and those in customer care centres.

The researchers acquired respondents email addresses and forward the instrument and

instructions to fill the questionnaire.

3.6 Data Analysis Methods

The concept of data analysis is to transform data into meaningful information to make

decisions. The process of data analysis involves rectification of omission, editing,

coding and putting together or bringing together the information gathered (Mahinda,

2015). The data analysis process began by pre-coding of the responses in the

questionnaire. The second step of data analysis involved capturing of the raw data into

the statistical Package for Social Sciences (SPSS) version 20 for analysis. The

analysis comprised of inferential and descriptive analysis.

The role of descriptive statistical means is to summarize and describe the data. The

study used standard deviation and means core of the data to assess the characteristics

of data and make it possible to interpret information. The inferential statistics used in

this research were correlation to measure the association of the dependent and

28

independent variables. Linear regression analysis was used to measure the direction of

the relationship between the independent and dependent variables.

3.7 Chapter Summary

A descriptive research design was proposed for the research. A cross-sectional

descriptive research design was chosen. The Retail, Care Centre/ Customer

Operations and Consumer Business departments were chosen with a target population

of 2,097. The sample size for the study was established as 352 and the questionnaire

was identified as the primary tool for data collection. Data will be analysed using both

descriptive and inferential statistics.

29

CHAPTER FOUR

4.0 DATA RESULTS AND FINDINGS

4.1 Introduction

This chapter presents the data results and findings. The chapter is presented in section

which includes the demographic information of the respondents, descriptive statistics

of product innovation strategy on performance, process innovation strategy on

performance and market innovation strategy on performance.

4.2 Response Rate

The researcher was able to administer 193 questionnaires to staff of Safaricom (K)

limited from the targeted Retail, Care Centre/ customer operations and Consumer

Business departments in Nairobi County. The researcher was able to use 181

questionnaires for the analysis as 12 questionnaires did not meet the criterion for data

analysis due to incomplete and mixed responses and accounted for a 51 % response.

Nulty (2008) opine that a response rate of 50 percent as good for research

4.3 Demographic Information

The demographic information of the respondents is presented in tables and figures and

includes the age, gender, education level, work experience and staff department. This

information was relevant for the study as it provided an understanding the staff of

Safaricom (K) Limited in terms of effect of innovation on performance.

4.3.1 Age of Staff

In regard to their age, the findings show that majority of staff were between the ages

of 25-34 years as cited by 31.3percent, 27.4 percent were 35-44 years, 18.4 percent

were 18-24 years, 16.2 percent were 45-54 years and 6.7 percent were over 55 years

old as shown in Figure 1. Safaricom has been in existence for 16 years so being a

young and growing company majority of the employed employees are young people.

Majority of the employees who are at the customer care and retail also have a high

turnover due to the fact that its young graduates who are still pursuing their careers

and seek growth in other companies.

30

Figure 1: Age Group of Respondents

4.3.2 Gender of Staff

Figure 2 shows the gender of staff which indicated that 53.6 percent were female staff

as compared to 46.4 percent were male respondents. The findings show that majority

of staff at Safaricom (K) Limited is male which is attributed to the service nature of

the company which are mostly staffed by female workers.

Figure 2: Gender of Respondents

4.3.3 Education Level of Staff

In terms of education level of staff the findings showed that staff was in the

postgraduate level of education as cited by 35.8 percent, the second most cited

education level was bachelor degree as cited by 45.2 percent and 19.0 percent had a

college and polytechnic level of education as shown in Figure 3. Majority having a

31

bachelor’s degree, the post graduate reason being it’s still a young work force so

majority of the staff this is when they are beginning to pursue their postgraduate.

19.0%

45.2%

35.8%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0%

College/polytechnic

Bachelor degree

Postgraduate degree

Education Level

Figure 3: Education Level of Respondents

4.3.4 Work Experience of Staff

The results show that majority of staff had 4-8 years at Safaricom (K) Limited as cited

by 37.4 percent, 28.5 percent were 9-13 years, 21.2 percent had more than 14 years

and 12.9 percent cited having worked for Safaricom for less than 3 years as shown in

Figure 4.. The findings show that most staff had worked for more than 4 years at

Safaricom. This enhanced the validity of the study findings as most of staff have seen

some of the innovation initiatives of Safaricom and have a better understanding of

what effect they have had on Safaricom performance. Majority of Safaricom staff stay

in Safaricom for about 5-7 years before moving to other companies, being a young

work force majority feel they need to change employers and gain experience and

growth in other companies.

32

Figure 4: Work Experience of Respondents

33

4.3.5 Staff Department

Figure 5 shows the staff departments to which staff belonged which indicated that

majority of staff were in the care centre/customer operations (48.6 percent), retail

(33.0 percent) and consumer business (18.4 percent). The customer care employs a lot

of people due to the wide subscriber base of Safaricom (K) Limited.

