Strategic innovation and financial performance of commercial banks in Kenya

Abstract

This study aimed to examine the impact of strategic innovation on the profitability of commercial banks in Kenya. Specifically, it focused on how technological innovation, business model innovation and market expansion influenced financial performance. The research was grounded in the Dynamic Capabilities Theory, Technology Acceptance Model, and Resource-Based View. A descriptive research design was employed, targeting all 42 commercial banks in Kenya, with 126 key participants drawn from the operations, finance, and marketing departments. A census sampling method was used. Data were collected through semi-structured questionnaires (primary data) and annual bank reports from 2019–2024 (secondary data), focusing on metrics such as ROE and ROA. Validity and reliability were ensured through expert consultation and pilot testing. Data analysis involved both descriptive and inferential statistics, and the results were presented using tables and graphs. The response rate was 77.8% of the respondents. The findings showed there is a significant positive trend towards business model innovation, technological innovation, while market expansion had moderate effect on financial performance of commercial banks in Kenya, business model innovation having the highest influence. The study recommends commercial banks in Kenya should intensify efforts to strengthen and scale up the adoption of business model innovations to enhance financial performance. Banks should further leverage data analytics and artificial intelligence to personalize services, improve decision-making, and expand financial inclusion. Future research ought to expand the scope beyond commercial banks to include other types of financial institutions such as microfinance institutions, SACCOs, and investment firms.