Loading...

How the use of Product Value Innovation can assist Companies to achieve Financial Performance. The Study of Brick Manufacturing Companies in Lesotho

Master's Thesis 2018 92 Pages

Business economics - Miscellaneous

Excerpt

Contents

Acknowledgements

ABSTRACT

LIST OF FIGURES

LIST OF TABLES

CHAPTER ONE. INTRODUCTION
1.1Background and Significance of the Research
1.1.1 Background of the Research
1.1.2 Significance of the Research
1.2 Problem Statement
1.3 Research Purpose
1.4 Research Questions
1.5 Research Innovation
1.6 Research Structure

CHAPTER TWO. LITERATURE REVIEW
2.1 Introduction
2.2 Product Value-innovation
2.2.1 Value-innovation
2.2.2 Product Value-innovation
2.3 Financial Performance
2.3.1 Factors Affecting Financial Performance
2.3.2 Measurement of Financial Performance
2.4 Product Value-innovation and Financial Performance

CHAPTER THREE. RESEARCH METHODOLOGY
3.1 Introduction
3.2 Area of Study
3.3 Research Design
3.4 Population of the study
3.5 Theoretical Framework
3.5.1 Dependent Variable
3.5.2 Independent Variables
3.5.3 Control Variables
3.5.4 Research Hypothesis
3.5.5 Conceptual Research framework
3.6 Sample Size
3.7 Data and data Collection method
3.8 Measurement
3.8.1 Measurement of Independent Variables
3.8.2 Measurement of Dependent Variable
3.8.3 Measurement of control variables

CHAPTER FOUR. DATA ANALYSIS AND PRESENTATION OF RESULTS
4.1 Introduction
4.2 Data Analysis
4.2.1 Demographic information of the Respondents
4.2.2 Validity and Reliability Analysis
4.2.3 Descriptive Statistic Analysis
4.2.4 Hypothesis Testing
4.3 Presentation of the Findings
4.4 Factors affecting product value innovation
4.4.1 Organizational Capability
4.4.2 Knowledge Management
4.4.3 Perceived Organizational Support
4.4.4 Organizational Culture
4.5 Product value-innovation levels’ contributions to the company’s annual income
4.6 Discussion of the Findings
4.6.1 To investigate the relationship between product value innovation and financial performance
4.6.2 To find which among the three levels of product value-innovation has a very strong positive relationship with financial performance
4.6.3 To find the factors that contribute to product value-innovation

CHAPTER FIVE. CONCLUSION AND RECOMMENDATIONS
5.1 Conclusion
5.2 Recommendations
5.2.1 Recommendations to Seashell Company
5.2.2 Recommendation to the government
5.2.3 Recommendation to future researchers
5.3 Limitations and further studies

REFERENCES

APPENDICES: Questionnaire

ABBREVIATIONS

1. APVI Augmented Product Value Innovation

2. CPVI Core Product Value Innovation

3. FPVI Formal Product Value Innovation

4. GDP Gross Domestic Product

5. KMO Kaiser-Meyer-Olkin

6. NSDP National Strategic Development Plan

7. PM Profit Margin

8. PVI Product Value Innovation

9. ROA Return on Assets

10. ROE Return on Equity

11. ROI Return on Investment

12. SSFP Sustainable Superior Financial Performance

13. TAT Total Assets Turnover

14. VIF Variance Inflation Factor

LIST OF FIGURES

Figure 1. 1. Research Structure

Figure 2. 1.Three Levels of Product Value-innovation (Claessens Maximilian, 2015)

Figure 2. 2. Five-Level Product by Kotler, (1967)

Figure 3. 1. Framework; Source: Researcher’s own construct

Figure 4. 1. Respondents’ gender

Figure 4. 2. Respondents’ Age

Figure 4. 3. Respondents’ Employment Position

Figure 4. 4. Respondents’ Educational Level

Figure 4. 5. Respondents’ Number of years in Service

Figure 4. 6. Return on Assets formula

LIST OF TABLES

Table 3. 1. Target Population Distribution

Table 3. 2. Aspects of Core Product Value-innovation adopted from (Antonnet, 2014)

Table 3. 3. Aspects of Formal Product Value-innovation adopted from (Antonnet , 2014)

Table 3. 4. Aspects of Augmented Product Value-innovation adopted from Antonnet Adhiambo, 2014)

Table 3. 5. Financial Performance adopted from (Antonnet Adhiambo, 2014)

Table 3. 6. Control Variables

Table 4. 1. Profile of Employees of brick Manufacturing Companies

Table 4. 2. Pilot Study Results

Table 4. 3. Item Reliability Analysis Results for Product Value-innovation

Table 4. 4. KMO and Bartlett’s Test

Table 4. 5. Total Variance Explained

Table 4. 6. Components Rotated Matrix

Table 4. 7. Reliability Analysis Results

Table 4. 8. Descriptive Statistic Analysis

Table 4. 9. Correlation Coefficient Analysis

Table 4. 10. Correlation Analysis Results

Table 4. 11. Regression Analysis Results for Return on Assets

Table 4. 12. Summary of Hypothesis Analysis

Acknowledgements

First and foremost, I would like to thank the Omnipotent God for His abundant grace throughout this dissertation, which would otherwise not be accomplished without the support of my supervisor Professor Zheng Xiaoyong, for his unwearied guidance and motivation to cope with burnout. He turned the journey which was once a mountain-to-climb, into an easier shorter jaunt, by offering the stress and time management tools that were not only essential for this particular task in hand but also for future use. As if his support alone was not enough, I will forever value the never-ending fuel received from my discussion team, which proved that “unity is power.”

My gratitude goes to all my beloved ones who would always give a shoulder to cry-on while going through the dark valley, notably my parents to have nurtured the being I am today, my loving husband for being stronger for the family, and of course my two daughters who would always look forward to me as their mentor.

My distinctive thanks are dedicated to my employer; government of Lesotho, Ministry of Development Planning through the Department of National Manpower Development Secretariat with its collaboration with Touch-Road Investment Company in Peoples’ Republic of China, to have offered me this prestigious chance of broadening my career path by financing my studies, this is indeed priceless.

Zhejiang Normal University community, College of Economics and Management you developed a strategic leader who can currently transform the impossible into possible, without your support this milestone could not have been achieved.

Least but not last, the brick manufacturing Companies in Lesotho, which made it attainable for entrusting confidentiality on me by granting permission to carry-out this study, and finally their respective employees to have spared their precious time towards answering the questionnaire. I therefore thank you all.

How the use of Product Value Innovation can assist Companies to achieve Financial Performance: The Study of Brick Manufacturing Companies in Lesotho

ABSTRACT

The value-innovation, which is the “Blue Ocean Strategy”, is the approach for companies to remain in operation with the sustained demand for their products. It was discovered that this strategy can help the manufacturing companies turn their competitors irrelevant without compromising quality. It is for this reason that Lesotho brick manufacturing companies should adopt a value-innovation strategy, which further will help them gain competitive advantage by adding value to customers’ needs and reducing costs.

For the purpose of this study, the focus was based on product value-innovation looking into how core, formal and augmented product value-innovation affected the financial performance of the brick manufacturing companies in Lesotho. The study further identifies factors influencing financial performance and value-innovation within manufacturing companies in Lesotho in order to find the best possible stratagems that can be applied to meet the customer value and lower product cost, with the intention to induce buying. This study adopted explanatory research design in which a population of 125 employees in the brick manufacturing companies from the four districts of Lesotho, namely Leribe, Botha-Bothe, Berea and Maseru. The study used census method because all the employees were included in the survey to respond to the questionnaire.

Data was collected using research structured questionnaires and secondary data was obtained from 2016 annual financial statements of different companies from the four districts. The data were then analyzed with the help of an Econometric data analysis tool called Eviews 9.5 to estimate a multiple regression model. This study selected ROA out of the three profitability ratios to investigate the relationship between product value-innovation and financial performance because the ratio incorporates information of both profitability and efficiency.

The findings indicate that there is a significant positive relationship between all levels of product value-innovation with return on assets as indicated by their positive coefficients (β0 = 0.128, β2 = 0.219 and β3=0.290), their large t-ratios (2.932, 3.339 and 2.369) and probability value less than 0.05 level (0.000, 0.000 and 0.000) respectively. These results therefore show that a unit change in core, formal and augmented product value-innovations will lead to about 0.128, 0.219 and 0.290 increases in return on assets respectively hence company’s financial performance. Based on the findings of the study, it is concluded that product value-innovation has a positive and significant relationship with financial performance. The adoption of product value-innovations can help the company to maintain its going-concern, achievement of competitive advantage and of course the increased return on assets.

It is, therefore, recommended that management of manufacturing companies should adopt product value-innovation strategy in order to improve company’s financial performance. This strategy will help the company to meet the customer needs while also leading the competitive market, since it is an outside-in perspective whose objective is to maximize the financial performance. The strategy can be used by local brick manufacturing Companies to lead the market and create demand for their products, with more attention on augmented, formal and core products in order to cover up for losses normally incurred at stage two of product value-innovation.

Key words: Value-innovation, Product value-innovation and financial performance

CHAPTER ONE. INTRODUCTION

1.1 Background and Significance of the Research

1.1.1 Background of the Research

There is an increasing appreciation of the prestigious role played by manufacturing industry on economic growth and development, as it is the major source of business opportunities and job creation. Innovation is essential for the growth of manufacturing companies because of their product diversification and quality. Manufacturing companies remain the main source of national economic growth and development.

Lesotho National Strategic Development 2013 identified manufacturing industry as the growth generators with potential for local job creation. The manufacturing sector in Lesotho has engaged hundreds of thousands employees, with the informal sector not in isolation. This has turned the manufacturing industry the second largest employer following the government. Therefore, the focus of this study is on manufacturing industry looking into the case from brick manufacturing Companies in Lesotho ( NSDP, 2013) .

In today’s competitive business environment, adopting innovative activities is essential for both organizational survival and growth. This is due to an increased pressure from global competition and rapid technological advancements facing manufacturing companies. The aforesaid pressure has called for the attention of this study, which will be found on both value formation and innovation as line items. The amalgamation of the two words forms value-innovation, which is the main term to be used throughout this study.

Various companies turned their attention on contesting and outperforming their rivals through bulk sales attained by cost deflation, quality maintenance, upgrading or aggregation of the rest. Companies have found the resolution on venturing the new market space by producing wares with eliminated competition through the introduction and use of product value-innovation, which requires a different competitive mind-set and a systematic way of looking for opportunities as opposed to searching within the conventional boundaries of industry competition. Companies sought to make their competitors irrelevant through a strategic logic of introducing value-innovation. They offer what most value-conscious customers really want. Based on the prestigious role played by manufacturing companies in Lesotho economy, there is a need to find out how the use of product value-innovation can improve companies’ financial performance.

1.1.2 Significance of the Research

This study will be important to manufacturing companies together with other non-manufacturing organizations for developing skills of strategy managers in formulating and implementing sound strategies that are winning in order to remain competitive through maintenance of quantum leap. This research will also highlight the factors that may impact on the successful use of the applicable strategy towards attainment of financial performance. It will therefore be of importance for managers to understand and make use of them as a guideline on reaching their desired goals. The findings will help to capture how the use of value innovation has an effect on organization’s financial performance together with the competitive forces and disruptive challenges in the industry, and how possible their financial performance could improve through expedient adoption to product value-innovation. They will assist in the conclusion and recommendation on whether use of value-innovation will be of essence towards achieving financial performance; as hoped by stockholders and other stakeholders.

The customers remain the heart of every successful business, hence a need for companies to realize their customers’ values. This will also be fruitful to business continuity and serves as the prerequisite for the company’s good reputation. The existing customers will easily sensitize the potential ones about the product or service differentiation through word of mouth; that will attract new product demand and results in good profits without experiencing the direct marketing costs, which is another route towards costs reduction and profit maximization.

The research will also inform decision makers in both state owned and private sector on the need to upgrade their existing products or services or to start anew, in order to achieve product differentiation and low costs for the interest of both the company and the buyers, by eliminating unnecessary aspects during the product lifecycle. This study will also enlighten business entrepreneurs on the impact of macro-environmental factors in shaping the effective value innovation strategy.

The study will further enhance the existing theory framework and other important relationships that require additional research and how macro-environment has impacted on product value-innovation and the firm’s financial performance. The results of this study will be available to researchers and scholars and formulate the grassroots for further research. The students and academics will use this study as a basis for discussions on value innovation strategy dimensions. The study will be a yardstick for empirical comparison, and a base for conclusion and decision making for research successors on other related topics; notably those who will have their topics within strategic management and financial management domains.

1.2 Problem Statement

Over the past years brick manufacturing Companies have been one of the major contributors toward Lesotho’s GDP through manufacturing, selling and distributing cement brick products for both local and international consumption. These companies contributed significantly toward Lesotho’s economic growth and employment creation. Lesotho brick products are known for higher quality appropriate for diverse kinds of structures. Even though the quality of their products is highly and mostly preferred, there are problems facing these companies, which include among others a decline in demand for their products due to high prices. This negatively affects the companies’ financial performance.

This therefore creates a competition between local brick manufacturing Companies’ products and other internationally-produced low quality products with low prices. This is not only about local competition within the industry, but also opens the market for South African manufacturing companies which produce both plaster and paver bricks of the same quality but with lower prices. This does not only affect the companies’ financial performance, but also their contribution to the manufacturing industry share to GDP.

It is from this background that this study aims to discover the use of value innovation that can help Lesotho Companies to sustain superior financial performance. This brings to the new concept called value-innovation strategy which improves on innovation by introducing new technologies or upgrades that are designed to achieve product distinction and reduced costs of production leading to lower prices to customers.

