The Effect of Innovation on the Financial Performance of Small and Medium Enterprises in Nairobi County, Kenya

Abstract

SMEs adopt innovations in order to protect themselves from escalating competition, need to reduce cost and satisfy consumer needs. Thus SMEs adopt innovations in order to improve their overall performance and sustainable competitiveness. Hence the main purpose of the study was to investigate the effect of innovations on the financial performance of SMEs in Nairobi County, Kenya. The specific objectives included establishing how product\service, process and market innovations affect the financial performance of manufacturing SMEs. The researcher used stratified random sampling, to obtain a sample size of 180 registered manufacturing small and medium enterprises within Nairobi County. Questionnaires were used for collecting data which were analyzed using descriptive and regression statistical tools and presented using tables. The study established that there is a significant relationship between product/service innovation, process innovation and market innovation and financial performance of manufacturing SMEs in Nairobi County The study found out that manufacturing small medium enterprises have introduced more innovative products and services, have developed and implemented new business methods and services which have improved productions and delivery of services and that innovative marketing and promotion campaigns to find new markets have had significant implication on financial performance of SMEs. There is need for the government to foster innovation amongst SMEs through creation of a business environment conducive for entrepreneurship, creation of awareness and implementation of relevant policies. In terms of improving process innovation manufacturing SMEs need to focus on improving their core competences. Manufacturing SMEs need to pursue market innovation strategies that focus on product customization and customer intimacy in delivering their products and services