Strategic Innovation and Organizational Performance of Microfinance Institutions in Nairobi City County, Kenya
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Date
2025-06
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Kenyatta University
Abstract
Organizational performance of Microfinance Institutions has exhibited rising non performing loans, reduced asset growth and member dissatisfaction. This study sought to establish the effect of strategic innovation on organizational performance of microfinance institutions in Nairobi City County with possible recommendations on effective strategies for policy and practical applications to enhance performance of the sector. Specific objectives were; to establish the effect of product innovation, to determine the effect of process innovation, to analyze the effect of technology innovation and to establish the effect of market innovation on organizational performance of microfinance institutions in Nairobi City County, Kenya. Four theories guided the study; diffusion of innovation theory, balanced scorecard, transactional cost theory and Schumpeter entrepreneurial innovation theory. Descriptive research design was used to describe strategic innovation practices and organizational performance. A total of 205 senior managers from 41 Microfinance institutions in Nairobi City County consisted the target population. The study used 60% of the population to derive a sample of 123. Participants were selected randomly using a systematic sampling process. Structured questionnaire enabled the collection of primary data. Content validity, face and expert validity were used to enhance validity of the instrument. Cronbach alpha enabled the analysis of the instrument’s reliability with 0.7 considered as the thresh hold. Pilot study was done in Kiambu County targeting four microfinance institutions with 14 respondents. Descriptive statistics, Karl Pearson correlation and multiple linear regression aided the analysis of primary data. The findings were presented in tabular format, graphs and charts. Confidentially, anonymity and consent guided the research process. The results showed that product innovation significantly improved organizational performance. Process innovation had significant contribution to the realization of organizational performance. The study revealed that technological innovation failed to demonstrate significant effect on organizational performance while market innovation demonstrated a statistically significant effect in the enhancement of organizational performance. It was concluded that microfinance institutions may need to adopt product innovation to meet the needs of their customers. It was concluded that process innovation enhanced service delivery, customer satisfaction and retention for more organizational performance. The conclusion was that with more technology innovation, microfinance institutions may enhance their systems for improved efficiency. It was concluded that market innovation may enhance organizational performance through new ideas and knowledge of customer needs which are crucial for developing products hence improving organizational performance. The study recommended the need for enhanced adoption of process innovation. Equally, the study made recommendations that product innovation may be used to tap into new markets, meet emerging customer preferences and increase sales. Market innovation may be adopted to expand into new market and obtain requisite customer insight for purposes of enhancing organizational performance. The study recommends policy formulation to encourage partnership in R&D as well as safeguarding technologies to improve customer confidence.
Description
A Research Project Submitted to the School of Business, Economics and Tourism in Partial Fulfillment of the Requirement for the Award of the Degree of Masters in Business Administration (Strategic Management Option) of Kenyatta University, June 2025.
Supervisor
Paul Waithaka