With this consideration, the purpose of this study is to find how the use of value innovation can rescue brick manufacturing Companies from the declining demand and imbalance between price and quality of products, hence a need to stabilize. This study aims to find how the addition of value to innovation can be used by these companies to gain clientele; their loyalty and establish irrelevance of their rivals in achieving the perpetual superior financial performance.

1.3 Research Purpose

The purpose of this study is to determine the relationship between product value-innovation and companies’ financial performance.

In order to achieve the above purpose of the research, this study will:

1. Investigate the relationship between product value-innovation and financial performance
2. Find which among the three levels of product value-innovation significantly and positively affects the financial performance.
3. Find the factors that contribute to product value-innovation

1.4 Research Questions

(1) What is the relationship between product value-innovation and financial performance?
(2) What are the potential strategies to be used to address both internal and external factors which lead to a decline in product demand?
(3) How can product value innovation fuel Company’s financial performance?

1.5 Research Innovation

Several researches on innovation and innovative strategies have been conducted, without really adding value to innovation; hence a need to highlight the distinction between “pure” innovation and value innovation and how companies can make use of product value innovation over pure innovation to achieve their sustained superior financial performances. These aforementioned researches have all indicated a sequential order of product innovation levels; this study will also discover if indeed product value-innovation levels cannot independently measure product value-innovation.

1.6 Research Structure

This study is structured into the following order: Chapter One which is the introduction of the study. This chapter includes research background and significance, research problem statement, research purpose, research questions and research innovation. Chapter Two focuses on the literature Review on value-innovation, financial performance and the relationship between value-innovation and financial performance, together with factors affecting both product value-innovation and financial performance. This review provides definitions of important terms, the conceptual literature and the empirical literature consisting of studies made prior which are similar to the proposed research. This also provides the study variables and their measurements.

Chapter Three focuses on research methodology and design which entails research design, data collation and method, types of data, data analysis and techniques, descriptive statistics analysis and regression analysis. Chapter four focuses on data analysis and presentation and discussion of the results, realization of the research objective, data analysis and descriptive statistics results. Chapter Five focuses on Conclusion, Strategies, Recommendations and Limitations.

Abbildung in dieser Leseprobe nicht enthalten

Figure 1. 1. Research Structure

CHAPTER TWO. LITERATURE REVIEW

2.1 Introduction

This chapter discusses the value innovation and financial performance related theoretical and empirical literature. It also provides the relationship between value-innovation and financial performance.

2.2 Product Value-innovation

2.2.1 Value-innovation

In order to define what value-innovation is, it is crucial to start by defining the concept of innovation, which, is defined as the introduction of new product”, b) introduction of new methods of production”, c) “the opening of a new market and d) acquisition of a new source of supply of raw materials (Jang , 2017) (Sinclair-Desgagne, 2016).

This definition therefore shows that incorporating customer’ desires (value) in the process of innovation result in what is known as value-innovation. Value is referred to as the benefits received by the customers that contribute to their satisfaction (Louw and Venter, 2013) while Value-innovation is defined as the company’s ability to introduce or upgrade products or services in the cost-effective manner through the use of new technologies in attaining product differentiation; which is advantageous to the company and the customer. Value-innovation is characterized by cost saving, implementation of new or advanced product or service through cost elimination or reduction of avoidable aspects during the product lifecycle (Kim and Mauborgne, 2005).

Thus, value innovation is basically showing that the company’s strategy that has a favorable effect on both the cost structure and the customer value proposition. It is the concurrent quest to attain the cost effective distinct product, founding a value leap for both buyers and the company with the view to open up new and uncontested market space for a company’s wealth puddle. It is one of the performance management tools used in the contemporary world, hence considered a tactical professionalism with which focus is based on creating a quantum leap in value, as opposed to the antediluvian method of industry competition. The strategy is aimed to create the new global demand through good quality management yet keeping costs at minimal. Both the company and the customers are the direct beneficiaries of this strategy (W.Chan and Renee, 2005, 2004).

Value innovation is therefore referred as the blue ocean strategy which is defined as a creative battle where the players of a particular segment do not compete with each other in the same market space; instead they explore, create and acquire new market spaces by dealing with new demand through the principle of 'value innovation . Value innovation is recognized by numerous researchers as a superlative strategy for companies’ uncontested market space and extraneous competition; hence widely used by the most successful companies (W.Chan and Renee, 2005).

The companies that employ this strategy are capable to manage innovation challenges by adjusting from core to formal and then augmented product, in order to acquire the competitive advantage together with superior profits. This strategy enables managers to identify the consumers’ distinctive values and forces the company to transform from the existing products. The strategy puts forward its contribution for the betterment of products and service quality; which forces the industry to adjust to such companies as they turn to be the standard setters.

Value-innovation has a potential in assisting companies to deal with its complex and competitive external environment which is one of the basic elements for long-term success on the product and company development in today’s dynamic market. This can be achieved through the continuous ambition to excel and come up with customers’ solutions; hence there is a need for a company to understand its market, customers and competitors in order to be able to create new products with superior value to the customers. The logic behind this strategy is to provide total solutions to customers while reducing costs for the company ( Abdelmoula and Etienne, 2010) (Ibidunni et al, 2014).

Value-innovation can be used as a strategic move towards creation of extraordinary value for customers while at the same time helps companies to save costs of production. Value-innovation has been suggested by academics as an important variable in the creation of competitive advantage and superior customer value. Its primary objective is not basically the product advancement or differentiation, but the inclusion of customer value over rules ( Hanasyah, 2016) (Njogu, 2012).

The concept of value-innovation indicates that the competitors’ irrelevance is achieved by offering fundamentally new and superior customer value in existing markets. It also highlights that a company should break traditional industry standards by offering completely new customer value. Whereas most innovations deal with small incremental improvements, aiming at staying ahead of competition, value innovation aims at creating uncontested market space and breaking free from head-to-head competition ( Makkonen, 2012).

Value-innovation is driven by people, culture, resources and processes basically to a reconceptualization of business model, reshaping existing markets, and dramatic value improvements for customers. Its intention is neither competition outperforming nor market segmenting, but to make competition irrelevant through new market creation in order to delight the existing customers and attracting potential ones by finding common values the customers share; hence the necessity to identify the values critical for customers, together with the critical product quality attributes that are required for value creation. In order to create barriers for the product imitators, companies adopt cost reduction strategy which helps in strategic pricing, target costing, business line extensions, and continuous improvements. Thus, the capability to create value innovation is related to the concepts of absorptive capacity ; the ability to recognize the value of new information, assimilates it, and applies it to commercial ends, also dynamic capabilities are the firm’s processes that use resources to match and even create change ( Setijino, 2008) .

This is also supported by the theory of dynamic capability which states that the company must be able to integrate, shape and reconfigure both the internal and external competences in order to address the revolutionary world. Therefore, it is regarded as the company’s ability to learn quickly, with an intention to structure its strategic assets that can be integrated into the company; hence a need for a recurring transformation or reconfiguration of the existing strategic assets.

This further emphasizes on a basis to identify the company’s resource capabilities and engage the strategic thinking doctrines that can add value-innovation. The company’s ability to transform is also confirmed by the resource-based view theory, which explains the company’s capability to manage its resources in such a way that its products can hardly be imitated and it gains a sustainable competitive advantage ( Wanjugu, 2014) .

2.2.2 Product Value-innovation

Product innovation is referred to as newness of a product for the market into which it is introduced. The degree of newness differs from a shift from one product to another in order to create an entirely new market ( Sinclair-Desgagne, 2016), ( Amue and Kenneth, 2012) ( Angelmar Reinhard, n.d.) .

According to Choong et al. (2015), product innovation is the creation and consecutive introduction of a new product or improvement of an existing product. They further indicated that product innovation is a principal cause of creation of value on the existing product and a prerequisite for a company to gain competitive advantage. They emphasized on the importance of innovation, which is an essential blend of diverse activity that produces a stimulating pressure between, time to market, performance, quality, product value and competing objectives of development cost ( Castellacci, 2011).

Product innovation is, therefore, the result of bringing to life the new way of meeting the customers’ needs, but at the same time benefiting both customers and companies. The introduction of new product is affected by two factors: (i) external factors which include market research, exchange of new product ideas between company and research developments and (ii) internal factors which relates to internal development of new products, monitoring and evaluation of existing products and feedback from employees and customer ( Antonnet, 2014) .

In addition, for a company to attain new product development, it must understand market demand in order to deliver the superior value to its consumers. This evolution can possibly be accomplished through new-product planning and a systematic new product development process set up; which involves the idea generation; idea screening, concept of product development and testing; marketing strategy development; business analysis and commercialization ( Kotler and Armstrong, 2010) . Clantone et al., (1995) as cited by Chryssochoidis, (2003), highlighted that for the product to be successfully developed, a vision of excellence should be broken down into attainable tasks that can be communicated to the proper groups. Also, flexibility in configuration, coordination and leadership responsibility is necessary over the product development cycle ( Chang et al, 2013).

Therefore, the inclusion of value to product innovation has led to the derivation of product value-innovation; which is defined as an introduction of cost-effective product differentiation or upgrade of an existing product. This shows that product value-innovation does not only result to product differentiation, but also to the company’s attainment of competitive advantage through improved product quality. Product value innovation is crucial in the industry conditions and environment and serves as an opportunity to frame the new value in order to gain competitive advantage ( Giniuniene & Jurksiene, 2015). It is also described as the transformation of inputs into outputs which results in value creation or deduction in selling price offered due reduced cost of production ( Feimi & Kume, 2014) (Aryanto et.al, 2015).

This also helps the company to experience an increased product demand and growth opportunities. Product value innovation is also defined as the result of bringing into life the new way of meeting customer’s demands in the form of customization. The implementation of product value innovation is affected by two factors, namely; (1) external market research, exchange of new product ideas within the industry and research or technological developments and (2) internal factors are the ones related to the development of new products which incorporate the customer’s needs or improvement in the existing product (Antonnet, 2014). The contingency theory also highlighted that companies whose internal features best match the customers’ values and demands, are likely to achieve the best adaptation of value innovation.

For the purpose of this study, product value-innovation is defined as a distinctive inventiveness or advancement of goods or brand in the cost-effective manner with consideration of consumer’s worth. Product value innovation is characterized with provision of knowledge to improve current product. This aids the continuous advancements necessary for the survival of the company and its rapid growth, efficiency and defects free environment. This will therefore lead to use of knowledgeable and skilled workers with the ability to increase the quantum leap which can result into the sustainable superior financial performance. The company’s innovation is the output of both product innovation and employees’ creativity which has direct contribution in addition of value to customers towards achieving competitive advantages in the market ( Ibidunni et al, 2014) ( Atalay et al, 2013) (Hana, 2013) .

This, therefore, shows that not only companies with great minds can be able to adapt to product value-innovation through invention, but also through imitating other companies already engaged in product value innovation. Over doing of imitation will negatively impact on product differentiation in the short run, however, this is only beneficial in the long run for most companies will be deviating from the original product. It also requests for strategic thinking and its continuity throughout the product lifecycle ( Feimi and Kume, 2014) (Greenhalgh and Rogers, 2010).

The product value innovation involves the process of migrating from the standardization to customization (Antonnet, 2014). The integration of the company’s distinctive resources includes, among others, the organization’s willingness to train its employees so that they can be innovative and bring forth the positive return to the company and create value to the customers. Product value-innovation is easily attained with the link of other value-innovation types, notably process and market.

2.2.2.1 Levels of Product Value-Innovation

In order to measure product value innovation, it is important to consider the following three levels of product value-innovation, which, are; (1) Core product value-innovation which represents the company’s basic product; (2) Formal product value-innovation which represents all aspects the customers expect to get when they purchase a product and; (3) an augmented product value-innovation which represents all additional factors that differentiate the company’s product from that of the competitors. The process of product value-innovation is presented in figure 2.1 starting from core to augmented product ( Watkins, 2007).

Abbildung in dieser Leseprobe nicht enthalten

Figure 2. 1.Three Levels of Product Value-innovation (Claessens Maximilian, 2015)

2.2.2.1.1 Core Product Value-Innovation

There are three levels of a product value innovation. The elementary level is called the core product; which is the first level of a product that reflects the core customer value. It responses to what is being bought by the buyer, when a product marketer has to design considering the core problem and consumer’s value. If one buys a product, the core value is the need for that product, but it might also be to satisfy other levels of Maslow’s hierarchy of needs other than the elementary use of the product. One of the possible reasons is to quench the customer’s status or glamour with added accessories that add more value. It is therefore essential to have a brainstorming session that lists the core benefits needed from the product, prior the product design ( Claessens, 2015) (Marketing.net Learn, n.d).

2.2.2.1.2 Formal Product Value-Innovation

The second level is the formal product value-innovation, which involves the conversion of core benefits into the identified core customer values. This involves developing product features, design, quality, functionality, brand name and packaging. The levels of a product build up on one another, and this particular level translates the list of core product benefits into a marketable product that is incomparable, have a sustained market and the greatest market demand ( Claessens, 2015) (Mulder, 2012).

2.2.2.1.3 Augmented Product Value-Innovation

The third level of a product is an augmented product which builds on the core values and the formal product by offering additional consumer services and benefits. This makes the augmented product the complete solution to the problems as defined by the core customer value. This complete solution might result in the form of a warranty, after-sale service, product support and instructions on how to use the product. It also involves the brand identity and product image ( Claessens, 2015) ( Mulder, 2012) .

Augmented product is a product that includes intangible benefits beyond the physical product itself. These intangible benefits include delivery of the product to the customer on specified time, warranty on the product and a clear process for customers to return a product or make a claim against a product. They also include a service that allows the customer to make a request regarding a purchased product. Augmented product value innovation considers customization of the product based on the customer’s specifications ( Spacey, 2017) .

