Effect of Innovations on Financial Performance of Pharmaceutical Manufacturing Firms in Nairobi County, Kenya

Abstract

Innovations play a significant role in improving customer service while decreasing client's transactional cost leading to increased customer retention which in effect enhances financial performance. The objective of the study was to determine the effect of innovation on financial performance of pharmaceutical manufacturing firms in Nairobi County, Kenya. It also aimed at reviewing the increasing body of theoretical and empirical studies that have endeavored to examine the extent and effect of innovations on financial performance. The aspects of innovation utilized in the study were; product innovation, process innovation, and market innovation. Additional control variables, which entailed; liquidity and firm size, were also incorporated. The theories utilized in the current study were; the disruptive innovation theory, diffusion of innovation theory and technological acceptance model. The target population was all the 38 pharmaceutical manufacturing firms in Nairobi County, Kenya. A census was done where the entire population was examined. A hybrid of primary and secondary sources of data was employed. Primary data collection was majorly employed, with the utilization of closed ended questionnaires as the study data collection tool. This was a cross-sectional study. The study applied both descriptive statistics as well as inferential statistics that entailed correlation and multiple linear regression analysis. The study findings were that that product innovation and process innovation were exhibited to a great extent, while market innovation was exhibited to a very great extent in the pharmaceutical manufacturing firms in Nairobi County, Kenya. Further findings were that that the pharmaceutical manufacturing companies are able to meet their financial obligations as and when they fall due. Additional findings are that the pharmaceutical manufacturing companies are medium sized companies. Other findings were that the returns of the pharmaceutical manufacturing companies are generally good. The study findings further revealed that firm size has a positive significant correlation with financial performance. However, none of the innovation aspects, as well as liquidity, are significantly correlated to financial performance. Additional findings were that the innovation aspects, liquidity, and firm size can be utilized to significantly predict financial performance. The final findings were that market innovation had a negative significant effect on financial performance. Product innovation and process innovation also had negative effects on financial performance but the effects were not statistically significant. Additionally, liquidity and firm size each had a significant positive relationship with financial performance. Policy and practice recommendations were made to the Pharmacies and Poisons Board and the Ministry of Trade and Industrialization, as well as to pharmaceutical manufacturing fums, as well as other commercial, not-for-profit, and public firms' management, and consultants not to focus on innovations when trying to augment financial performance but should endeavor to establish other factors that may enhance the financial performance. Additional recommendations are made to the policy makers and practitioners to ensure liquidity in order to minimize liquidity risk as well as aim at facilitating the firms to grow in size in order to capitalize on economies of scale. However, the firm sizes should be optimal and the scaling up should also be moderated. Final recommendations are made to the practitioners to conduct a cost benefit analysis before introducing innovations