Innovation Strategies and Competitive Advantage among Commercial Banks in Kenya
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The banking industry has been touted as being less competitive bearing in mind the number of commercial banks against the market size. The Central Bank of Kenya introduced new capital adequacy ratios that need to be observed by commercial banks for a healthy sector that saw a number of mergers and acquisitions. Interest rate capping has significantly reduced revenue sources hence the need for commercial banks to re define their existing models of operations, processes and technology in both new and existing markets. In order to remain competitive, it is therefore important that commercial banks invest in research and development so as to come up with innovative ways of meeting the changing customer needs. The main objective of the current study was to examine how innovation strategies affected competitive advantage of Kenyan Commercial Banks. The study specifically examined how process innovation, product innovation, market innovation and technology innovation affected competitive advantage in Kenyan Commercial Banks. The theories that informed the study were the Diffusion of Innovation Theory, Porter Theory of Competitive Advantage, Schumpeter Innovation Theory, the Resource Based View Theory. This study adopted descriptive and explanatory research designs. A census study was used as the population of 42 was not huge and easily accessible from Nairobi. The study used primary data collected using semi-structured questionnaires. Questionnaires were dropped and picked latter during data collection process. Reliability was tested through a pilot study on 5 deposits taking micro finance using the test–retest method. The researcher relied on opinions of research experts in the assessment of validity and reliability. Data was analyzed descriptively and inferentially. Descriptive statistics including frequency, percentage, mean and standard deviation was used after which the data was presented using tables and charts. The study revealed that whereas process, product and market innovation have an effect on competitive advantage, technology innovation was the key driver in competitive advantage as it allowed real time transaction processing, overall customer experience and offered convenience to the customers. Furthermore adapting new technology had significant role in determining relative cost position or differentiation and is a key driver of uniqueness of value activities. The study concludes that process innovation, product innovation, market innovation and technology innovation significantly influences competitive advantage among commercial banks in Kenya. The study recommended that banks must take immediate steps to improve innovation by critically assessing current innovation capabilities and performance, and ensure they are aligned in creating value and convenience to customers while reducing the cost of doing business.