The three levels of product value-innovation are involved in any purchase which builds on the product complexity that is intended to satisfy customers’ values. This also means that when marketers develop products, they first must identify the core customer’s problems, needs and value, then design the formal product and ultimately augment it in order to create customer value and the most satisfying experience. The additional non-tangible benefits that a product can offer are decided and incorporated in product design. There is no competition experienced at this level, until after sales service when customer enjoys the intangible benefits such as product warranties, customer’s peace of mind and demonstrates the feeling about the quality of its product (Claessens, 2015).

However, Philip Kotler as quoted by Patty Mulder, 2013 identified the two more levels of a product and added on the three levels already mentioned above; which led to a total of five, namely the core, generic (formal), expected, augmented and potential product respectively.

According to Kotler, there is a level called expected product value innovation, which he described as the intermediate stage between the formal and the augmented product levels. This level involves incorporation of all aspects expected by the customer when purchasing a product, based on the formal product value-innovation which includes all the generic parts of the product .

In addition, there is a final level; he named potential product value-innovation. This level involves the recurring rethinking of the upcoming new product which is about augmentations and transformations that can be undergone by the product in the future, which concentrates on the distinctiveness of the augmented product. It is also about customer’s perception and value creation which is built by applying more effort at all levels. The manufacturing companies therefore focus their attention on factors which attract customers’ extra value ( Mulder, 2012) .

In summary, the figure 2.2 presents five product levels outlined by Kotler.

Abbildung in dieser Leseprobe nicht enthalten

Figure 2. 2. Five-Level Product by Kotler, (1967)

In the presence of market competition, it is vital for the company to innovate for its survival. Initially, it was enough for a company to produce high quality products than the industry to attract customers, but in today’s dynamic world quality alone is not enough to have the sustainable market. This is when the company gets to notice that profit-orientation mentality alone does not work best for the company but also the customer-oriented mentality. Connectively, innovation can support the company with customer-oriented mentality through the use of distinctive resource capabilities to upgrade its goods and/or services; start anew with the intention to meet customer satisfaction, attain market positioning for a sustainable competitive advantage ( Hacer et.al, 2015) . Product value-innovation can be explained as process and output; which refers to the process as the input or work in progress for the output being product innovation and value, having a direct relationship with the company’s financial performance ( Greenhalgh and Rogers, 2010) .

2.2.2.2 Factors Affecting Product Value Innovation

Capabilities are referred to as multifaceted packages of skills and accumulated knowledge that are applied throughout the organizational processes in order to coordinate activities by fully employing all the organization’s assets. The employees’ learning capability has a direct impact on the innovativeness of the employee in product development and therefore has an influence on the total organizational capability. Organizational capabilities can be divided into two parts, which is the transformation of competencies and transformation of the market ( Choong et al, 2015) . The dimension of organizational capabilities should be the composition of experimentation, integration, autonomy and openness capabilities. Organizational capability is therefore considered to be the core organizational competence that enables gathering innovative idea from employees as a key success factor. The core competency is therefore the main factor that helps the company to produce a new or innovative product to the market ( Chang et.al, 2012) . The company’s innovativeness depends on the managers’ capabilities and practices to act on market intelligence should include better integration and autonomy capabilities to both managers and employees to ensure a smooth transition of innovative idea from research and development department to other business units, which attests the importance of research and development in introducing product value innovation ( Wanjugu, 2014) .

According to Eisenberger, (1986) as cited by Choong et al, (2015), perceived organizational support is considered as the employees’ decree based on the organizational contribution towards them, the organization’s general employee care, their welfare and their worth. It is an important part played by both management and subordinates as a form of social interchange relationship, which brings about employees’ dedication to their jobs depending on the judgement made. This calls for employees’ pro-activeness during critical thinking as opposed to reactiveness ( Nazem, 2011) . Furthermore, organizational support theory suggests that employees have a universal impression of their organizations extend to offer sufficient resources or information and its value towards individual employees. This covers the organization’s performance reward system and the organizational empathy towards employees during their hardship periods. The establishment of a positive impression regarding the support employees receives from their organization leads to the fruitful results for both the employees and the organization. Thus, if the employees perceive the strong organizational support their socio-emotional needs are satisfied and they are likely to report more positive job attitudes that encourage employees’ inspiration for hardworking in order to achieve the organizational goals and the organizational ability to innovate. This also widens the possibility of finding new information and knowledge that leads to new product introductions, and of course the key input to new product development ( Nwokah et al, 2009) ( Deshati, 2015) . The norm of reciprocity as mentioned by Blau, (1964) in Choong et al, (2015) states that the employees whose support is perceived, strives towards attainment of organizational goals and perform their jobs beyond expectations, which is the opposite in the environment where the organizational support is not perceived ( Deshati, 2015) .

Organisational culture is defined as a series of psychological norms which include values and behavioural norms, beliefs, and assumptions established and adopted by the employees while performing organizational activities. Product value innovation increases organizational ability to gain competitive advantage by ensuring inclusion of customer values throughout the product development which will increase the product demand and loyalty to a product brand and ultimately increases the profit margin; hence the financial performance. Therefore, for an organization to be innovative it requires the higher involvement and adoption of a culture in order to be creative and allow diversification. Organizational culture can also motivate employees to perform better ( Deshati, 2015) ( Crane, 2010) ( Jang, 2017) ( Kotler and Armstrong, 2010) .

The degree of persistence with activities of innovation is significant for innovation envisaging Persistence is good at accumulating the complex capabilities required to produce the new product in understanding the needs of the customers. Product innovation involves continuity, optimism and perfection in meeting the customers’ needs and desires. What the company practiced the previous period becomes the base for its next trials and learning lag. Persistence has become the school of quality, efficiency and effectiveness ( Kor and Maden, 2013) ( Siedschlag and Zhang, 2015) .

It is sensibly anticipated that the prospect of intellectual property can escalate the firm’s commitment towards innovation due to the honour granted to an organization to prohibit use of their idea, creation or invention for a defined period of time. There are five forms of intellectual property often used by most countries which are patents; designs; copyright; trade secrets and plant breeders’ rights while the sixth one: trademarks, is considered quasi-excludable ( Ibidunni et.al, 2014) ( Wanjugu, 2014) .

The company’s propensity to export or attain foreign ownership involves a substantial attention on innovation and most of the exporting firms consider value innovation when internationalizing their products and expanding their market ( Sekaran, 2003) ( Anwar and Sun, 2014) ( Rouf, 2011) ( Chryssochoidis, 2003) .

2.3 Financial Performance

Financial Performance is defined as an act to execute, accomplish and fulfil company’s financial goals. It refers to the accomplishment of tasks measured against predetermined standards that are specific, accurate, reliable, complete, cost-effective, and timely. It is the general application of activities towards achievement of organizational, financial goals over a period of time with comparison and reference to past financial doing, it involves among others; cost efficiency, management responsibility and accountability. Financial performance is a measuring tool used to assess the company’s financial success, conditions and compliance. It is a measure of the company’s ability to utilize its assets in order to generate revenues and assess its financial well-being over a given period of time . It can be used to compare rivals within an industry or sector ( Wanigasekara and Surangi, 2011) ( Sekaran, 2003) ( Sinclair-Desgagne, 2016) ( Palangkaraya et al, 2016) .

It is further referred to as the company’s monetary results determinant on strategies, policies and operations. These results have a direct impact on the company’s return on assets, return on equity and marginal profit (Kaguri, 2012).

Financial performance can be assessed based on growth, survival, success and competitiveness, using financial based metrics to measure costs, return on investment, profit margin, sales growth and non-financial measures, including metrics such as customer satisfaction and retention, internal processes include lead time, delivery, process time and productivity, together with employees’ learning and growth. Most companies prefer use of financial or accounting indicators to measure their performance ( Terziovski, 2010) ( Watkins, 2007) .

The company’s financial performance is crucial for stakeholders as it informs them about the performance of the company in attaining its desired objective in order to bring high and long-term return on their investment. It also provides information related to the company’s profitability which in turn results in an increase in employees’ income. The company’s ability to generate more profits leads to future investments which can further extend the employment opportunities and boost the employee’s income ( Jang, 2017) . This is confirmed by the stakeholder theory which suggested that the company’s purpose is to create value for all stakeholders in order for the company to be successful and sustainable; hence in this regard, the customers’ value together with the investors and employees’ values are highlighted in order to innovate and align all the innovation levels with their values ( Financial-Times, n.d.) .

In addition, the organizational theory also certified that the calibre of its stakeholders has a direct impact on its financial performance, which also builds on the organizational distinctive ( Wanjugu, 2014) . The company’s ability to consider the stakeholders’ values generates demand for its products and earns such a company clientele. This results in a positive financial performance through which all stakeholders enjoy the fruitful benefits of such a company. In the same manner, the organization gains its uniqueness by taking into consideration the stakeholder values: hence the reputable company is likely to have financial excellence due to the engagement of competent employees.

The company with superior financial performance attracts more investment and helps in maximizing the company’s funds, reinforcing retained earnings which results in an increased in firm performance. This was empirically tested by the study carried by Makadok, (2001) as mentioned in ( Wanjugu, 2014) , who linked diverse factors to financial performance and stressed that the company’s possession of the appropriate resources can help the company’s performance. Wanjugu also proved that the company can sustain its competitive advantage through better management of its resource-based view.

2.3.1 Factors Affecting Financial Performance

2.3.1.1 Firm size and Financial Performance

The size of the firm as a determinant of financial performance is ancient and most elementary supposition which results into their profitability. ( Choong et al, 2015) ( Njogu, 2014) ( Chang et al, 2012) . The size of the firm through its diversification can further broaden its market share or market concentration since larger firms are capable to engage better managers that are more strategic ( Abdelmoula and Etienne, 2010) ( Feimi & Kume, 2014) . According to Dean et al., (1998, Chen and Hambrick (1995), and Mintzberg (1979) as cited by Chiliya et al, (2012) and Kaguri, (2012) firm size is one of the most influential characteristics in organizational studies and relates to the company’s sunk costs, concentration and profitability due to increased number of specialized managers and departments as well as greater bureaucracy. On the other hand, the larger the size of the firm often leads to leisurely adoption to change or complete resistance to elementary changes in business conduction. Most of the larger firms, however, still encounter some hardships in maintaining continuous diversification for increased sales volume of new products and new markets (Chiliya, 2012) (Kaguri, 2012).

Asimakopoulos, Samitas and Papadogonas (2009), support the literature that company size is positively related to financial performance; hence large companies have greater capacity for dealing with adverse market fluctuations than smaller companies due to their ability to engage employees with professional knowledge compared to smaller ones, and they also have economies of scale in terms of the labour cost, which is one of the most significant production factors for service delivery. Browne et.al, (2001) has also shown empirically that company size is positively related to the financial performance of companies (Asimakopoulos, 2009)

The study carried by Malik (2011) on examining the determinants of Pakistan’s insurance companies’ profitability assessed by return on total assets revealed that there is a significant and positive relationship between profitability and size (Malik, 2011). Several studies on the relationship between firm size and profitability have been reviewed with mixed results being obtained. Akbaş and Karaduman (2012), Shubita and Alsawalhah (2012), Karadeniz and İskenderoğlu (2011) as cited by Dogan, (2012),) have found a positive relation between firm size and profitability. On the contrary, Dogan, (2012) cited Banchuenvijit (2012), Becker et al. (2010), to have found a negative relationship between firm size and profitability. He further mentioned Khatap et al. (2011) to have found that firm size does have any effect on profitability. The fore-mentioned results have caused the contrasting views and imprecise understanding of the effect of firm size on profitability and of course an increased interest toward this subject (Doğan, 2013), (Saliha, 2011).

2.3.1.2 Firm Age and Financial Performance

The length of time the business has been in operation is one of the supreme importances for its survival and success (Kristiansen, 2003). Financial performance is essential for continued business operations; hence financial capabilities are critical in supporting functional strategies and making required infrastructure investments (Correira, 2003). The return on equity (ROE) is the overall indicator of business success and wealth since profit maximization alone would not be a satisfactory return to shareholders. However, the empirical study conducted by (Indarti, 2004), revealed that firm age was not significantly related to business success. This was further supported by Liargovas, and Skandalis (2008) as cited by Chiliya et al, who claimed that older firms are inclined to indolence, and the bureaucratic negative habits attached to their age; these habits adversely affect market conditions; hence an inverse relationship would be experienced between age and profitability or growth. As a result, the market share could be eroded. One would therefore assume that high growth should be associated with higher profitability, yet it has been argued that greater profitability in one period, may contribute to a decline in profitability in the subsequent period, which may be affected by the existing strategies which at times compromises the existing profitability strategies. Sidhu and Bhatia (1993) as cited by Kaguri, (2012) argued that younger firms are likely to be outperformed by older ones due to the latter’s early mover advantage and possession of specific competencies and skills of which younger firms may be premature. In this regard, older firms are able to grow faster to achieve higher profitability. Malik (2011) also conducted a study on examining the determinants of Pakistan’s insurance companies’ profitability based on return on total assets, which revealed that there is no relationship between profitability and age of the company (Chiliya, 2012) (Kaguri, 2012) (Malik, 2011).

Firm age could help companies become more efficient over time, through discovering their strengths, maintaining the good work, eliminating bottlenecks and finding room for improvement. The firm gains specialization and standardization experience as it grows older and do much of coordination on speeding up its production process, as well as cost reduction while improving quality. The older the firm is the more reputable it becomes which enables such firm earn higher sales margin (Kaguri, 2012).

