| dc.description.abstract | Rapid evolution of digital innovations globally, has seen Kenyan banking sector
incorporate innovation strategy in its operations. Despite these momentous advancements,
the extent to which the digital innovation strategy translate into improved financial
performance of commercial banks in Kenya remains uncertain. Lack of extensive
empirical studies on how key variables-process, product, marketing and organizational
innovation strategy relates to regulatory environment exacerbates the gap further. The
study sought to assess the effect of the uptake of digital innovation strategy on the financial
performance of commercial banks in Kenya, specifically on Return on Equity (ROE). The
specific objectives were to assess the effect of uptake of process, investigate the effect of
uptake of product, establish the effect of uptake of marketing and analyze the effect of
uptake of organizational innovation strategy on financial performance of commercial
banks in Kenya. Government policies moderated the relationship between the independent
and dependent variables while the hypotheses were derived from the study objectives. The
study was guided by Rogers’ Diffusion of Innovation Theory, the Evolutionary Theory of
Economic Change, Disruptive Innovation Theory, Theory of Dynamic Capabilities and
the Institutional Theory. The study adopted a positivist research philosophy. Using
stratified random sampling, a sample size of 315 was used from a target population of 1470
employees derived from 38 commercial banks, with pilot test carried out in Kingdom
Bank. Primary data was gathered using structured questionnaires, while secondary data on
ROE was obtained from banking sector supervisory and innovation reports. Reliability
was estimated using Cronbach’s Coefficient Alpha, while content validity was assessed
through the Kaiser-Mayer-Olkin (KMO) measure and Bartlett’s test of sphericity. A
descriptive study design was employed, and data analyzed using frequency tables, pie
charts, mean, standard deviation, and bar graphs for descriptive statistics. A panel linear
regression model was utilized where a simple linear regression model was used for each
independent variable, followed by a joint model to determine the combined effect. The
study accounted for assumptions of linearity, normality, heteroscedasticity, and
multicollinearity. The study realized a significant and positive correlation (P˂0.05)
between digital innovation strategy and financial performance of commercial banks in
Kenya. The study reveals that process innovation strategy, which includes ideation, routine
automation, and creativity leads to operational efficiency, cost saving, revenue growth and
customer satisfaction. The study recommends that commercial banks enhance their talent
development strategies, engage in strategic collaborations, prioritize customer centrality,
and adopt agile management practices to drive financial performance. Further, banks can
invest in Greentech products, innovation labs, decentralize decision-making and stay
abreast of regulatory requirements to positively improve financial performance. The study
contributes to the understanding of how digital innovation strategy directly affect financial
performance within Kenyan banking sector. By proposing comparative studies across
diverse contexts, it offers a basis for assessing the generalizability of these findings to
other industries and regions. | en_US |
