Manufacturing Firms’ Performance and Operational Innovation: The Impact of the External Environment

Abstract

The goal of this study was to investigate the effect of external environment on the relationship between innovation and firm performance in the Kenyan context. Treating product, process, market, and technological innovation as dimensions of operational innovation, the study empirically tested the effect on firm performance while examining the moderating effect of external environment (customer and supplier, rules and regulation, economic conditions, and trade unions). One hundred and eighty-two (182) firms were actively used in this survey research. The recommended model was tested using hierarchical regression using PROCESS macro in SPSS. Findings suggested that trade unions play moderating role in the association between operational innovation and firm performance while customer suppliers, rules and regulations and economic conditions have no link to the association. Importantly, the outcome of this work positively contributed to the existing literature by examining mechanism between external environment and the firms’ performance in Kenya with the implementation of various operational innovations.