Figure 5: Staff Department of Respondents

4.4 Product Innovation Strategy on Performance in Safaricom (K) Limited

Table 4.1 shows the effect of product innovation on performance at Safaricom

according to the respondents. Ten statements were presented to staff to indicate to

what extent they agreed or disagreed on the effect of product innovation on

performance at Safaricom. The responses were ranked from 1-5 on a likert scale. The

closer the responses to a mean score of 5 indicated that staff strongly agreed on effect

of product innovation on performance. A lower mean score below 3 means that staff

disagreed on the effect of product innovation on performance at Safaricom (K)

Limited.

4.4.1 Descriptive Statistics

The highest mean score observed in the results was Our Company develops new

products with technical specifications (M=3.57; SD=1.314). The second most ranked

statement of product innovation effect on performance was our company increases

manufacturing quality materials of current products (M=3.45; SD=1.366) followed by

our company decreases manufacturing cost materials of current products (M=3.36;

SD=1.388).

34

The findings also showed that the least ranked items was our company decreases

manufacturing costs in components of current products (M=2.54; SD=1.185), this was

followed by our company develops new products with materials totally differing from

the current ones (M=2.56; SD=1.170), and our company develops new products for to

improve customer satisfaction (M=2.64; SD=1.242).

Table 4.1: Effect of Product Innovation on Performance at Safaricom.

Product Innovation

Statements

Str

on

gly

Dis

ag

ree

Dis

ag

ree

Neu

tral

Ag

ree

Str

on

gly

Ag

ree

Mea

n

Sta

nd

ard

Dev

iati

on

Our company increases

manufacturing quality in

components of current

products

16.8% 21.2% 17.3% 21.8% 22.9% 3.12 1.418

Our Company decreases

manufacturing costs in

components of current

products

23.5% 24.6% 33.5% 10.6% 7.8% 2.54 1.185

Our company develops

newness for current products

leading to improved ease of

use for customers

7.8% 4.5% 40.2% 29.6% 17.9% 3.45 1.081

Our Company develops new

products with technical

specifications

11.7% 7.3% 24.0% 25.7% 31.3% 3.57 1.314

Our company develops new

products with components

totally differing from current

ones.

22.3% 24.0% 18.4% 15.6% 19.6% 2.86 1.436

Our company designs

product functionalities

totally differing from the

current ones

16.2% 22.9% 21.8% 21.2% 17.9% 3.01 1.346

Our company develops new

products with materials

totally differing from the

current ones

22.3% 27.4% 25.7% 20.1% 4.5% 2.56 1.170

Our company develops new

products to improve

customer satisfaction

22.9% 23.5% 27.9% 17.3% 8.4% 2.64 1.242

Our company decreases

manufacturing cost materials

of current products

15.6% 11.2% 20.7% 26.3% 26.3% 3.36 1.388

Our company increases

manufacturing quality

materials of current products

10.6% 15.6% 24.6% 16.2% 33.0% 3.45 1.366

35

4.4.2 Regression Analysis

Table 4.2 shows the model summary of product innovation and performance and the

R square (R2) was 0.621 which implies that product innovation explained 62.1 % of

variation on Safaricom (K) Limited performance.

Table 4.2: Model Summary

Model R R Square Adjusted R Square Std. Error of the

Estimate

1 .801(a) .621 .499 2.3214

a Predictors: (Constant), Product Innovation

The Analysis of Variance results (Table 4.3) show that the significance values was p

= 0.000 which means that the influence of product innovation on performance was

significant.

Table 4.3: ANOVA (b)

Model Sum of Squares df Mean Square F Sig.

1 Regression 394.461 3 131.487 13.212 .000(a)

Residual 1761.462 177 9.952

Total 2155.923 180

a Predictors: (Constant), Product Innovation

b Dependent Variable: Performance

The regression coefficients show the direction of relationship between the

independent and dependent variable. Table 4.4 shows that a unit increase in product

innovation led to a 0.701 unit increase in performance of Safaricom (K) Limited and

this was significant (p = 0.000).

Table 4.4: Coefficients (a)

Model Unstandardized

Coefficients

Standardized

Coefficients

t Sig.

B Std.

Error

Beta B Std.

Error

1 (Constant) 21.362 2.411 7.804 .000

Product innovation .701 .108 .428 6.267 .000

a Dependent Variable: Performance

36

4.5 Process Innovation Strategy on Performance in Safaricom (K) Limited

Table 4.5 shows the effect of process innovation on performance at Safaricom

according to the respondents. The responses were ranked from 1-5 on a likert scale.

The closer the responses to a mean score of 5 indicated that staff strongly agreed on

effect of product innovation on performance. A lower mean score below 3 means that

staff disagreed on the effect of process innovation on performance at Safaricom (K)

Limited.