2.3.1.3 Knowledge Management and Financial Performance

Knowledge management is described as an application tool used in the conversion of the acquired skills and experiences in achieving the shareholders’ objectives of an organization. The knowledge possessed is used in organizational planning, control and decision making to protect the firm against possible threats and turning the weaknesses into strengths, also through identification of opportunities and implementation of proper strategies in line with such (Ha, 2016).

It has been stipulated in the series of tactics and operations applied by the organization to identify, create, distribute, and enable adoption of perceptions and practices. Knowledge is a very crucial resource for conducting an organizational operation and implementation of winning strategies that can solve the organizational problems and assist the organization towards the attainment of competitive advantage. Knowledge management is an organizational practice that improves the effectiveness and enhancement of employees’ willingness to internally share the knowledge among others, with the intention to solve organizational problems ( Setijino, 2008) .

Knowledge is considered the sole original factor of production that accurately accumulates on perpetual growth on output per worker; hence the organizational human capital and the tacit knowledge remain the main competitive advantage to an organization’s profitability. The tacit knowledge involves the skills possessed by a person that can be more explicit than implicit but reflect on one’s performance. The tacit knowledge is considered subjective and complex to describe other than by its own performance, so the profitability. It is however expected that the extent to which it is substantiated varies from tacit to codified, according to the content of the knowledge base ( Cheboi, 2014) ( Wanjugu, 2014) .

According to Kamran and Sabir, (2012), knowledge management is consistent with intellectual of organizational capital, which provides guidance towards the competitive advancement in enhancing the organization’s profits. With knowledge management, the organization can easily attain strategic objectives in correlation with financial performance and enhance the procedures and methods connected with the company’s capability to use all the existing sources and types of knowledge in the organization to progress precise skills that can be transformed into new products and processes to yield profits ( Mulder, 2012) .

In order to increase the organization’s financial performance and effectiveness, there is a need for an organization to engage in knowledge management throughout all levels of product development to enhance an organization's ability to increase organizational learning. The company’s ability to manage the creation of new knowledge enables the quick response to customers’ values; which help the company to be the market leader through increased sales, hence the improved financial performance ( Musando, 2013) .

In addition, knowledge management provides a direction, in which an organization plans, organizes and allocates knowledge across the organizational departments. It is a vital tool to improve efficiency and financial performance essential in cultivation of organizational effectiveness.

Managers’ characters, their high educational level in line with workers’ education and skills, is likely to influence financial performance through execution of new practices that are easily attained with a more educated work force that is conversant with budgeting, data analysis and standard human resources practices ( Chaoren and Thawattehatree, 2011) . Evangelista and Mastrostefano, (2006) as cited by Webster, (2016) said that lack of qualified personnel leads to diversify obstacles, hence a need to increase an on-job training is thus highlighted ( Rouf, 2011) ( Hacer et al, 2015) ( Hermann et al, 2007) .

Professional experience is one of the important factors affecting organizational profitability with a strong link between business experience, education and business success. The expanded knowledge obtained from previous experience is instrumental in the company’s success and going concern (Chiliya, 2012): (Wanigasekara and Surangi, 2011).

Reisi, Hoseini, Talebpour, & Nazari, (2013), Bhatt, 2001; Gold et al., (2001), Daud & Yusoff, (2010), Mills & Smith, (2011) as cited by Ha, (2016) regarded acquired knowledge as one that has to be structured, assimilated and be effectively offered through conversion to improve the expertise and efficiency into applicable organizational knowledge, and be decentralized through distribution to areas of need, whereas knowledge application is an actual use of knowledge that was initially potential for decision making such as innovations or inventions, and problem solving which can enhance overall performance of an organization. Therefore, Ha, (2016) supported the results of other researchers who found knowledge management positively linked with financial performance whether acquired, converted, applied or protected (Ha, 2016) (Matin, 2013).

Professional experience is an important factor affecting many aspects of entrepreneurial firms which among others includes a firm’s performance driver based on the number of previous jobs positively related to firm performance. The firm’s high probability to shut-down was also found to be associated with the manager’s educational level together with work experience prior to business launch (Toohey, 2009) (Lumpkin, 2007). Most researchers empirically proved a stronger connection between knowledge management; the management level of education, business experience and business success (Wanigasekara and Surangi, 2011) (Thapa, 2007) (Chrisman, 2005) (Boden, 2000). Ensley, Pearson and Sardeshmukh (2007) also found that in achieving high profitability there must be a technology based start-up a firm must possess, which includes both technical and business knowledge. However the absence of knowledge is not the equivalent of the firm’s failure, but the firm ability to choose to follow a more moderate growth strategy that would enable the stewards to learn the essential skills and capabilities required to raise profitability (Ensley, 2007).

Khan and Butt, (2002) as cited by Chiliya et al, found a negative relationship between pre-start-up acquired skills and abilities’ application and the performance of the new firm with different challenges and other unavoidable financial performance attached risks. They concluded on their findings that experience is an adverse factor affecting firm’s performance; hence the provision of measures to combat the potentially hazardous effects of pre-start-up skills. That is a positive relationship between new firm performance and the application of skills acquired pre-start-up could only be achieved in the presence of a broad ranged flexibly applied skills as opposed to a more limited set of skills or skills applied without due consideration of the new firm’s environment (Chiliya, 2012).

Robinson and Sexton (1994), argue that not only high management level of education has a positive impact on profitability since high school drop- outs that have managed to make it in business and influenced the business world armed with education from the school of hard knocks. They further argued that through vigilant and hardworking workforces can succeed without proper educational background. On the other hand, Kovner, Lerner and Scharfstein (2006) as cited by Chiliya considered the success of firms with a minimum level of education as luck and uncertainty or a form of gambling due to the absence of clear strategies and proper management skills. Such firms have no foreseeable future and the concept of going concern is not applicable (Chiliya, 2012) (Robinson, 1994).

Lumpkin and Marvel (2007) states that prior employment, a potential business person with previous work experience is in a more favoured position than the one with more limited experience although they further discovered that it may be preferable to know less about the processes for developing the product and serving the market for radical innovation, as this may lead to a myopic point of view which would limit the radicalism of any future innovations (Lumpkin, 2007).

Chiliya et al, discovered that previous experience has a significant effect in operating profitably Return on Equity and their findings supported those of Van der Sluis, Van Praag and Vijverberg, (2005) who determined that in least developing countries education is a major drawback for the success of small firms, from which the education levels of the entrepreneurs were correlated with net profit to find whether education impacted on the financial performance (Chiliya, 2012). The relationship between knowledge management and financial performance has been pragmatically discovered, though seldomly through consideration of the state of knowledge management practice and comparison with the direct financial indicators, as some empirical studies focus only on specific aspect of knowledge management such as tacit, not the whole knowledge management system. Kalling (2003) as quoted by Vidović, (2010) interprets, the empirical studies that focus on the connection between knowledge management and performance often stop with proxies of performance; not at profit, but at proxies of profit (Vidović, 2010).

The pragmatic study conducted by Ahmadi et al was consistent with the finding of Lee and Chu (2003), Charlene and Angel (2011), Ahmadi et al (2012), Sung and Choi (2012), Vazifedust et al (2014) which indicated that there is a positive relationship between direct and indirect impact of the financial performance with knowledge management as well as other related research such as, represented the direct and indirect impact of knowledge management on the financial performance. Knowledge management is considered a core area and a pillar of strength in a strategic organization. The older the knowledge of management is the key operational factor in maintenance of measures essential for the development and implementation of knowledge management with a systematic approach. It is through knowledge management that in dynamic business world firms are capable to out-perform competition among rivals. Knowledge management is therefore an essential tool to improve performance and create competitive advantage hence researchers believed that the relationship between knowledge management and financial performance can be strengthened by engaging more intelligent human capital (Ahmadi, 2015) (Vazifedust, 2014) (Ahmadi, 2012) (Sung, 2012).

2.3.2 Measurement of Financial Performance

In today’s business management, performance measurement is considered to be in a more critical role compared to quantification and accounting; which Al-Matari.M.Eet.al, (2014) described as a process whereby the organization manages its performance to match its corporate and functional strategies and objectives. The firm’s value can be described as the benefits stemming from the firm’s shares by the shareholders. The company’s performance can be viewed from its reported financial statement as emphasized by a superior performing company to its management for quality disclosure ( Hermann et al 2007) ( Rouf, 2011) . For the purpose of this study, financial performance will be measured by profitability ratios. Performance measurement is generally described as the process of measuring efficiency and effectiveness of an action. It is further defined as the conveyance of the complex performance reality in organized symbols that can be comprehended under similar situations . This brings forth the need to measure organizational performance improvement in order to identify the level to which organizational resource capabilities impact on business performance. The firm’s sustainable superior performance is basically explained by its positive actions towards its goals over a certain period of time. Therefore, finding a performance measurement for the firm’s performance trend enables assessment over different time periods ( Al-Matari e al, 2014) . From this definition, financial performance measurement measures the effectiveness and efficient use of the company’s financial resources in attainment of its desired goals.

There are several measures of financial performance, but all should be aggregated according to their line items (Ngumi, 2013). In order to measure firm’s financial performance, the following indicators are commonly used: liquidity, solvency, profitability, repayment capacity and financial efficiency. It is important to pay attention on both the past and the present financial information to monitor the progress and the entity’s going concern as the current performance alone cannot give the true picture of the organization’s performance.

Liquidity measures the firm’s ability to meet its financial obligations as they expire, without disrupting the owner’s equity, using the market value of assets and deferring liabilities. There are three financial ratios to measure solvency thus; debt-to-asset ratio, equity-to-asset ratio and debt-to-equity ratio. The aforesaid solvency ratios yield equivalent result; hence it remains discretion to decide on the solvency ratio to conclude on ( Crane, 2010) .

The debt-to-asset ratio refers to the firm’s liabilities expressed as a fraction of total assets. The higher the ratio, the lower the performance of the firm and the greater the risk involved. Repayment capacity method of measurement is the firm’s ability to repay debt from both firm and non-firm income. It is the assessment of the firm’s capacity to service additional debt or to invest on retained earnings. The repayment measurement capacity is developed around an accrual net income, and the two measures used are; term debt & capital lease coverage ratio and the capital replacement & term debt repayment margin ( Günday et al, 2011) .

Profitability is therefore described as the firm’s ability to generate a return from its activities based on the relationship between revenues and expenses, and on the profitability level with regard to the investment size. The firm’s profitability is therefore measured by the rate of return on firm assets (ROA), the rate of return on firm equity (ROE), operating profit margin (PM) and net firm income. The company’s profitability is the source of internal funding, Return on Equity and Return on Assets. The expansion of the company depends on its profitability strengths which is the results of an increase in financial performance (Jang, 2017).

The financial statements such as an income statement and balance sheet are used as a performance analysis tool to assess and interpret the financial performance. These remain the useful tools in detecting the financial strengths and weaknesses of the firm through the establishment of the relationship between income statement and balance sheet items.

For the purpose of this study, financial performance is measured using three profitability indicators; ROA, ROE and PM. Return on assets is the net income expressed as a percentage of total assets for the year, which determines how well the company is able to generate profit out of its real and liquid assets. It is used to compare the company’s efficiency and operational performance based on the rate of return. Return on equity is defined as articulated as net profit as a percentage of total equity. It determines the management’s ability to effectively turn capital into profit and concentrates on the rate of return towards the owners. The higher the rate of returns, the higher the efficiency of management and the lower the rate of return is the higher the management inefficiency. The profit margin is net profit expressed as the percentage of total sales turnover, which assesses the rate of profit that management is able to generate profit total sales (Kaguri, 2012) (Laisasikorn, 2014).

2.4 Product Value-innovation and Financial Performance

There are a number of devices that companies employ to improve their performances, and product value-innovation remains the widely used. This has turned product innovation to be a critical key factor in the business environment, especially in the manufacturing industry . Even though innovation is considered important in companies’ financial improvement, there is still a need for value addition. Product value-innovation affects companies differently through the use of different measures of which financial measures are included ( Deshati, 2015) ( Rosli and Sidek, 2013) .

The company’s ability to gain profitability and growth largely depends on its financial performance. This shows that the financial achievement is the result of actions undertaken by companies in relation to product value-innovation adoption. Therefore, for the companies to become very competitive in an emerging market, they need to take advantage of product value-innovation, which will help them to build their reputation in the market environment. Essentially, the key reason for product value-innovation is the desire for companies to obtain increased financial performance and increased competitive edge . Product value-innovation strategy is a key driver of financial performance of many companies in particular manufacturing companies which have to work towards meeting customer need and at the same time gaining competitive advantage. A successful product value-innovation could convey substantial financial growth to the company and contribute to the company’s distinct market, which will decide the company’s going concern in the competitive market. Product value-innovation has been recognized as an eminent organizational strategy for most companies’ financial performance (Alpkan et al, 2011) (Hermann et al, 2007) (Hult et al, 2004) (Li and Atuahene-Gima, 2001) (Miller, 1998).

The financial performance is likely to improve when a company increases the degree to which it realizes the importance of value-innovation strategy. When implementing product value-innovation strategy, the companies should have clear tactics to overcome the challenges that hinder the effectiveness of integration of product value- innovations in their operations; hence a need for an establishment of an effective performance measurement strategy that can indicate the degree of success of implementing innovations in a firm by using financial measures in order to view the effects of product value-innovations on financial performance ( Njogu, 2014) .

There are five instrumental distinctions between more and less successful firms based on strategic dimensions, namely: the industry assumptions; strategic focus; customers; assets and capabilities and product & service offerings. On the industry assumption, product value-innovation emphasizes that blockbuster ideas and quantum leaps in value provide opportunities to the firm and to the established industries, which bring about product and service differentiation by derailing from the industry format. Even though competitors are monitored, they are never used to benchmark, but find factors that lead to superior values and use their resource capabilities to excel. The sustained firms however do not limit themselves to existing assets and capabilities. Best performing firms go for shared features that are valuable to customers in order to attract customers’ appreciation to the larger extent than they would without their inclusion while implementing strategies. The product and service offerings structure competition which calls for value-innovators’ total solutions on customers’ actual wants ( Louw and Venter, 2013) .

