The Effect of Product and Process Innovation on Financial Performance of Hotels and Restaurants in Nairobi County

Abstract

The role of hotel and restaurants towards economic growth and development cannot be refuted. Existing literature indicate that both product and process innovations are related to the financial performance of business enterprises. There is a lot of competition in the hotel and restaurant industry in Nairobi which has led to increased product and process innovation activities ranging from marketing, product, pricing and process. Hotels and restaurants have embraced new technologies such electronic ordering, payment, online booking, sales and marketing for convenience and efficiency. Globally, studies have found that innovation is very crucial towards the financial performance of business entities. However, there are limited studies which have focused on the relationship between innovation and financial performance of business enterprises in the Kenyan situation, and that majority of the few studies have focused on other sectors such as telecommunication and not hotels and restaurants. In addition, there is limited literature with regard to the effect of process and product innovation on the financial performance of hotels and restaurants in Nairobi. Therefore, this study sought to establish the effect of product and process innovation on the financial performance, focusing on hotels and restaurants in Nairobi county. The study was guided by resource-based and market-based theories. A descriptive survey and correlation designs were employed. Descriptive design, explained the situation as it was. On the other hand, a correlation design was utilized to understand the nature and direction of the effect of innovation on financial performance. The study targeted all hotels and restaurants in Nairobi, where there are 53 hotels, and 118 restaurants in Nairobi. Both primary and secondary data was used. While secondary data was obtained from World Bank enterprise survey, primary data was collected using questionnaires. Descriptive and regression analyses were used to analyse data. Findings indicate that product and process innovation affect the financial performance of hotels and restaurants positively. In addition, the study has found that firm assets, and firm age, are positively related to financial performance. Furthermore, results for firm size and product diversification were not significant. The study recommended that innovations should be embraced fully in the hotel and restaurant sector.