Role of Service Innovation on Competitive Advantage in the Banking Sector in Kenya

Abstract

Banks in Kenya are rethinking how to innovate by focusing on services so as to gain competitive advantage. The main objective of this study was to investigate on the role of service innovation in the banking industry towards competitive advantage. Specifically this study addressed the following objectives: the level of service marketing innovation on competitive advantage in the banking sector in Kenya, the extent of service concept innovation on competitive advantage in the banking sector in Kenya, the level of service process innovation on competitive advantage in the banking sector in Kenya, the extent of service channel innovation on competitive advantage in the banking sector in Kenya, and the level of organizational form innovation on competitive advantage in the banking sector in Kenya and how each of these innovations are affected by the government regulation in a bid to achieve a competitive advantage. Literature was widely reviewed where a conceptual framework was constructed to guide the research study. The study added to the literature by focusing on the role of service innovation on competitive advantage and how this assumed relationship was moderated by the government regulations in the banking sector. The study also furthered literature by including a few questions regarding the innovation priorities, why banks were innovating services as well as banks performance rating based on innovations in the last three years in Kenya. The study was deemed to benefit the bankers, corporate managers, entrepreneurs, marketers, policy makers, academicians and researchers. The study adopted a descriptive cross sectional survey research design where a pilot study was conducted on five respondents away from the target scope. The target population included all the 44 banks incorporated in Kenya with special reference to banks located in Nairobi County. The target respondents in these banks comprised of the CEOs, the directors of R&D, the directors of operations, the directors of marketing and the branch managers where the CEOs and the directors were drawn from the head offices whereas the branch managers were drawn from the selected branches of these banks. The study also included a few customers randomly selected from these banks. A multi stage sampling technique which involved a stratified simple random sampling method was applied to select officers from the banks whereas purposive sampling method applied to select the targeted customers. Primary data was collected by use of closed and structured questionnaires and interview guide whereas, secondary data was obtained from banking journals, central bank of Kenya, economic surveys, internet portals and websites. A total of 175 questionnaires were released to the respondents, whereby 94 of them were returned. This constituted 54% response rate which was considered satisfactory. Descriptive data was analyzed using descriptive statistics and presented in form of pie charts, bar graphs and tables. Cronbanch alpha tests were employed in factor and reliability analysis. In addition, sampling adequacy was tested via KMO. In order to control for the interaction effects of the moderating variable-the government regulation, partial regression was done before Pearson correlation coefficients were computed. Additionally, ANOVA tests were done so as to explain the variations between independent variables and the dependent variable. In order to explain the influence of each predictor variable on the dependent variable, the Beta coefficients were computed before a regression model was fitted. The test of statistics was carried out at 5% significance level. The study established that service innovation strongly and positively influenced competitive advantage in the banking sector whereas the government moderated competitive advantage. Also, the study found that all the predictor variables i.e. service concept, service process, service marketing, service channel and organizational form innovations which were being investigated in this study positively influenced competitive advantage in the banking sector The study established that organizational form innovation posed a significantly greater influence on competitive advantage as compared to other types of service innovation followed by service concept innovation, service marketing innovation, service channel innovation and service process innovation in that order. The study recommends that banks seeking to gain competitive advantage through service innovation to heavily invest in areas like organization form innovation, service concept innovation, service marketing innovation, service channel innovation and service processes innovation in that order.