The study conducted by Nwokah et al, (2009) revealed that that introduction of new product or development of the existing product quality was positively and significantly correlated with the companies’ financial performance such as profitability and sales volume. They further indicated that this significant relationship is the results of customers’ loyalty ( Li and Atuahene-Gima, 2001) . In support of Nwokah et al, Mabrouk and Mamoghli, (2010), indicated that an introduction of new technologies is the prerequisites for adoption of value-innovation which will results to an increased companies’ profitability derived from new or improved products. However, extraordinary profits will decline at the beginning of adaptation of value-innovations (Antonnet, 2014) (Mamoghli and Mabrouk, 2010) (Terziovski, 2010).

Although product innovation relationship with the financial performance may be positive and flourishing in the long run, there is a probable abnormal decline in profits in the short-run, which is also a result of learning, initiated investment and internal resource usages. This is considered to be the time lag effect ( Günday et al 2011) .

Therefore, the above authors lead us to conclude that product value-innovation as opposed to product innovation helps companies to produce high quality and cost-effective products. The authors, implicitly showed that there a positive relationship between product value-innovations and firms’ financial performance. However, they did not show a direct linkage between product value-innovation and financial performance.

According to empirical studies carried by (Hult et al. 2004; Zhou 2006), (Danneels and Kleinschmidt 2001) and (Firth and Narayanan 1996) in Eggert et.al, (2014), product innovation has a positive effect on financial performance ( Andereas et al, 2014) . This was also proved by the study conducted by De Faria and Mendonça, (2011) and Cozza et al. (2012), whereby they indicated that there is a positive relationship between product innovation and the company’s revenue growth and profitability. This was further supported by the empirical studies by Bowen et al. 2010; Calantone et al. (2010); Szymanski et al. (2007) who confirmed the positive impact of product innovation on the company’s financial performance. Based on the above empirical studies, it is evident that the authors did not consider the impact of each level of product value-innovation on financial performance. Thus, our study is aimed to uncover in order to find at which level the company has to invest more to increase its profitability and at the same time meeting the customers’ needs.

Higgins (2005) on the case of Anheuser-Busch using blue ocean strategy to save their costs indicated that applying blue ocean strategy can also make a company more profitable while improving cost structure. For a company to effectively compete in the dynamic and competitive business environment and achieve its profitability goals through high sales volume, and large market share, it must continuously improve and introduce products in lines with customers’ needs ( Antonnet, 2014) .

In addition, for a company to be cost effective and successful value-innovative in order to achieve upgraded financial performance, it needs to stick within the financial budgets and complete the innovation process within the stipulated time frame ( Kadareja, 2016) .

CHAPTER THREE. RESEARCH METHODOLOGY

3.1 Introduction

This chapter portrays the rationale used for chosen methods in the research study context and clarifies the reason behind the selected method or technique applied in obtaining the research results that could be assessed. It covers the research design, data collection methods and data processing together with data analysis techniques.

3.2 Area of Study

The study area covered the brick manufacturing companies in Lesotho. The companies selected were the ones with a production capacity of thousands of blocks a day. These companies produce and supply concrete blocks in the sizes of 4.5", 6" as well as 9" and their quality remain incomparable. The reason for using these companies as a case study is because they are striving to meet the high demand of concrete blocks needed both nationally and internationally.

These brick manufacturing companies are working hard to provide the best quality products and services to their customers. Quality remains the companies’ number one priority throughout all their processes, hence a favourable trend on building construction projects. Thus, have brought about a notable bond towards their customers, through their proven capability testified by their clients, and craftsmanship in the construction environment.

3.3 Research Design

This study employed a survey research design. The survey research method is the most suitable method for primary data. This method is commonly used by social scientists who are interested in collecting original data for purposes of describing a population which is too large to observe directly. In this survey, the dependent variable is financial performance measured by return on assets while independent variables are core product value-innovation, formal product value-innovation and augmented product value-innovation. The research used both quantitative and qualitative data.

The study also employed the case study approach to gather information on research objective. This approach is the most useful as it allows studying of various aspects in a specific case. It enables the researcher to draw conclusions about reality from a limited number of respondents. It is unique due to its ability to deal with the full range of evidence. The case study is conducted in the following sequence: designing research questions; identifying data collection and analysis techniques; data collection; evaluate and analyses; presentation of analysis (Chaoren and Thawattehatree, 2011) (Rowley, 2002).

As with all qualitative research methods, single case studies can have limitations and weaknesses. Yin (2009) cautioned that in single case studies, researchers need to carefully consider the identification of the case in order to minimize the chances of misrepresentation as well as ensure appropriate access to collect critical research data. There is a risk that the selected case will not yield the environment required to effectively address the research question. Yin (2009) further stated that a single case study is analogous to a single research experiment and that strong rigor must be applied when assessing potential cases. The researcher should commit to study of a particular case only after examining all major research concerns and ensuring that the identified case can provide an appropriate research setting to answer the research questions (Palangkaraya et al., 2016).

In implementing the research design, an inductive approach was followed, which rooted from observations to theory; generalize the results obtained in the unit in the entire population. In this case, the results obtained from brick manufacturing companies.

3.4 Population of the study

For the purpose of this study population is defined as the entire group of Seashell Block and Plant Hire Company. Therefore, the target population for this study was all the employees of from Brick Manufacturing Companies in Lesotho. The total of 114 employees participated in responding to the questionnaire, of which 40 employees are holding managerial positions. The research focused on all employees from the following departments: Human resource, Marketing, Research and Development, Production, Transport and Finance among others. The main reason behind the chosen population was that these employees are the ones actively involved in daily production activities in achieving the company’s objectives of profit maximization, which is the core of this research.

3.5 Theoretical Framework

The purpose of this study is to determine how to improve firm’s financial performance using product value-innovation. Therefore, the conceptual framework below would offer the conceptual foundation to examine and explore more to the study in verifying the relationship between financial performance and the three-product value-innovation levels. Figure 2.3 presents the relationship between core product value-innovation, formal product value-innovation and augmented product value-innovation with financial performance. There are number of variables in a research study among which a researcher may want to study relationships, such as: Independent variable(s), Dependent variables(s), Moderating variable(s), Mediating variable(s) and Control variable(s) (Khalid et al, 2013. However, for the purpose of this study on three variables will be studied that is dependent variable(s), independent variable(s) and control variable(s). Independent variables (core product value-innovation, formal product value-innovation and augmented product value-innovation) in this case are the predictor variables which are supposed to be the cause of change in our dependent variable (financial performance). The control variables are the variables that are not important to the study, but they were used to improve the results of the study.

3.5.1 Dependent Variable

Dependent variables are the outcome variables and change on account of the independent variable. The dependent variable for this study consists of one variable which is financial performance measured by return on assets (ROA).

3.5.2 Independent Variables

Independent variables are variables which are used to determine the dependent variables.

The independent variable for this study consists of one variable which is product value-innovation with three levels (core product value-innovation, formal product value-innovation and augmented product value-innovation). These three levels of product value-innovation were measured by 5-likrt scale.

3.5.3 Control Variables

The control variables are the variables that are not related to the purpose of the study, but may affect the dependent variable. The control variables are the variables that are kept constant. The control variables for this study consist of three variables which are firm size, firm age and knowledge management.

3.5.4 Research Hypothesis

According to Allan and Gale (1994) product value-innovation is regarded as an introduction of new pragmatic financial tool presenting new sources and uses of funds on pursuing daily operations, which leads to outstanding market growth, new corporate securities and new forms of pooled investment products.

They recommend the three levels based on the existing studies that there is a positive relationship between product value- innovation and financial performance, and this has raised concern of many researchers to discover if indeed product value-innovation is the accurate strategy applicable for expanding the companies’ financial performance. This was also verified by Crépon et al. (1998, CDM) who analyzed the French manufacturing firms conducting a three-step regression analysis that encompassed the research equations estimation, the innovation equations and the productivity equation. Their findings specified that firm’s productivity positively correlates with innovation output such as the number of patents, the share of innovative sales and ultimately the financial performance. On hypothesizing their research, they compared the sales volumes and revenues of both new and existing products for measuring firm’s financial performance; hence their conclusion about the significant and positive relationship between product innovation and financial performance. Even though they discovered that the sales of a new product were affected by existing products in the market due to severe competition with homogeneous products, the price of the new product had to drop to meet the customers’ desired prices, thereby increasing its sales volumes. In line with the above, Duguet (2006) indicated that radical innovation can improve a firm’s financial performance.

This was further supported by Barlet et al. (1998) as cited by Antonnet (2014), who confirmed that innovation distinctiveness is of great importance in increasing the share of innovative sales with the support of other innovation types. Also Grundiche (2004) as mentioned by Antonnet (2014) maintained that an effective competition in the dynamic business environment helps achieve profitability, high sales volume, and large market share; hence a need to unceasingly develop products and product lines to persistently satiate the changing customers’ needs and desires. Nwokah, Elizabeth and Ofoegbu (2009), also Berger and Mester (2003) in their study revealed that product development facets on product quality, product line or product mix were positively and significantly correlated with the financial performance facets of profitability, sales volume and customer loyalty. (Antonnet, 2014).

Based on theoretical literature, the following hypotheses have been developed in order to solve the research problem statement.

Hypothesis 1:

There is a positive relationship between core product value- innovation and financial performance.

Hypothesis 2:

There is a positive relationship between formal product value-innovation and financial performance.

Hypothesis 3:

There is a positive relationship between augmented product value-innovation and financial performance.

3.5.5 Conceptual Research framework

This section presents a research framework which shows the linkages between independent variables (core product value-innovation, formal product value-innovation and augmented product value-innovation) which are the levels of product value-innovation and dependent variable (financial performance). The conceptual framework in figure 4 describes the nature of the hypotheses of this study.

Abbildung in dieser Leseprobe nicht enthalten

Figure 3. 1. Framework; Source: Researcher’s own construct

3.6 Sample Size

A sample size is a subset of the total population drawn to represent the entire population. For this study, the target population is not large; hence the census survey was used and the entire population was covered. Therefore, for this study, a total of 114 employees (91.2%) responded to the questionnaire.

Table 3. 1. Target Population Distribution

Abbildung in dieser Leseprobe nicht enthalten

3.7 Data and data Collection method

The primary data was collected through the use of the survey questionnaire. The use of a questionnaire was adopted to ensure that data collection was standardized such that each respondent got the same question and in the same format. The use of questionnaires enabled collection of original data from the population sample within a short time, at reasonable costs for purposes of describing the entire population.

The questionnaire was divided into five parts and structured according to the research questions. The first part covered the respondents’ profile, while the last four parts covered questions presented on five points Likert-scale; their division was based on different independent and dependent variables. The questions were designed such that they were in line with the research purpose of assessing how product value-innovation can be used to improve financial performance. Therefore, the five points Likert-scale questions range from (1) “strongly disagree” to (5) “strongly agree”. Part one explored the population demographic data. Part two represents the core value-innovation questionnaire. Part three represents the formal value-innovation. Lastly, part four represents the augmented value-innovation. The data collection techniques used in this research are qualitative and quantitative methods.

The data collection tool that was used for the study was questionnaire to obtain data from primary sources. On the other hand, data from secondary sources was collected by conducting document review and an analysis of the company’s progress on the execution of Blue ocean strategy using the application of value innovation as the basis.

3.8 Measurement

In order to solve the research problem, the researcher collected data to ensure effectiveness and efficiency of conducting the research. The questionnaire was divided into five sections to study the features of the chosen variables in identifying the relationship between product value-innovation and financial performance. The questionnaire was designed in the following manner:

Section A of the questionnaire was the respondents’ profile, which entailed gender, age, nationality, management level, educational level and the number of years working in the company. Section B was the core product value-innovation, which comprised of three “yes or no,” one descriptive question and one with a 5-Likert scale with 10 questions. Section C focused on the formal product value-innovation, with one “yes or no” question, one descriptive question and a 5-Likert scale questions with ten items. Section D was on augmented product value-innovation with one “yes or no” question, one descriptive question, a 9 itemed 5-Likert scale question and one ranking scale question. The last section was E which was the financial performance indicators with the four questions that needed to be stated.

3.8.1 Measurement of Independent Variables

For the purpose of this study, Product value-innovation was measured using three-dimension levels (1) Core product value-innovation and (2) Formal product value-innovation; which were measured using the same (10 items) customer segments, branding, customer needs are specific, additional value to customer satisfaction, price/fees, expansion products strategy, security, communication, access and income generating. (3) Augmented product value-innovation was measured using 9 dimensions; being number of new products and services, number of new facilities, research and development expenses, the provision of timely service, improvement in response time to customer queries, reduction in interruptions, reduction in waiting time, number of new technology gained and improvement in space utilization. The respondents were asked to give information on the performance of product innovation with regard to these dimensions using a 5-Likert type scale.

The independent variable, core product Value-innovation was measured by 10 items using 5-Likert scale ranging from :( “1-Not important to 5-Very important”)

Table 3. 2. Aspects of Core Product Value-innovation adopted from (Antonnet, 2014)

Abbildung in dieser Leseprobe nicht enthalten

The independent variable, Formal Product Value-innovation was measured by 10 items using 5-Likert scale ranging from :( “1-Not important to 5-Very important”).

Table 3. 3. Aspects of Formal Product Value-innovation adopted from (Antonnet , 2014)

Abbildung in dieser Leseprobe nicht enthalten

The independent variable, Augmented Product Value-innovation was measured by 9 items using 5-Likert scale ranging from: “1-Not important to “5-Very important.