4.5.1 Descriptive Statistics

The highest observed mean score was our company adopts advanced real-time

process control technology (M=3.95; SD=1.221) the second most ranked item was our

company imports advanced automatic quality restriction (M=3.44; SD=1.402) and our

Company eliminates non value adding activities in service processes (M=3.39;

SD=0.836).The least ranked items on the effect of market innovation and performance

was our company imports advanced programmable equipment (M=2.37; SD=1.180).

This was followed by our company has decreases variable cost components in service

processes (M=2.59; SD=1.168) and our company has eliminated non value adding

activities in delivery related processes (M=2.79; SD=1.448).

37

Table 4.5: Effect of Process Innovation on Performance

Process Innovation Statements

Str

on

gly

Dis

ag

ree

Dis

ag

ree

Neu

tra

l

Ag

ree

Str

on

gly

Ag

ree

Mea

n

Sta

nd

ard

Dev

iati

on

Our company has determined non

value adding activities in delivery

related processes

16.8% 12.3% 22.3% 25.7% 22.9% 3.25 1.382

Our company has decreased

variable cost in related logistic

processes

18.4% 15.6% 31.3% 20.1% 14.5% 2.96 1.297

Our company has increased delivery

speed in delivery related logistics

processes

17.3% 17.3% 36.9% 15.1% 13.4% 2.89 1.245

Our company adopts advanced real-

time process control technology

6.7% 7.3% 14.5% 26.8% 44.7% 3.95 1.221

Our company imports advanced

automatic quality restriction

equipment/software

13.4% 14.5% 16.8% 24.6% 30.7% 3.44 1.402

Our company has eliminated non

value adding activities in delivery

related processes

22.3% 28.5% 17.9% 10.1% 21.2% 2.79 1.448

Our company has increased output

quality in service software

10.1% 17.9% 21.8% 30.2% 20.1% 3.32 1.261

Our company has decreases variable

cost components in service

processes

21.2% 27.9% 25.1% 21.2% 4.5% 2.59 1.168

Our company imports advanced

programmable equipment

29.1% 28.5% 22.9% 15.1% 4.5% 2.37 1.180

Our company eliminates non value

adding activities in service

processes

2.8% 5.0% 52.0% 30.7% 9.5% 3.39 .836

4.5.2 Regression Analysis

Table 4.6 show the model summary of the regression analysis between process

innovation and performance of Safaricom (K) Limited. The results indicate that

process innovation explained 47.2 % (R2 = .472) of performance at Safaricom (K)

Limited.

Table 4.6: Model Summary

Model R R Square Adjusted R Square Std. Error of the Estimate

1 .545(a) .472 .510 2.7816

a Predictors: (Constant), Process Innovation

The analysis of variance results indicated that the process innovation influence on

performance model was not significant in explaining the influence of process

innovation on performance as shown in Table 4.7.

38

Table 4.7: ANOVA (b)

Model Sum of

Squares

df Mean Square F Sig.

1 Regression 890.503 3 296.834 41.520 .051(a)

Residual 1265.419 177 7.149

Total 2155.923 180

a Predictors: (Constant), Product Innovation

b Dependent Variable: Performance

The simple regression coefficients show that a unit increase in process innovation lead

to a 0.217 unit increase in performance at Safaricom (K) Limited but this influence

was not significant (p = 0.061) as depicted in Table 4.8.

Table 4.8: Coefficients (a)

Model Unstandardize

d Coefficients

Standardized

Coefficients

t Sig.

B Std.

Error

Beta B Std.

Error

1 (Constant) 13.117 1.752 7.486 .000

Process innovation .217 .084 .288 4.965 .061

a Dependent Variable: Performance

4.6 Market Innovation Strategy on Performance in Safaricom (K) Limited

Table 4.9 shows the effect of market innovation on performance at Safaricom

according to the respondents. Ten statements were presented to staff to indicate to

what extent they agreed or disagreed on the effect of market innovation on

performance at Safaricom. The responses were ranked from 1-5 on a likert scale. The

closer the responses to a mean score of 5 indicated that staff strongly agreed on effect

of product innovation on performance. A lower mean score below 3 means that staff

disagreed on the effect of market innovation on performance at Safaricom (K)

Limited.

4.6.1 Descriptive Statistics

In terms of effect of market innovation on performance at Safaricom, the highest

observed mean was Improving service quality is one of our key objectives of our

market innovation strategy (M=3.59; SD=1.364). This was followed by our market

innovation and way of operation is the most suitable for delighting our customers

(M=3.39; SD=1.836) and the company competiveness has increased greatly since the

introduction of market innovation (M=3.10; SD=1.236). The least mean score items

on effect of market innovation on performance was formulating market innovation

39

increases employee knowledge and skills (M=1.82; SD=1.262) followed by Market

innovation strategy has helped the organization to achieve its strategic goals (M=2.30;

SD=1.365) and Internal cooperation is an important part of market innovation strategy

(M=2.51; SD=1.622).

