Innovation Strategy and Firm Performance: A Structural Equation Modelling Approach in Selected Industries in Eldoret Town

  • B. Kipchumba Tarus Moi Teaching and Referral Hospital P.o. Box 3, Eldoret
Keywords: Innovation, Strategy, Firm, Performance, Structural Equation Modelling


Most contemporary firms in the 21st century are navigating through murky and iterative environments and in order for them to realize performance they are required to transform competitive advantage into fast mover advantages. This study therefore was geared towards analyzing innovation strategy and firm performance in selected industries in Eldoret town Kenya.  The study was guided by Balance Scorecard Model and it employed explanatory research design. A target population of nine hundred and seventy employees with a sample size of two hundred and eighty respondents was used. Stratified and simple random sampling techniques were used. Data analysis was done using inferential together with descriptive statistics and structural equation modeling (analysis of moment structures) was utilized in testing the hypothesis. Results showed that innovation was a significant predictor of firm performance with (β=0.44, CR=6.606, p<0.001) which indicates that one unit of innovation results to 0.44 unit increment of firm performance. This study contributed to theoretical perspectives by development of an innovation model and measurement scales. It also recommended that for organizations to cope with dynamism they should adopt research and development and be committed towards its investment and adopt appropriate innovations.


Baker, W.E. & Sinkula, J.M. (1999). ‘The Synergistic Effect of Market Orientation and Learning Orientation’, Journal of the Academy of Marketing Science, vol. 27, no. 4, pp. 411–27.

Black, S.E., & Lisa M. (2004). “How Workers Fare When Employers Innovate”. Industrial Relations, vol. (43(1), pp. 44-66.

Booz .A. & Hamilton. (1982). New Product Management for the 1980s. Booz, Allen and Hamilton, New York, NY.

Boselie, D. & Boon, C. (2005). ‘Commonalities and Contradictions in HRM and Performance Research’. Human Resource Management Journal, Vol. 15, No. 3, 67­94.

Bresnahan, T. F., Erik, B. & Lorin. M. H. (2002). “Information Technology, Workplace Organization, and the Demand for Skilled Labor”: Firm- Level Evidence, The Quarterly Journal of Economics, February, pp. 339-376.

Castaneda, M. (1993). Revisiting the Factor Structure pf LBDQ: An Application of Confirmatory factor analysis, paper presented at the Annual Meeting of the Academy of Management conference, Atlanta, GA.

Cefis, E. & Marsili. O. (2005). 'A Matter of Life and Death: Innovation and Firm Survival. Industrial and Corporate Change, 14(6), 1-26.

Cohen, W.& MLevinthal, D. A. (1990). Absorptive Capacity: A New Perspective on Learning and Innovation. Admin. Sci. Quart. 35 128–152

Craig, J. B., G. Cassar & Moores, K. (2006). “A Ten Year Investigation of Strategy, Systems and Environment upon Innovation in Family Firms”. Family Business Review 19(1), 1-10

Damanpour, F. (1991). Organizational Innovation: A Meta-Analysis of Effects of Determinants and Moderators. Academy of Management Journal, 34(3), 550–590.

Drucker, P. (1992). Managing the Future. New York: Dutton.

Eisenhardt, K. M & Martin, J. A. (2000). Dynamic Capabilities: What are they? Strategic Management J. 21 1105–1121.

Gadot, E. (2005). Public Sector Innovation for Europe: A Multinational Eight-Country Exploration of Citizens' Perspectives. Public Administration 86 (2):307-329.

Gerbing, D. (1998). Structural Equation Modeling in Practice: A review and recommended two – step approach. Psychological Bulletin, 103, 411-423.

Garcia, V.J., Ruiz, A., & Llorens, F. (2007). Effects of Technology Absorptive Capacity And Technology Pro-Activity on Organization Learning, Innovations and Performance: An empirical examination Technology analysis and strategic management 19, -527 -558

Gopalakrishnan, S. & Damanpour, F. (1997). “A Review of Innovation Research in Economics, Sociology and Technology Management,” Omega, International Journal of Management Science, 25 (1), 15-29.

Greve, H.R. (2007). Exploration and Exploitation in Product Innovation. Industrial and Corporate Change, 16: 945-975.

Hair, J., Anderson, R., Tatham, R., & Black, W. (2006). Multivariate Data Analysis (5th ed.). London: Prentice-Hall International.

Hill, C. W & Rothaermel, F. T . (2003). The Performance of Incumbent firms in The Face of Radical Technological Innovation. Acad. Management Rev. 28 257–274

Hurley, R.F., & Hult, G.T.M., (1998). Innovation, Market Orientation, and Organizational Learning:an integration and empirical examination. Journal of Marketing 62 (July), 42–54

Jöreskog, K. (1993). Testing Structural Equation Models. In K. Bollen and J. Long (Eds.), Testing structural equation models (pp. 294-316). Newbury Park, CA: Sage.

Laursen, K. & Foss, N.J., (2003). New Human Resource Management Practices, Complementarities and the Impact on Innovation Performance. Cambridge Journal of Economics 27(2), 243-263.

Nonaka, I. (1994). 'A Dynamic Theory of Organizational Knowledge Creation'. Organization Science, 5: 14-37.

Nonaka, I. & Takeuchi, H. (1995). The Knowledge-Creating Company. New York: Oxford University Press

OECD (2005). Oslo Manual – Guidelines for Collecting and Interpreting Innovation. Data, Third Edition

Peters. T.J., & Waterman, R.H., (1982). In Search of Excellence: Lessons from America’s Bestrun Companies, New York: Harper and Row.

Pot, F., & Koningsveld, E. (2009). Quality of Working Life and Organizational Performance Two Sides of the Same Coin?. Scand J Work Environ Health, 35(6), 421-428

Ries, K. & Trout, N. (1981). Ions of Innovation in the Hospitality Industry, “International Journal of Contemporary Hospitality Management, 9 (7), 273-86.

Rodgers, R. & Hunter, J. E. (1991). A Foundation of Good Management Practice in Government: Management by Objectives. Public Administration Review, 52 (1), 27-39.

Shefer, D. & Frenkel, A. (2005). Evaluation of the Israeli Technological Incubator Program and Its Projects. Samuel Neaman Institute for Advanced Studies in Science and Technology,
Technion-IIT, Haifa (Research Report for the IFISE. A European Commission-sponsored research project)

Teece, D. J., Pisano, G & Shuen. A. (1997). Dynamic Capabilities and Strategic Management Strategic Management J. 18 509–533

Thompson, V.A. (1965). Bureaucracy and Innovation. Administrative Science Quarterly, 10, 1–20

Tushman, M.L. & Nadler, P. (1986). Technological Discontinuities and Organizational Environments. Administrative Science Quarterly 31, 439-465.

Vigoda- Llorens, F. J., Ruiz Moreno, A., & Garcia, V. (2005). Influence of Support Leadership and Teamwork Cohesion on Organizational Earning, Innovation and Performance: an empirical
examination. Technovation, 25, 1159-1172.

Zahra, S., Neubaum, D., & Huse, M. (2000). Entrepreneurship In Medium-Size Companies: Exploring the Effects of Ownership and Governance Systems. Journal of Management, 26(5), 947.

Zollo, M. & Winter, S. G. (2002). Deliberate Learning and the Evolution of Dynamic Capabilities. Organ. Sci. 13 339–351.
How to Cite
Tarus, B. (2021, January 15). Innovation Strategy and Firm Performance: A Structural Equation Modelling Approach in Selected Industries in Eldoret Town. African Journal of Education,Science and Technology, 6(2). Retrieved from