Table 3. 4. Aspects of Augmented Product Value-innovation adopted from Antonnet Adhiambo, 2014)

Abbildung in dieser Leseprobe nicht enthalten

3.8.2 Measurement of Dependent Variable

The dependent variable, Financial Performance, was measured by Return on Assets. This was calculated from 2016 financial statements.

Table 3. 5. Financial Performance adopted from (Antonnet Adhiambo, 2014).

Abbildung in dieser Leseprobe nicht enthalten

The data collected was analysed using descriptive and inferential statistics. This analysis was carried with the help of the econometric data analysis tool (Eviews 9.5). The study used multiple regressions to assess how the use of product value-innovation affects brick manufacturing Companies’ financial performance. Data description and finding the respondents’ degree of agreement with the various statements under each factor were determined by the use of descriptive statistical tools.

“For the purpose of this study, the independent variables are core product value-innovation, formal product value-innovation as well as augmented product value-innovation respectively. The dependent variable is financial performance measured by Profitability ratio.” Financial performance, which is the dependent variable, was measured by the level of profits realized from the assets employed. The findings are presented in the form of tables and figures and other central tendencies measures.

The following analytical model was used in analysing the relationship between the dependent and independent variables:

FP = β0 + β1*CPVI +β2*FPVI +β3*FPVI + β4*FirmSize + β5*FirmAge+ β6*Knmagnt+ εt

ROA= β0 + β1*CPVI +β2*FPVI +β3*FPVI + β4*FirmSize + β5*FirmAge+ β6*Knmagnt+ εt

Where:

FP - is company’s financial performance

ROA- is company’s return on assets used to measure financial performance

β0 – constant

β1 – is the co-efficient of core product value-innovation

β2 – is the co-efficient of formal product value-innovation

β3 – is the coefficient of augmented product value-innovation

β4 – is the coefficient of firm size

β5 – is the coefficient of firm age

β6 – is the coefficient of knowledge management

CPVI – Core Product Innovation

FPVI–Formal Product Innovation

FPVI– Augmented Product Innovation

FirmSize – is the firm size

FirmAge – is the firm age

Knmagnt – Knowledge Management

εt = error or random term

CHAPTER FOUR. DATA ANALYSIS AND PRESENTATION OF RESULTS

4.1 Introduction

The study sought to find out how the use of value-innovation as a strategy can help brick manufacturing Companies to improve their financial performance. This chapter covers the following sections: 4.2 Data Analysis( Demographic information of the Respondents, Validity and Reliability Analysis, Descriptive Statistic Analysis, Inferential Statistic Analysis); 4.3 Presentation of the Findings, affecting brick manufacturing companies’ innovation in Lesotho, Organizational Capability, Knowledge Management, Perceived Organizational Support, Organizational Culture); 4.5 Product value-innovation levels’ contributions to the companies’ annual income; 4.6 Discussion of the Findings. 125 hard copies of the questionnaires consisted of 7 pages each was sent to the target respondents. Out of 125 only 114 copies of the questionnaires were filled and returned indicating 91.2% response rate.

4.2 Data Analysis

4.2.1 Demographic information of the Respondents

4.2.1.1 Gender of the Respondents

A total of 125 employees were given a questionnaire, of which 114 responded to the survey questions, which resulted to a 91.2% response rate. Out of 114 respondents, 103 (82.4%) were males while the remaining 11 (9.6%) were females.

Abbildung in dieser Leseprobe nicht enthalten

Figure 4. 1. Respondents’ gender

4.2.1.2 Age of the Respondents

The majority respondents belong to the age group of 30-34 years, which represents (68%), followed by age group below 25years which represents (19%), age group 25-29 years (12%) and finally 35 and above years representing (9.65%) of the total population respectively.

Abbildung in dieser Leseprobe nicht enthalten

Figure 4. 2. Respondents’ Age

4.2.1.3 Management Level

Out of 114 respondents 91 are operators representing 80%, 15 of them are functional managers representing (13%) and the remaining 7 are the top managers (7%).

Abbildung in dieser Leseprobe nicht enthalten

Figure 4. 3. Respondents’ Employment Position

4.2.1.4 Educational Level of the Respondents

The study was also interested in finding out the educational level of the respondents. It was therefore discovered that for educational level, 2 employees, which represents (1.8%) have a bachelor degree certificate level followed by 5 (4.4%) employees holding a diploma, certificate level while 26 (22.8%) employees have certificate level and the remaining 81 (71%) high school certificate.

Abbildung in dieser Leseprobe nicht enthalten

Figure 4. 4. Respondents’ Educational Level

4.2.1.5 Respondents’ number of years in service

Analysis of results showed that (70%) of the respondents have worked for the company for the period above 5 years, followed by (22.5%) of the respondents who worked for the company for the period between 3-5years and (7.5%) of the respondents worked for the company for the period below 3 years.

Abbildung in dieser Leseprobe nicht enthalten

Figure 4. 5. Respondents’ Number of years in Service

The profile of the respondents is shown in Table 4.1 below.

Table 4. 1. Profile of Employees of brick Manufacturing Companies

Abbildung in dieser Leseprobe nicht enthalten

4.2.2 Validity and Reliability Analysis

In order to conduct data analysis, there is a need to carry out the validity and reliability analysis of financial performance and three product value-innovation levels. These tasks were performed in this order: (1) Pilot study; (2) Validity Analysis which includes Item Analysis and Factor Analysis and; (3) Reliability Analysis

4.2.2.1 Validity Analysis

Validity analysis was done to test whether the instruments measure what it is supposed to measure. In order to conduct validity analysis, we first started by doing an item analysis, then factor analysis which was followed by reliability analysis.

4.2.2.1.1 Pilot Study

The pilot test was concerned with the stability and consistency of the research instrument in assessing the goodness of a measurement. It answers the questions on how consistently and stably the research instrument measures what was intended to measure. The Cronbach’s alpha acquires for concluding that measurement is consistent and stable will all the items being positively correlated to one another. For this reason, the Cronbach’s alpha has been used to measure the reliability among our research variables.

According to Sekaran, (2003), reliabilities with less than 0.60 are deemed poor while those in the range of 0.70 ranges, is acceptable and those above 0.80 is considered as good Sekaran (2003) . On the overall, the reliability of all the measures for the pilot study were comfortably above 0.70, ranging from 0.76 to 0.90. In summary, the values of Cronbach’s alpha indicate that all the items are positively correlated with one another and therefore the instrument used to measure each variable in this study is reliable. Table 4.2 presents the summary of reliability analysis for both pilot and research study.

Table 4. 2. Pilot Study Results

Abbildung in dieser Leseprobe nicht enthalten

4.2.2.1.2 Item Analysis

Item analysis was run to find which items are important or not important in measuring what they were intended to measure. Therefore, item analysis was done for all four variables. All the items were retained as they were all important in measuring what they were intended to measure; the results are presented in the tables below.

Table 4. 3. Item Reliability Analysis Results for Product Value-innovation

Abbildung in dieser Leseprobe nicht enthalten

4.2.2.1.3 Factor Analysis

Factor analysis was done before reliability analysis. It was used to examine how the underlying constructs influence the responses of a number of measured variables. In order to do factor analysis, exploratory factor analysis methods were applied to assist the researcher in identifying factors to be used for further research data analysis by reducing flabby data. Factor analysis is done in order to obtain factors with the greatest factor loading value. The Kaiser-Meyer-Olkin (KMO) and Bartlett’s Test was used to measure the adequacy of our sampling. The values of KMO and Barlett’s Test greater than 0.50 are considered acceptable. The KMO and Bartlett’s Test produced 0.733 indicating that there are sufficient items for each factor measuring product value-innovation. The probability value also was found to be less than 0.005 which considered significant and indicating that the correlation matrix is significantly different from an identity matrix, in which correlations between variables are zero (Francies, n.d).

Therefore, factor analysis was done to identify core factors affecting product value-innovation in Brick Manufacturing Companies. This technique is the most appropriate as it requires no preexisting of functional relationships and is a well-known for data reduction. It is used to reduce the large number of variables into a few numbers of core factors.

Table 4. 4. KMO and Bartlett’s Test

Abbildung in dieser Leseprobe nicht enthalten

Principal Component Analysis (PCA) was applied to determine the total variance. The outcomes of PCA revealed that there are four factors. The Eigenvalues are the variances of the factors with the total column containing the Eigenvalue. The factors are ranked in their descending order, with the first factor having the highest Eigenvalue. The next factor accounts for as much as possible of the leftover variance and the similar continuously apply till the last factor. The percentage of variance represents the percentage of total variance accounted by each factor. The cumulative percentage adds to the cumulative percentage of the variance account by the present and the preceding factors. This was shown by their Eigenvalue found to be greater than one. Eigenvalues represent the variability of each factor: factor 1 (31.75%); factor 2 (15.45%); factor 3 (11.24%) and factor 4 (7.56%). The initial components are the numbers of the variables used in the Factor Analysis. However, not all the variables are retained. For the purpose of this study only the four factors will be extracted by combining the relevant variables.

Table 4. 5. Total Variance Explained

Abbildung in dieser Leseprobe nicht enthalten

4.2.2.1.3.1 Factor loading matrix

The principal component matrix with Varimax rotation technique indicates the rotated component matrix Rotation of factors helps in the better interpretation of factors. The rotation sums of the squared loading represent the distribution of the variance after the varimax rotation with Kaiser Normalization. The varimax rotation maximizes the variance of each of the factors. On the basis of Varimax Rotation with Kaiser Normalization, four factors have been extracted, with each factor constituted by all those variables that have the factor loadings greater than 1 and all variables were bashed into 4 factors. These 4 extracted factors explained 66.00% of the variability the performance of brick manufacturing companies.

The Rotated Component Matrix denotes the rotated component loadings that are the correlations between the variables and the components. The component column denotes the rotated components extracted out of the total components. They are the core components, used as the final after data reduction.

Table 4. 6. Components Rotated Matrix

4.2.2.1.4 Reliability Analysis

After identification of the factors, the reliability test was conducted to check the stability and consistency of research instrument in accessing the goodness of a measurement. Reliability is also defined as the extent to which any measuring instrument yields the same results on repeated trials. It answers the questions on how consistently and stably research instrument measures what it was indented to measure. For this reason, the Cronbach’s alpha has been used to measure reliability of our research items. Cronbach's Alpha value was used to measure internal consistency of items in the questionnaire. Total number of items used in the questionnaire is 12: which represents 5 items for core product, 4 items for formal product and 3 items for augmented product including 3 financial performance indicators (Return on Assets, return on Equity and Profit Margin).

The values of Cronbach’s alpha for all three variables were found to range from 0.80 to 0.90. These values indicate that all the items are positively correlated with one another and therefore the instrument used to measure each variable in this study is reliable. Table 4.7 presents the summary of reliability analysis results for research study.

Table 4. 7. Reliability Analysis Results

Abbildung in dieser Leseprobe nicht enthalten

4.2.3 Descriptive Statistic Analysis

The descriptive statistics results showing the means and standard deviation for both dependent variables and explanatory variables from Eviews 9.5 are presented in table 4.8. Table 4.8 provides the summary of the descriptive statistics for both dependent variable and their independent variables. All variables are evaluated based on a 5-point Likert scale (1 representing strongly disagree to 5 representing strongly agree). The findings indicate that the means of our dependent variables being return on assets (ROA) is 1.656, with a standard deviation of 0.666. The mean of core product value-innovation is 4.327 with a standard deviation of 0.376. The findings also indicate that the means of formal product value-innovation is 4.478 with a standard deviation of 0.739. The mean for the augmented product value-innovation is 3.982 with a standard deviation of 1.326. The mean values of all the variables are greater than 3 which represents neither disagree nor agree. It is, therefore, concluded that product value-innovation is the determinant of a company’s financial performance, with the average mean of 4.262. The means of control variables are firm size 202.798, firm age 8.180 and knowledge management 1.281 with standard deviations of 84.922, 2.111 and 0.631 respectively.

Table 4. 8. Descriptive Statistic Analysis

4.2.4 Hypothesis Testing

4.2.4.1 Correlation Analysis

Correlation Coefficient analysis was also carried out to assist in determining the correlation between our regression models. Therefore, the purpose of using of Correlation was to investigate the relationship between dependent variables and independent variables. The higher value of the correlation coefficient, the stronger the level of relationship between two variables. A positive value for the correlation coefficient indicates a positive relationship. While, a negative value of the correlation coefficient indicates a negative relationship. Our test was carried out using an adopted scale model suggested by Cohen (1988) mentioned in table 4.9 below

Table 4. 9. Correlation Coefficient Analysis

Abbildung in dieser Leseprobe nicht enthalten

Table 4.10 provides the summary of the correlation analysis results for this study. The findings indicate that there is a very strong positive correlation between Return on Assets and core, formal and augmented product value-innovation (CPVI (r) =0.862) (FPVI (r) =0.785), (APVI (r) = 0.788). All these variables were tested using n =114 and p< 0.05. It is therefore evident, that all our independent variables positively correlate with independent variable. The Pearson correlation coefficient analysis also provides the results for all three control variables. The findings indicate that there is a strong relationship between firm size, firm age and knowledge management with return on assets ((r) = 0.549) (r) =0.693 and (r) =0.657) respectively.

Table 4. 10. Correlation Analysis Results

Abbildung in dieser Leseprobe nicht enthalten

4.2.4.2 Regression Analysis

In order to find out how Product Value-innovation can be used to improve Financial Performance Brick Manufacturing Companies, Ordinary Least Square method was used. The results of the multiple regression analysis are shown in Table 4.11.