Table 4.9: Effect of Market Innovation on Performance

Market Innovation

Statements

Str

on

gly

Dis

ag

ree

Dis

ag

ree

Neu

tra

l

Ag

ree

Str

on

gly

Ag

ree

Mea

n

Sta

nd

ard

Dev

iati

on

Improving service quality

is one of our key

objectives of our market

innovation strategy

12.8% 8.4% 19.0% 26.3% 33.5% 3.59 1.364

Customer satisfaction is

part of our market

innovation strategy

23.5% 19.0% 20.7% 15.1% 21.8% 2.92 1.468

Market innovation

strategy has helped the

organization to achieve its

strategic goals

41.4% 17.3% 18.4% 14.5% 8.4% 2.30 1.365

Improving administration

routines is seen as part of

our market innovation

strategy

26.3% 8.9% 43.0% 12.3% 9.5% 2.69 1.249

Internal cooperation is an

important part of market

innovation strategy

43.6% 14.5% 9.5% 11.2% 21.2% 2.51 1.622

Formulating market

innovation increases

employee knowledge and

skills

52.6% 13.4% 8.4% 20.1% 5.6% 1.82 1.262

Increasing marketing

aggressiveness is an

important part of market

innovation

16.2% 6.7% 35.2% 31.3% 10.6% 3.13 1.201

Our market innovation

and way of operation is

the most suitable for

delighting our customers

2.8% 5.0% 52.0% 30.7% 9.5% 3.39 1.836

Market innovation has

enhanced organizational

performance greatly

36.3% 20.1% 6.7% 11.2% 25.7% 2.69 1.648

The company

competiveness has

increased greatly since the

introduction of market

innovation

14.5% 14.0% 32.4% 14.0% 14.5% 3.10 1.236

40

4.6.2 Regression Analysis

Table 4.10 shows the model summary of the simple regression analysis between

market innovation and performance at Safaricom (K) Limited. The findings show that

market innovation explained 63.1 % (R2 = .631) of variation in performance of

Safaricom (K) Limited.

Table 4.10: Model Summary

Model R R Square Adjusted R Square Std. Error of the Estimate

1 .729(a) .631 .500 2.44627

a Predictors: (Constant), market Innovation

The analysis of variance results on effect of market innovation on Safaricom (K)

Limited performance show that the linear model is significant (p = 0.006) as shown

by Table 4.11.

Table 4.11: ANOVA (b)

Model Sum of

Squares

df Mean Square F Sig.

1 Regression 146.201 3 48.734 4.292 .006(a)

Residual 2009.721 177 11.354

Total 2155.923 180

a Predictors: (Constant), Market innovation

b Dependent Variable: Performance

In regard to the regression coefficients results, Table 4.12 shows that a unit increase in

market innovation translates to a 0.337 unit increase in Safaricom (K) Limited

performance and this was significant (p = 0.004).

Table 4.12: Coefficients (a)

Unstandardized

Coefficients

Standardized

Coefficients

t Sig.

B Std.

Error

Beta B Std. Error

(Constant) 30.537 2.285 13.366 .000

Market innovation .337 .114 -.215 -2.959 .004

4.7 Correlation Analysis of Innovation Strategies and Performance

Table 4.13 shows the correlation results between product innovation, process

innovation and market innovation on performance at Safaricom (K) Limited. The

results show that there was a positive and significant correlation between product

innovation and performance. Similarly, a positive and significant relationship between

41

market innovation and performance was also established. The results also indicate a

positive relationship between process innovation and performance although this was

not significant. These findings indicate that product innovation had a strong

association with performance at Safaricom (K) Limited followed by market

innovation.

Table 4.13: Correlation of Innovation and Performance at Safaricom (K)

Limited

Product

Innovation

Process

Innovation

Market

Innovation

Performance

Product

Innovation

Pearson

correlation

1

N 181

Process

Innovation

Pearson

correlation

-.026 1

N 181 181

Market

Innovation

Pearson

correlation

.046 .178(*) 1

N 181 181 181

Firm

Performance

Pearson

correlation

.542(**) .086 .309(**) 1

N 181 181 181 181

* Correlation is significant at the 0.05 level (2-tailed).

** Correlation is significant at the 0.01 level (2-tailed).

4.8 Chapter Summary

This chapter presented the results and findings of the study. The results were

presented in tables and charts and the researchers own interpretation. The chapter was

presented in sections which included response rate, respondents’ demographic

information, descriptive analysis of the study objectives, correlation analysis and

simple regression analysis of each of the independent variables on the dependent

variable. The next chapter of the study presented the discussion, conclusion and

recommendations of the research.

