The influence of corporate political activity and competitive strategy on the relationship between innovative capability and performance of large manufacturing firms in Kenya

Abstract

Recent studies have examined innovative capabilities and discussed their impact on firm performance. However, the studies have ignored the external political operating environment. This study extended the innovative capability stream of research and examined how corporate political activity and competitive strategy influence the relationship between innovative capability (internal learning processes, technological innovation, and research and development intensity and employee development) and performance (financial performance, customer satisfaction, process performance and employee satisfaction) of large manufacturing firms in Kenya. The study had five objectives. The research design was cross sectional. Empirical data was collected from one hundred and twenty nine firms listed in the Directory of Kenya Association of Manufacturers. Evidence was found of positive systematic innovative capability/corporate political activity/competitive strategy/ performance relationship. As anticipated, innovative capability had a positive influence on performance. Corporate political activity was found to have a strong influence on the relationship between innovative capability and performance. Counter to expectation, industry alliances did not have a significant effect on firm performance. These findings are consistent with theoretical assertions and prior research which show that interaction between internal and external resources impact performance. Specifically, the study revealed that research and development intensity, public/government alliances and cost leadership strategy are important moderators in the relationship between innovative capability and performance. Contrary to expectations, the strength of the influence of competitive strategy on the relationship between innovative capability and performance though positive was weak. However, the joint effect of innovative capability and competitive strategy on performance was slightly greater than the individual effect of innovative capability. The findings suggest that integration of corporate political activity and competitive strategy on the interaction between innovative capability and performance enhances the outcome. Indeed, the empirical analysis suggests that in order to allow innovative efforts to be significant, huge investments have to be made in research and development and the strengthening of public/government alliances. It is concluded that in order to maintain superior performance firms should effectively integrate corporate political activity into their innovative capability and competitive strategies. The study experienced limitations in terms of use of questionnaires only, which are sometimes subject to reporting inaccuracies. Further research recommended that other moderating variables be included in future studies, to further establish additional factors that influence the relationship between innovative capability and performance. The findings and conclusions of the study were discussed in view of implications on theory, policy and practice. On theoretical implications, the study was able to support and extend arguments by resource based view, dynamic capabilities and theories on innovation that firms should continuously evaluate the sustainability of their positions by understanding their market positions from their dynamic core competencies. In terms of policy, the study highlights the need for closer collaboration between government and key stakeholders in the manufacturing sector to increase the sectors competitiveness. For managers the study underscores the need to develop managerial capabilities to effectively manage factors in the firm’s external operating environment.