In order to find the relationship between product value-innovation and financial performance, the study used multiple regression analysis:

Equation:

ROA = 0.732+0.128*CPVI + 0.290*FPVI +0.219*APVI+0.044 *FirmSize +0.184*FirmAge + 0.048*Knmagnt

The estimated model suggests the following: autonomous increase in financial performance is 0.732. This is the increase in financial performance when the explanatory variables in the model that is core product value-innovation, formal product value-innovation and augmented product value-innovation are all equated to zero. In other words, this shows the increase rate at which company’s financial performance would encounter if left to operate on its own, that is, without influence of any hypothetical determinants. However, this constant term is insignificant as evidenced by its p-value greater than 0.05 levels.

The findings also indicate that there is a significant positive relationship between all levels of product value-innovation with return on assets as indicated by their positive coefficients (β0 = 0.128, β2 = 0.290 and β3 = 0.219), their large t-ratios (3.932, 3.339 and 2.369) and probability value less than 0.05 level (0.000, 0.000 and 0.000) respectively.

These results therefore show that a unit change in core product value-innovation and formal and augmented product value-innovation will lead to about 0.128, 0.290 and 0.219 increases in return on assets respectively hence company’s financial performance. These results lead to the conclusion that product value-innovation levels significantly and positively relate to return on assets.

Table 4. 11. Regression Analysis Results for Return on Assets

Abbildung in dieser Leseprobe nicht enthalten

In summary the regression analysis also provides analysis on the control variable from the above equation. The results show the significant positive relationship between control variables and financial performance. The results also show that the unit change on firm size, firm age and knowledge management leads to an increase on financial performance. The results revealed that firm size (0.044), firm age (0.184) and knowledge management (0.048) are positively related to financial performance.

The coefficient of determination (R2) which measures the fraction of the total variation in financial performance is explained by variation in core product value-innovation, formal product value-innovation and augmented product value-innovation. R2 is a statistical term showing how significant two variables are related. If the value of R2 approaches 1.0, it shows that our regression model explains all the variation in our dependent variable. However, if the value of R2 approaches 0.0, it shows that our regression model explains none of the variation in our dependent variable. The higher the value of R-Square means better prediction of one term from another. The acceptable value of R2 is the one more than 50% (Maurice and Thomas , 2013). The researcher was focusing on the brick manufacturing Companies’ product value-innovation looking into the core, formal and augmented product innovations and their effects on company’s profitability. Therefore, our results revealed that R2 is 0.717 which explained 71.7%, variation in our dependent variable while the loss in degree of freedom adjusted R2 (0.702) is accounted for, then the variation in our dependent variables is explained by 71.7%.

The results also indicate that our model has no multicollinearity, this, therefore, shows that explanatory variables in a multiple regression model are not related to each other. Multicollinearity is said to be perfect if the correlation between two independent variables is equal to 1 or −1, although it is pragmatically seldom to get a flawless multicollinearity in a data set. In most situations, multicollinearity arises when there is a linear relationship between two or more independent variables. The regression analysis also concentrates on the correlations between one or more input factors and identifies the strength and direction of the link between them (Akinwande, 2015). According to Rogerson, (2001), variance inflation factor is reasonable if it is less or equal to 5; VIF≤5 (Rogerson, 2001). Therefore, our results discovered VIFs for three equations with variables being; CPVI, FPVI, APVI, FIRMSIZE, FIRMAGE AND KNMAGNT to be 1.042, 1.076, 1.022, 1.122, 1.027 and 1.061 respectively. All our results are below 5; which shows a different pattern from figures 2.1 and 2.3 in chapter 2 as theorized by Kotler, (1967), who indicated that core product innovation leads to formal product innovation which in turn results to augmented product value-innovation. Thus, our variance inflation factor values clearly revealed that each level independently affects product value innovation.

4.3 Presentation of the Findings

H1: There is a significant positive relationship Between Core Product Value-innovation and Financial Performance

Regression analysis results indicated that there is an insignificant positive relationship between core product value-innovation and return on assets, hence financial performance (β1=0.128, n=114, p=0.000). Thus, Hypothesis 1 was accepted.

H2: There is a significant positive relationship Between Formal Product Value-innovation and Financial Performance

Regression analysis results also indicated that there is an insignificant negative relationship between formal product value-innovation and return on assets, hence financial performance (β2=-0.290, n=114, p=0.000). Thus, Hypothesis 2 was accepted.

H3: There is a significant positive relationship Between Augmented Product Value-innovation and Financial Performance

Regression analysis results also indicated that there is an insignificant positive relationship between augmented product value-innovation and profit margin, hence financial performance (β3=0.219, n=114, p=0.000). Therefore, we conclude that there is a positive relationship between augmented product value-innovation and profit margin, hence financial performance but not significant. Thus, Hypothesis 3 was accepted.

Table 4. 12. Summary of Hypothesis Analysis

Abbildung in dieser Leseprobe nicht enthalten

Based on the return on assets (ROA) being the dependent variables, this study selected ROA to investigate the relationship between product value-innovation and financial performance because the ratio incorporates information of both profitability and efficiency. ROA is a performance ratio reflecting not only profitability but also efficiency. Furthermore, ROE was not considered because it is overly affected by a firm’s financing decisions. The formula below provides the reason why profit margin was also not used for further analysis.

Abbildung in dieser Leseprobe nicht enthalten

Figure 4. 6. Return on Assets formula

This formula shows that return on assets is the function of profit margin and total assets turnover (TAT).

4.4 Factors affecting product value innovation

The respondents were required to highlight factors that affect product value-innovation and the following results were obtained:

4.4.1 Organizational Capability

Out of 114 respondents, 61 (54%) pointed out the need for the company’s competence to innovate and 5 (4.4%) emphasized on the requirement for deeper research and development (R&D). They further stated that Seashell has such resource capabilities.

4.4.2 Knowledge Management

76 (67%) respondents stated the importance of skills and knowledge of managers for planning, control and performance management towards innovativeness of employees. They added that with the management they have, the company can easily attain its objectives.

4.4.3 Perceived Organizational Support

89 (78%) respondents confirmed the availability and importance of a proper communication flow, knowledge transfer, trust and teamwork.

4.4.4 Organizational Culture

109 (95.6%) employees affirmed unity and hardworking to be their philosophy to achieve high quality products that satisfy customer needs.

4.5 Product value-innovation levels’ contributions to the company’s annual income

The respondents were requested to rank the products in their order of profitability, from which (88%) considered the augmented product to be the most profitable, followed by formal product by (88%), the core product with (12%).

4.6 Discussion of the Findings

4.6.1 To investigate the relationship between product value innovation and financial performance

4.6.1.1 Core product value-innovation and financial performance

The regression analysis results indicated that there is a significant positive relationship between formal product value-innovation and financial performance (β1= 0.128) in company’s return on assets. This increase shows that the company will generate 13 cents profit per loti of assets. This therefore means that when a company adopt product value-innovation. These results show that 1% increase in formal product value-innovation will lead to 12.8% increase at stage two it will experience an increase in its net-income which leads to an increase company’s financial performance. This is because the return on assets is net-income, expressed as a percentage of total company assets. Formal product value-innovation was also found to be the most important factor influencing company’s return on assets as indicated by its probability value less than 0.05 levels of significance.

These results support the study conducted by (Hult et al. 2004; Zhou, 2006; Danneels and Kleinschmidt, 2001 and Firth and Narayanan, 1996) in Eggert et.al, (2014), they indicated that product innovation has positive effects on financial performance. This was also proved by the studies conducted by De Faria and Mendonça, (2011) and Cozza et al. (2012), whereby they indicated that there is a positive relationship between product innovation and the company’s revenue growth and profitability. This was further supported by the empirical studies by Bowen et al. 2010; Calantone et al. (2010); Szymanski et al. (2007) who confirmed the positive impact of product innovation on the company’s financial performance.

In addition, for a company to be cost effective and successfully be value-innovative in order to achieve upgraded financial performance, it needs to stick within the financial budgets and complete the innovation process within the stipulated time frame ( Kadareja, 2016). This finding collaborates with studies conducted by Alpkan, (2011), Hult, (2004) and Miller, (1998), whereby they indicated that for the company to be able to gain profitability and growth largely depends on its financial performance which is determined by actions undertaken by companies in relation to adoption of product value-innovation. This finding disagrees with the study conducted by Antonnet (2013), who indicated that there is a significant negative relationship between formal product innovation and financial performance. Antonnet reaffirmed that the negative relationship between formal product innovations is due to the costs incurred during innovating formal product and the required efforts for marketing and timeframe to generate enough income and hence positively affect the return on equity which is positively related with profit margin.

These findings also support the study conducted by Günday, G, et al. (2011) in his study; “Effects of innovation types on firm performance,” whereby he attested that innovation has a positive impact on the company’s financial performance in the long-run.

4.6.1.2 Formal product value-innovation and financial performance

The regression analysis results indicated that there is a significant positive relationship between formal product value-innovation and financial performance (β2= 0.219). These results show that 1% increase in formal product value-innovation will lead to 22% increase in company’s return on assets. This increase shows that the company will generate 22 cents profit per loti of assets. This therefore means that when a company adopt product value-innovation at stage two it will experience an increase in its net-income which leads to an increase company’s financial performance. This is because the return on assets is net-income, expressed as a percentage of total company assets. Formal product value-innovation was also found to be the most important factor influencing company’s return on assets as indicated by its probability value less than 0.05 levels of significance.

These results support the study conducted by (Hult et al. 2004; Zhou, 2006; Danneels and Kleinschmidt, 2001 and Firth and Narayanan, 1996) in Eggert et.al, (2014), they indicated that product innovation has positive effects on financial performance. This was also proved by the studies conducted by De Faria and Mendonça, (2011) and Cozza et al. (2012), whereby they indicated that there is a positive relationship between product innovation and the company’s revenue growth and profitability. This was further supported by the empirical studies by Bowen et al. 2010; Calantone et al. (2010); Szymanski et al. (2007) who confirmed the positive impact of product innovation on the company’s financial performance.

In addition, for a company to be cost effective and successfully value-innovative in order to achieve upgraded financial performance, it needs to stick within the financial budgets and complete the innovation process within the stipulated time frame ( Kadareja, 2016). This finding collaborates with studies conducted by Alpkan, (2011), Hult, (2004) and Miller, (1998), whereby they indicated that for the company to be able to gain profitability and growth largely depends on its financial performance which is determined by actions undertaken by companies in relation to adoption of product value-innovation. This finding disagrees with the study conducted by Antonnet (2013), who indicated that there is a significant negative relationship between formal product innovation and financial performance. Antonnet reaffirmed that the negative relationship between formal product innovations is due to the costs incurred during innovating formal product and the required efforts for marketing and timeframe to generate enough income and hence positively affect the return on equity which is positively related with profit margin.

These findings also support the study conducted by Günday, G, et al. (2011) in his study; “Effects of innovation types on firm performance,” whereby he attested that innovation has a positive impact on the company’s financial performance in the long-run.

4.6.1.3 Augmented product value-innovation and financial performance

The regression analysis results also indicated that there is a significant positive relationship between augmented product value-innovation and return on assets (β3=0.290). The findings of this study indicate that 1% increase in augmented product value-innovation will lead to 29.0% increase in company’s return on assets. This increase shows that the company will generate 29 cents profit per loti of assets. The increase in return on assets resulted from an increase in net-income. That is, augmented product value-innovation is the third stage in product value-innovation whereby the customers’ needs and desires are fully catered for with some improvements on customers’ needs and desires. The profits may be relatively lower than that of stage two due to the inclusion of additional value. The profits are as a result of higher sales volumes as opposed to higher selling prices. This therefore means that when a company adopts product value-innovation, the prices of the company products become lower, while the demand for such products increases. Augmented product value-innovation was also found to be the most important factor influencing company’s return on assets as indicated by its probability value less than 0.05 levels of significance.

These findings agree with studies conducted by (Nwokah et al, (2009), Nwokah et al, Mabrouk and Mamoghli, (2010), Terziovski, (2010) and Antonnet, (2014)) who revealed that that introduction of a new product or development of the existing product quality positively and significantly impact on companies’ financial performance such as profitability and sales volume. They further indicated that this significant impact is the results of customers’ loyalty. In addition, they showed that an introduction of new technologies is the prerequisites for adoption of value-innovation, which will result to an increased companies’ profitability derived new or improved products.

The findings also support empirical studies carried by (Hult et al. 2004; Zhou 2006), (Danneels and Kleinschmidt 2001) and (Firth and Narayanan 1996) in Eggert et.al, (2014) and Bowen et al. 2010; Calantone et al. (2010); Szymanski et al. (2007) in which they indicated that that product innovation has a positive effect on financial performance. The results agree with the studies conducted by De Faria and Mendonça, (2011) and Cozza et al. (2012), whereby they indicated that there is a positive relationship between product innovation and the company’s revenue growth and profitability.

Higgins (2005) on the case of Anheuser-Busch uses blue ocean strategy to save their costs also agrees with our findings, they indicated that applying blue ocean strategy can also make a company more profitable while improving cost structure. For a company to effectively compete in the dynamic and competitive business environment and achieve its profitability goals through high sales volume, and large market share, it must continuously improve and introduce products in lines with customers’ needs ( Antonnet, 2014) .

However, these findings disagree with Antonnet, (2013), who found augmented product innovation negatively related to financial performance as our coefficient is positive and significant.

4.6.2 To find which among the three levels of product value-innovation has a very strong positive relationship with financial performance.