42

CHAPTER FIVE

5.0 DISCUSSION, CONCLUSIONS AND RECOMMENDATIONS

5.1 Introduction

This is the final chapter of the study. The chapter presents a summary of findings,

discussion of the study findings and conclusion of the study. The chapter also presents

the recommendations for the study which include recommendations for improvements

and recommendations for further study.

5.2 Summary of Findings

The general objective of the study was to examine the effects of innovation strategy

on firm performance in the telecommunication industry taking Safaricom (K) Limited

as a case. The study was guided by three specific objectives. To determine the

influence of product innovation strategy on performance in Safaricom Kenya Limited;

establish the effect of process innovation strategy on performance in Safaricom Kenya

Limited and determine the influence of market innovation strategy on performance in

Safaricom Kenya Limited.

The research adopted a descriptive survey research design. The population for the

study was customer service departments at Safaricom (K) Limited. These included the

Retail, Care Centre/ Customer Operations and Consumer Business departments. The

stratified random sampling procedure was used for the study and the sample size was

established at 181 staff. The questionnaire was adopted as the primary tool for data

collection. Descriptive analysis, correlation analysis and regression analysis were

used to analyze the data. Data was presented in charts and tables and the researcher’s

own interpretation.

In regards to the impact of product innovation strategy on performance, the

descriptive analysis showed that the highest mean score observed in the results was

our company develops new products with technical specifications (M=3.57;

SD=1.314). The second most ranked statement of product innovation effect on

performance was our company increases manufacturing quality materials of current

products (M=3.45; SD=1.366). Correlation analysis showed that there was a positive

and significant correlation between product innovation strategy and performance. The

43

multiple regression analysis confirmed an increase in product innovation led to an

increase in performance and this was significant.

The results showed that the two highest observed mean score for process innovation

strategy was our company adopts advanced real-time process control technology

(M=3.95; SD=1.221) and our company imports advanced automatic quality restriction

(M=3.44; SD=1.402). The correlation analysis showed that there was a positive

association between process innovation and performance but this was not significant.

Regression analysis confirmed that there was a linear relationship between process

innovation and performance but this was not significant.

In terms of effect of market innovation on performance at Safaricom, the highest

observed mean was improving service quality is one of our key objectives of our

market innovation strategy (M=3.59; SD=1.364). This was followed by our market

innovation and way of operation is the most suitable for delighting our customers

(M=3.39; SD=1.836). The correlation analysis showed that there was a positive and

significant association between market innovation and performance. The multiple

regression analysis confirmed that there was a strong and positive relationship

between market innovation and performance.

5.3 Discussion

5.3.1 Product Innovation and Performance

The findings showed that Safaricom (K) Limited developed new products with

technical specifications. Correlation analysis showed that there was a positive and

significant coloration between product innovation strategy and performance. The

multiple regression analysis confirmed an increase in product innovation led to an

increase in performance and this was significant. This finding supports earlier studies

that showed that product innovation relates positively to the growth and increase in

revenues (De Faria & Mendonça, 2011) and profitability (Cozza et al. 2012).

In support of this, there are several studies that have found that there is a direct effect

of product innovation on organisation performance (Szymanski et al. 2007; Bowen et

al. 2010; Calantone et al., 2010). Bayus, Erickson and Jackson (2003) proved that

performance of an organization is positively and significantly linked to the product

44

innovation. Hernandez-Espallardo and Ballester (2009) confirmed a significantly

positive impact of product innovation on organisation performance.

According to Hult et al. (2004), an organisation that uses product innovation in its

operations allows it to have protection from market threats among its competitors.

Bayus et al. (2003) showed that an organizations’ product innovation had a significant

and positive association with firm performance. Espallardo and Ballester (2009) used

data from 744 SMEs in Spain affirmed that there was a positive effect on organisation

performance. Moreover, Alegre et al. (2006) research revealed that product

innovation constructs of efficiency and efficacy in an organisation were positively and

strongly associated with firm performance. An organisation that introduces a new

product was also shown to have an effect on organisation performance (Varis &

Littunen, 2010).

Similarly, Alegre et al. (2006) found that both efficiency and efficacy from product

innovation dimensions had a direct effect on organisation performance. This finding

agrees with Benedetto and Mu (2011) research which found that innovation effects

the processes, services and products which come as a result of creativity,

experimentation and new ideas. Ana et al. (2011) research revealed that performance

and innovativeness direct relationship to the existence of inimitability and uniqueness

of the products.

There is also evidence to support the study findings that product innovation in the

telecommunication industry is a key strategy for improving their performance.

Altindag, Zehir & Acar (2010) confirmed that organisations use technology are seen

as having better output and performance because they admit that using new

technologies for constant research, product innovation and development which allows

the organisation to have unique products which cannot be duplicated.

