Innovation and operational performance of small and medium enterprises in Nairobi city county

Abstract

SMEs play a crucial role in employment, wealth creation and economic development in any country across the globe. Their importance is more so crucial in Kenya where the poverty rate stands at forty two percent and unemployment rate at forty percent. They create eighty percent of employment and contribute twenty percent to the national gross domestic product. However, sixty percent of these firms fail within the first three years of operation. This has necessitated a rethink of how SMEs operate. This has resulted in these firms innovating. This study was conduction to determine the effect of innovation on the operational performance of small and medium enterprises in Nairobi County. The objectives of the study were to identify innovations practiced, identify the factors that influence adoption of innovation and determine the effect these innovations had on the operational performance of these firms. The researcher used a cross-sectional descriptive research design for this research. The population of the study was small and medium enterprises in Nairobi County. The researcher used judgmental sampling method to select one hundred and fifty SMEs to represent the population. Questionnaires were used as the tools for data collection. The data was analyzed using descriptive statistics such as means, standard deviations and frequency distributions. The findings from the study established that innovation was widely practiced in SMEs. Factors such as employee training programs, competitive pressures and market segments served were identified to have a large influence on adoption of innovation. The study also established that innovation resulted in improved operational performance in the practicing firms. It was recommended that SMEs in Nairobi County should continually practice innovations this would lead to better performance. The study also recommended that the government should offer incentives for innovation and also roll out training programs for owners and employees of these firms.