The Effect of Innovation Strategies on the Financial Performance of Private Commercial Banks’ in Ethiopia
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Date
2020-03
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A.A.U
Abstract
To achieve growth and sustain performance it is critical for any organization to foster and encourage creativity and innovative practices internally. Innovation strategy gives a clear direction and concentrates the effort of the whole organization on a common innovation end. An innovation strategy, then, becomes a source of competitive advantage for firms that strive to achieve a high level of innovation. Therefore the need for innovation is obvious and crucial for commercial banks operating in a continuous uncertain and competitive environment. The study aimed to analyze the effect of innovation strategies on financial performance of private commercial banks in Ethiopia. The main problem was that there is an increase in the number of innovation strategies, but whether the innovations in banking industry are the main determinants of financial performance is a hard to tell. Despite the significance of innovation strategies, the effect of innovation on financial performance is still misunderstood. The study adopted a explanatory panel design and targeted all the private commercial banks in Ethiopia. The secondary data in form of annual financial reports was obtained from National Bank of Ethiopia from the year 2014 to 2019. In addition, primary data was gathered from personnel from senior managers using a semi-structured questionnaire. Data were analyzed using SPSS Statistics 25 and involved computation of frequencies, explanatory statistics and multiple regression analysis. The study findings indicated that there is a positive and significant relationship between product innovation and net income. The relationship between process innovation and net income was found to be positive and significant. The study also concluded that the relationship between market innovation and financial performance of commercial banks is negative and insignificant. Based on the study findings, the study also concluded that the relationship between technological innovation and net income is positive and insignificant. The study recommends that the commercial banks should strive to ensure introduction of product variety, adding new elements to the products and product replacement to enable the companies to be more productive, to grow faster, to invest more and also to earn more performance. The study also recommended that commercial banks also should ensure that they adapt the new technology in order to cope with the fast changing environment. Technology innovation initiates simple flow of information and fast delivery to the intended persons.
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Financial performance, Private commercial banks