The findings suggested that Safaricom (K) Limited performance is influenced by its

reliance on producing products with technical specifications and this give it an edge

over its competitors. This finding supports local studies that have shown the

importance of product innovation on performance of firms in the mobile industry.

Njoroge, Muathe and Bula (2016) study confirmed that technology was important to

explain the changes in performance of telecom companies. The study concluded that

45

telecoms companies need to invest more in technology to meet the changes that are

needed to improve performance.

This finding agrees with Mathenge (2013) research which investigated the effect of

innovation on competitive advantage of telecommunication companies in Kenya. The

majority of respondents indicated that product innovation was adopted by

telecommunication companies in Kenya. The study revealed that product innovation

encouraged financial performance on the organization’s objectives to a great extent.

5.3.2 Process Innovation and Performance

The findings indicated that Safaricom (K) Limited adopted advanced real-time

process control technology in its operations. The correlations results showed that there

was a positive association between process innovation and performance but this was

not significant. Regression analysis confirmed that there was a linear relationship

between process innovation and performance but this was not significant. These

results suggest that process innovation strategy is not a core strategy in Safaricom (K)

Limited operations. This finding supported Corrocher and Zirulia (2010) argument

that process innovation is specific to certain service industries as it is influenced by

customers’ heterogeneity which is not true of the mobile sector.

Cecere et al. (2014) argued that as a telecommunication industry reaches the level of

maturity in the life cycle, competition is more about price and the market becomes

saturated since only a few players are able to leverage the economies of scale to have

a positive and significant for the firm. The competitive importance is on reducing

costs and as organisation attempt to reduce costs, the most notable form is process

innovation and is not product innovation. This argument is significant to Kenya’s

telecommunication industry which has already passed by the maturity stage at which

competitors were trying to reduce costs and thus process innovation may not be a

strategy to enhance performance.

This finding disagrees with Oluseye et al. (2014) study which found evidence that

service process innovation had a direct effect on firm performance. (Ibid) findings

showed that this effect was observed as a result that an organisation that uses

automation of their services, internet technology in everyday operations and uses toll-

46

free communication means as an innovative service process do perform better in the

sector.

This finding further disagrees with Letangule and Letting (2012) research revealed

that process innovation approaches such as conforming to regulations contribute to

profitability and growth and in reduction of costs. The study deduced that technology

use innovation promotes a helpful and friendly employees thus customer satisfaction

and that innovation ensure that services given to consumers are of high quality

The study findings do not agree with previous studies which found the significance of

process innovation among telecommunication firms. The innovation in processes

influences in an important way the economic efficiency of the high technology

companies. For instance, Safaricom (K) Limited is an organisation that is highly

dependent on existing and emerging technologies in delivering its services. Process

innovation influences efficiency of companies. Thatcher and Oliver (2001) believed

that investments in technology that reduce fixed costs leads to higher profits margins

and improved the productivity and efficiency of the firm.

Oluseye, Ayodotun and Adetowubo-King (2014) study assessed the association

between performance and service innovation in the telecoms sector indicated that

service modification, service process innovation and service innovation structure have

a significant and positive influence on organisation performance.

Oluseye et al. (2014) affirmed that process innovation can be of help to organisation

as it has benefits of lowering risk and efficiency. This finding implied that service

process innovation has an effect on firm performance. The findings also go against

those of Suhag et al. (2017) study on the relationship of innovation with

organizational performance found that process innovation had a significant effect on

process innovation among telecom companies in Pakistan.

5.3.3 Market Innovation and Performance

The results indicated that improving service quality was one of Safaricom (K) Limited

key objectives of its market innovation strategy. The correlation analysis showed that

there was a positive and significant association between market innovation and

47

performance. The multiple regression analysis confirmed that there was a strong and

positive relationship between market innovation and performance.

According to Epetimehin (2016) marketing innovations includes creation of

delivering insurance services, new services to consumers and promote services and

delivering them to consumers in the right place and time and in speed should be

important to meet consumer needs. In a study on competitive advantage and market

innovation in the insurance sector, (Ibid.) found a statistical relation between

marketing innovation and creativity and achieving competitive advantage. These

findings confirmed Sandvik and Sandvik (2003) opinion that marketing innovation

has a positive effect on increasing sales and firm’s performance. If an organizational

marketing competence and potentials are efficiently and appropriately harness with

other forms of technologies, such an organization is bound to be reckon with in such

industry.

This finding also agrees with Letangule and Letting (2012) results indicated that

market innovations had an effect on organisation performance in the Kenyan telecoms

sector. The researcher indicated that organisation that adopted environmental response

and analysis to change against the organisation that adopted aggressive anti-

competitors marketing operations. Aggressive anti-competitors marketing operations

contribute to organisation profitability more.

