The Effect of Product Innovation on the Financial Performance of Mobile Telephony Firms in Kenya

Abstract

An organisation which is competing in fast changing markets with fast changing technology must make things happen, it must innovate. If it does not innovate it risks being overtaken by competitors. Sometimes a business underestimates the competitive challenges it faces. The risk of this happening is high when competitors react to potential challenges in much the same way (Abernathy and Utterback, 2005). This research sought to investigate the effect of product innovation on the financial performance of mobile phone service companies in Kenya.This research adopted a cross sectional study through a census of all the four mobile phone companies operating in Kenya. Primary data was collected using a data collection sheet administered to the finance managers of the mobile companies. The data that was used for analysis were the return on assets (ROA), the percentage revenue generated from calls, the percentage revenue generated from SMS, the percentage revenue generated from mobile money transfers as well as the percentage revenue generated from data or internet. ROA was the dependent variable while the revenue from the four product lines were the independent variables. The data covered a period of five years from 2008 to 2012. Three out of four mobile phone service companies in Kenya successfully participated in the study giving a response rate of 75%. Regression analysis was performed on the quantitative data collected, with tables being used to summarize the results and facilitate comparison. The regression results showed that all the mobile companies recorded a positive relationship between ROA and revenue generated from calls and mobile internet. Contrary to this, all the companies yielded a negative relationship between ROA and revenue generated from SMS. As for revenue from mobile money transfers, they depicted a positive coefficient on one out of three companies considered for this study. All the companies had negative constant terms. The positive correlation between ROA, revenue from calls and mobile internet indicated that when revenue increases, so does the return on assets. The study concluded that mobile phone companies had employed various product innovations. Among them included calls, SMS, mobile money transfers and mobile internet. The study further concluded that product innovation had led to improved financial performance of mobile service companies in Kenya. These were through increased sales, profits increment and return on assets. The study recommends that for mobile phone companies to be highly competitive, they need to employ technology based innovations such as mobile money transfers.