The findings also support Senguo and Kilango (2015) study on marketing innovation

strategies for improving customer satisfaction at Vodacom Tanzania which revealed

that that marketing innovation was a strategy that was used among telecommunication

firms to achieve competitive advantage and firm performance. Soi (2016) conducted a

study on effect of innovation strategies on the performance of firms in the

telecommunication industry in Kenya and concluded that marketing innovations have

a strong positive relationship with the performance of the telecommunication firms.

Market innovation is not a technological innovation for firms that are operating in the

telecoms sector. However, organisations use market innovation to enhance their

efficiency in business operations (Polder et al., 2010). Market innovation involves

firms developing new methods of marketing, developing new techniques, tools and

48

methods for marketing which have a significant effect on firms. The examples of

market innovation is changing ways for collecting consumers’ information and today

organisation can use computer technology to collect consumer information.

The significance of market innovation to organisation performance although limited is

also evident in the literature. Sandvik and Sandvik (2003) found that market

innovation has a direct impact on increasing the sales of an organisation. Johne and

Davies (2000), conquer that market innovation would enhance sales by increasing

product demands which leads to additional profit to innovative organisations. In the

same vein, Otero-Neira et al. (2009) study findings indicated a positive influence of

market innovation on business performance. This was supported by Varis and

Littunen (2010) results which affirmed a direct relationship between market-related

innovation and organisation performance.

5.4 Conclusion

5.4.1 Product Innovation

The study reaffirmed that there is a positive and significant relationship between

product innovation and performance in the telecommunications industry. The study

therefore concludes that there is a positive and significant effect of product innovation

strategy on performance of Safaricom (K) Limited. The study further concludes that

among the innovation strategies included in the study, product innovation strategy had

the most influence on performance of Safaricom (K) Limited.

5.4.2 Process Innovation

The study confirmed that there was no significant influence of the process innovation

strategy on performance in the telecommunications industry. The researcher therefore

concludes that process innovation strategy has no significant effect on performance of

Safaricom (K) Limited. The study further confirmed that among market innovation

and product innovation, process innovation had the least impact on performance of

Safaricom (K) Limited.

5.4.3 Market Innovation

The study affirmed that market innovation strategy had a significant effect on

performance in the telecommunications sector. The study therefore concludes that

there is a positive and significant effect of market innovation strategy on performance

49

of Safaricom (K) Limited. The study concludes that market innovation strategy was

the second most significant innovation strategy to affect performance of Safaricom

(K) Limited.

5.5 Recommendations

5.5.1 Recommendations for Improvements

5.5.1.1 Product Innovation

The study recommends that Safaricom (K) Limited should continuously engage in

product innovation to enhance the competitive advantage it possesses against other

players in the telecommunications sector. This can be achieved by conducting market

research among its users and non-users to identify products that they can introduce

into their product catalogue.

5.5.1.2 Process Innovation

The study recommends that Safaricom (K) Limited should consistently analyse and

measure their services operations in an effort to enhance operations efficiency. This

can be achieved by keeping up with best practices in the global telecommunication

sector and integrating these processes in their operations to maintain their competitive

advantage.

5.5.1.3 Market Innovation

The study recommends that to increase number of customers and for Safaricom (K)

Limited business to grow further and also for them to invest more in consumers. That

Safaricom (K) Limited should embrace the adoption of market innovation strategies

by taking advantage of the numerous communication technologies and mediums to

reach a larger audience.

5.5.2 Recommendations for Further Study

The purpose of the study was to examine the effects of innovation strategy on firm

performance in the telecommunication industry taking Safaricom (K) Limited as a

case. The study was guided by three specific objectives. To determine the influence of

product innovation strategy on performance in Safaricom Kenya Limited; establish

the effect of process innovation strategy on performance in Safaricom Kenya Limited

and determine the influence of market innovation strategy on performance in

50

Safaricom Kenya Limited. The study recommends that there should be more study on

effect of innovation strategy on performance of telecommunication sector using a case

by case analysis of the telecommunication sector players. A comparative study of

innovation strategies and how telecommunication firms are using them and what

impact they have had on their performance.

51

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APPENDICES

APPENDIX I: COVER LETTER

Alice Njeri

Mobile No: 0723789139

Email address: alynjesh2010@gmail.com

Dear Respondent,

RE: Request To Participate In Data Collection Exercise

I am a graduate student at United States International University pursuing a Degree of

Masters of Business Administration (MBA). I have designed a questionnaire to gather

information on EFFECTS OF INNOVATION STRATEGY ON FIRM

PERFORMANCE IN TELECOMMUNICATIONS INDUSTRY: A CASE OF

SAFARICOM KENYA LIMITED.

As a manager of Safaricom (K) Limited you have been selected to participate in this

survey. The questionnaire has been divided into five sections which ask for your

demographic information and corresponding sections are on effects of Product

Innovation, Process Innovation and Market Innovation influence on Firm

Performance. The questions are based on a 5 point Likert scale. You are required to

rate with a tick the in the spaces provided alongside the statements. The information

provided will only be accessible to the researcher for analysis and will remain

anonymous and kept with confidence.

Thank you for taking time to complete this survey.

Yours Faithfully,

Alice Njeri (Researcher)

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APPENDIX II: QUESTIONNAIRE FOR SAFARICOM (K) LIMITED

CUSTOMER DEPARTMENTS STAFF

Please answer all questions

Please use a (√) to indicate your response

Section 1: Demographic Information

1. What is your age in years?

18-24 years old ( )

25-34 years old ( )

35-44 years old ( )

45-54 years old ( )

Over 55 years old ( )

2. What is your gender?

Male ( )

Female ( )

3. Indicate your level of education

Primary ( )

Secondary ( )

College/polytechnic ( )

Bachelor degree ( )

Postgraduate degree ( )

4. How long have you been working in this organisation?

Less than 3 years ( )

4 – 8 years ( )

9 – 13 years ( )

More than 14 years ( )

5. What is your department of service in the organisation?

Retail ( )

Care Centre/ customer operations ( )

Consumer Business ( )

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Section 2: Product Innovation Strategy

6. The following statements refer to product innovation strategy in organisations.

Please indicate to what extent these statements agree in regard to Safaricom

(K) Limited. Where; 1 = strongly disagree, 2 = disagree, 3 = neutral, 4 =

agree, 5 = strongly agree.

Product Innovation Statements 1 2 3 4 5

1 Our company increases manufacturing quality in components of current

products

2 Our Company decreases manufacturing costs in components of current

products

3 Our company develops newness for current products leading to

improved ease of use for customers

4 Our Company develops new products with technical specifications

5 Our company develops new products with components totally differing

from current ones.

6 Our company designs product functionalities totally differing from the

current ones

7 Our company develops new products with materials totally differing

from the current ones

8 Our company develops new products for to improve customer

satisfaction

9 Our company decreases manufacturing cost materials of current

products

10 Our company increases manufacturing quality materials of current

products

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Section 3: Process Innovation Strategy

7. The following statements refer to process innovation strategy adoption in

organisations. Please indicate to what extent these statements agree in your

organization. Where; 1 = strongly disagree, 2 = disagree, 3 = neutral, 4 =

agree, 5 = strongly agree.

Process Innovation Statements 1 2 3 4 5

1 Our company has determined non value adding activities in

delivery related processes

2 Our company has decreased variable cost in related logistic

processes

3 Our company has increased delivery speed in delivery related

logistics processes

4 Our company adopts advanced real-time process control

technology

5 Our company imports advanced automatic quality restriction

equipment/software

6 Our company has eliminated non value adding activities in

delivery related processes

7 Our company has increased output quality in service software

8 Our company has decreases variable cost components in

service processes

9 Our company imports advanced programmable equipment

10 Our company eliminates non value adding activities in service

processes

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Section 4: Market Innovation Strategy

8. The following statements refer to market innovation strategy in organisations.

Please indicate to what extent these statements agree in regard to Safaricom

(K) Limited. Where; 1 = strongly disagree, 2 = disagree, 3 = neutral, 4 =

agree, 5 = strongly agree.

Market Innovation Statements 1 2 3 4 5

1 Improving service quality is one of our key objectives of our

market innovation strategy

2 Customer satisfaction is part of our market innovation strategy

3 Market innovation strategy has helped the organization to

achieve its strategic goals

4 Improving administration routines is seen as part of our market

innovation strategy

5 Internal cooperation is an important part of market innovation

strategy

6 Formulating market innovation increases employee knowledge

and skills

7 Increasing marketing aggressiveness is an important part of

market innovation

8 Our market innovation and way of operation is the most suitable

for delighting our customers

9 Market innovation has enhanced organizational performance

greatly

10 The company competiveness has increased greatly since the

introduction of market innovation

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Section 5: Firm Performance

9. The following statements refer to firm performance in organisations. Please

indicate to what extent innovation strategies affect firm performance in

relation to Safaricom (K) Limited. Where; 1 = strongly disagree, 2 = disagree,

3 = neutral, 4 = agree, 5 = strongly agree.

Statements 1 2 3 4 5

Market performance

1 Innovation strategies enhance organization’s customer

satisfaction

2 Innovation strategies adopted increase the firm’s total sales

3 Innovation strategies adoption increase organization’s market

share

Financial performance

4 Innovation strategies increase the general profitability of the

firm

5 Innovation strategies increase lead to an increase in Limited

Return on Investments

6 Innovation strategies lead to increase in Limited Return on

Assets

Thank You