This study discovered that augmented product value-innovation has a significant positive relationship with financial performance (β3 =0.290, p=0.000). This shows that an introduction of a new product or improvement of the existing products will lead to 0.290 increases in financial performance which is approximately 29% increase. This increase shows significant impact; hence this variable can be used for future decision making by Brick manufacturing companies. This level of product value-innovation builds on both core and formal product by offering additional consumer services and benefits, that is adds more on product customization. This makes the augmented product the complete solution to the problems as defined by the core customer value. This complete solution might result in the form of a warranty, after-sale service, product support and instructions on how to use the product. It also involves the brand identity and product image ( Claessens, 2015) ( Mulder, 2012) .

This is what Alpkan, (2011), Hult, (2004) and Miller, (1998), said is the stage of company’s beginning to gain profitability and growth, which largely depends on its financial performance due to actions undertaken by companies in relation to adoption of product value-innovation. Antonnet, (2013), also reaffirmed that company incurred costs during innovating formal product and marketing it, which resulted in an increase in return on assets and led to deduction in return on equity and ultimately fall profit margin. This is what Günday, et al. (2011) considered as the short-term negative relationship due to the internal resource usage and the introduced investment. They regarded the negative relationship as the short-term mistakes that are a result of a learning process.

4.6.3 To find the factors that contribute to product value-innovation

The results of the study revealed that organizational capability is one of the factors that increase product value-innovation.The results support the study conducted by Nazem, (2011), who regarded capacity as the core competence that allows a company to gather innovative idea from employee as a key success factor and the employee’s learning capability towards product development (Nazem, 2011, Choong et al, 2015, Chang et al, 2012 and Hermann, 2007) also proved that organizational capacity is positively related to product value-innovation.

The results also indicated that knowledge management is one of the drivers of the product value-innovation. These results support those proved by (Choong et al, 2015, Kor , 2013, Kamran 2012 and Nonaka, 1995) in the study they conducted, where they concluded that the company with high knowledge sharing is more likely to reach the advanced innovative performance than the one with less knowledge sharing.

The results indicated that perceived organizational support influences product value-innovation. These results support the studies conducted by ( Choong et al ,2015, Alcakovic,2015 and Kull et al, 2012) affirmed that an organization with shared beliefs, standards and goal congruence enable an effective teamwork towards acquisition of new product development in the presence of be more effective and organisational competences to be well developed. As a result, organisation able to proceed further and acquire capability in developing new products, whenever there is an existence of cooperative culture and support.

The study further revealed that organizational culture is the backbone of the company which leads to adoption of product value-innovation. The results support the studies conducted by (Choong et al, 2015, Alcakovic,2015, Jayasingam, 2012 and Samad, 2012), that attested organizational culture’s involvement and its adoption as an aid to cultivate creativity needed for potential product development and plays an important part in the workforce to drive the innovativeness and enhance development of high quality products that satisfy customer needs .

CHAPTER FIVE. CONCLUSION AND RECOMMENDATIONS

5.1 Conclusion

Based on the findings of the study, it can be concluded that product value-innovation has a positive relationship with financial performance; hence it can be one of the useful tools applicable to attract market demand in order for a company to fuel its growth and attain the sustainable superior profits. The adoption of product value-innovation can help the company to maintain its going-concern, achievement of competitive advantage and of course the increased return on assets. Nevertheless, the companies should not be demotivated by the time lag usually experienced during formal product value-innovation, as it only short-term. Instead, it should be positively considered as an improved liquidity and the upgraded leverage positioning of the company due to increased assets at that stage.

The introduction of formal and augmented products has empowered companies to generate revenue not solely from the core product. There are however other factors that influence the product innovation process that need to be taken care of by the companies, government and future researchers. It is thus essential to put more attention towards the details of customer’s needs in order to build a stronger relationship with customers to gain their loyalty, in support of profitability. This can be achieved through identification of all proper methods that can be used to increase the propensity of internal resources such as training for employees and financial support towards employee’s higher education. It is therefore important for all major stakeholders to contribute towards achievements of financial performance by identifying other critical success factors such as identification of distinctive resources, law making and amendments, quality management and corporate governance.

5.2 Recommendations

5.2.1 Recommendations to Seashell Company

The findings of this study bring about several recommendations to the management of brick manufacturing companies. The findings revealed that there is a significant and positive relationship between core, formal and augmented product value-innovation with financial performance. Based on the findings, it is recommended that the management of brick manufacturing companies should invest more on research and development in order to acquire knowledge on what to produce with what predications based on customers’ needs. Adoption of product value-innovation has to be informed by customers’ needs and desires. This is because the product value-innovation levels found to impact significantly on financial performance with larger impact from augmented product value-innovation. This shows that the companies needs to invest more on research and development as they can help the company to avoid unnecessary costs that may be incurred at level two; that is formal product value-innovation.

It is, therefore, recommended that management should adopt product value-innovation strategy in order to improve company’s financial performance. This strategy will help the company to meet the customer needs while also leading the competitive market, since it is an outside-in perspective whose objective is to maximize the financial performance. The strategy can be used by companies to lead the market and create demand for their products, with more attention on augmented, formal and core products in order to cover up for losses incurred at stage two of product value-innovation ( Louw and Venter, 2013) .

It is also recommended that management should identify company’s resource-based-capabilities, which are regarded as the core elements of the organizational competence that enables gathering innovative ideas from employees as a key success factor. The organization has to acknowledge its capabilities, with all its Human Resources being well managed. This will help identify the existing multifaceted packages of talent, skills and accumulated knowledge that can be applied throughout the organizational activities. This can be achieved by full employment of all the organizational assets, and engagement of strategic decision enablers. This therefore calls for involvement of all employees in planning processes in order to meet customers’ needs and market demand.

Management should make use of product value-innovation in the production of high quality products with less cost yet incorporating customer needs and values. This will help the company to attain the uncontested market space by continuously finding the new and different product to be introduced to the market. This means that if it takes breaking away from the existing conditions and assumptions of the industry, the company should deviate from the routine processes and adjust to the new one. The companies should however not totally ignore competitors, but provide a room for monitoring in order to deliver superior values than the industry.

It is recommended that management should consider knowledge management as one factor that can lead to effective implementation of product value-innovation. This is because a series of tactics and operations applied by an organization are through its knowledge management to identify, create, distribute, and enable adoption of perceptions and practices. Knowledge is a very crucial resource for conducting an organizational operation and implementation of winning strategies that can solve the organizational problems and assist the organization towards the attainment of competitive advantage. Knowledge management is an organizational practice that improves the effectiveness and enhances the employees’ willingness to internally share the knowledge among others, with the intention to solve organizational problems. This can be aided by training of employees for better management of the organizational resources ( Nazem, 2011) . In order for the organization to gain the competitive advantage, the organizational human capital must have a tacit knowledge that is applicable on structuring the organization’s profitability. The tacit knowledge involves the skills possessed by a person that can be more explicit than implicit but reflect on one’s performance. The tacit knowledge is considered subjective and complex to describe other than by its own performance ( Camila and Luiz, 2013) .

Knowledge management is consistent with intellectual of organizational capital, which provides guidance towards the competitive advancement through innovation and develops new products to enhance the organization’s profits. It is through knowledge management, that the organization can easily attain its strategic objectives in correlation of performance, and enhancing the procedures and methods of connecting with the company’s capability to use all the existing sources and types of knowledge in the organization to progress precise skills that used to transform into new products and processes ( Kamran and Sabi, 2012) In order to increase the organization’s financial performance and effectiveness, there is a need for an organization to engage in knowledge management throughout all levels of product value innovation. This will enhance an organization's ability to increase organizational learning which will enable the company’s ability to manage the creation of new knowledge, together with the quick response to customers’ values which leads the company to be the market spearhead ( Kor and Maden, 2013) . Knowledge management is therefore a vital tool to improve performance and efficiency and it is essential in product value innovation cultivation and organizational effectiveness. It also enables the strategic direction and decision making through proper allocation of knowledge across all the departments.

Management of brick manufacturing companies should ensure that customers values are included throughout the product development as this will increase the product demand and loyalty to a product brand and ultimately increases the profit margin; hence the financial performance. Therefore, for an organization to be innovative it requires the higher involvement and adoption of organizational culture in order to be creative and allow diversification. Organizational culture can also motivate employees to perform better ( Choong.et.al 2015) . Therefore, management of Seashell should strive towards strong organizational culture.

Based on the results of augmented product value-innovation, it is recommended that management should consider product value-innovation without basing its market on existing products or services, but concentrate on the total customer solution by adding value to the total chain. This will help identify what product or service to be offered, which will support the company in identifying the potential product value-innovation as noted by Kotler, (1967) ( Louw and Venter, 2013) ( Mulder, 2012) . The new value-added product can be commercialized and have a strong influence on companies’ net profit through the use of other internal resources such as absorptive capability, skilled experts and the ability of enterprise to design new products; hence a need to maintain quality products and quality service, which is in line with other internal resources towards profitability.

5.2.2 Recommendation to the government

Based on the study results, it is recommended that the government should provide a conducive business environment, which is the prerequisites for the growth of manufacturing companies, in particular brick making ones. This is supported by the findings, which stipulate that all levels of product value-innovation have a significant and positive effect on financial performance; hence this study has necessitated the government support in order for manufacturing companies to succeed through value migration. The government needs to implement suitable policies that support financial performance and motivate business to value-innovate. This can be achieved by enforcing the strict rules against violation of intellectual property rights and patent laws to reduce counterfeiting which negatively affects the value-innovative company. This can also be attained through conducting research and development on the geological positioning of some required resources and provide mappings for to enable its operations.

5.2.3 Recommendation to future researchers

Since the results from this study of the relationship between the three levels of product value-innovation and financial performance revealed that the variation in financial performance is explained by 70.7% of product value-innovation. It is therefore necessary for future researchers to find the remaining variables that cover the 29.3 %. In order to improve on this research results, the researchers should also incorporate the relationship of the expected and potential product value-innovation levels as discovered by (Kotler, 1967) towards financial performance since this study adopted the three levels as discovered by (Claessens, 2015).

5.3 Limitations and further studies

Despite the significant input of this study of theory, a number of limitations were however noted. The population size used was not large enough considering the fact that only skilled workers were intended to contribute towards filling in the questionnaires. This is because of their assumed ability to think strategically, manage and sustain the value-innovation processes. The second limitation was the companies’ reluctance to authorize the study in their names which made it hectic for the researcher to move from one company to another, mostly in the presence of scarce financial and time resources. Since the purpose of the study was to inflate the financial performance of the brick manufacturing companies with the inclusion of customer value, together with the cost reduction strategies. Only product value-innovation was considered as the measure; which resulted in an inverse and insignificant relationship for most dependent variables at different profitability measures. That means that the remaining types of value-innovation have to be identified and highlighted in terms of their relationship with financial performance together with the factors that affect them, and as a result hinder profitability.

REFERENCES

[1] Abdelmoula, M. and Etienne, J-M (2010), “Determination of R&D Investment in French Firms: A Two-Part Hierarchical Model with Correlated Random Effects”, Economics of Innovation and New Technology, 19, 53-70.

[2] Acer and Kalmuk (2015),"The Mediating Role of Organizational Learning Capability on Relationship between Innovation and Firm's Performance", A Conceptual Framework, Prodea - Social and Behavioral Sciences: Prodea - Social and Behavioral Sciences, December 2, 2015. - 4 : Vol. 210. - pp. 164-169.

[3] Alćaković et.al (2014), "The Influence of Organisational Culture on Business Creativity, Innovation and Satisfaction", University Singidunum.

[4] Al-Matari.M.Eet.al (2014), "The Measurements of Firm Performance's Dimensions Asian Journal of Finance & Accounting", Macrothink Institute, June 1 Vol 6 Iss 1.

[5] Alpkan et.al (2011), "Effects of Innovation Types on Firm Performance", International Journal of Production Economics Vol 133 pp. 662-676.

[6] Amue G. J and Kenneth C.A (2012), "New Product Development add Consumer",Innovative Behavior:An Empirical Validation Study. European Journal of Business and Social Sciences, October 6 : Vol 1 Iss 6 pp. 97-109.

[7] Andereas Eggert, Christoph Thiesbrummel and Christian Deutscher (2014), ''Differential effects of product and service innovations on the financial performance of industrial firms, Bielefeld'', JBM Research.

[8] Angelmar Reinhard (n.d.), ''Product Innovation'', A Tool for competitive Advantage France, Insead Fontainelbleau.

[9] Antonnet Adhiambo J (2014), ''The Effects of Product innovation on financial Performamce of Commercial Banks in Kenya'', Uiniversity of Nairobi, 2014.

[10] Anwar, S. and Sun, S. (2014)"Entry of foreign firms and the R&D behaviour: a panel data study of domestic and foreign firms in China's manufacturing sector'', Economics of Innovation and New Technology, 23, 739-757.

[11] Aryanto et.al, (2015), ''Strategic Human Resource Management, Innovation Capability and Performance:An Empirical Study in Indonesia Software Industry,Procedia'',Social and Behavioral Sciences. Procedia - Social and Behavioral Sciences, November 25, Vol 211 Iss 2 pp. 874-879.

[12] Atalay M. et, al (2013), ''The Relationship Between Innovation and Firm Performance: An Empirical Evidence from Turkish Automotive Suplier. Procedia'', Social and Behavioral Science Vol 75 pp. 226-235.

[13] Benavente, J. (2006) ''The role of research and innovation in promoting productivity in Chile", Economics of Innovation and New Technology, 2006

[14] Bloom, N. and Van Reenen, J. (2010)"Why Do Management Practices Differ across Firms and Countries?" Journal of Economic Perspectives, 24, 203–224.

[15] Camila L.F and Luiz, A. P (2013), ''Analysis of the Seven Dimensions of Knowledge Management in Organizations'', Journal of Technology Management & Innovation Vol 8.

[16] Castellacci, F. (2011)"How does competition affect the relationship between innovation and productivity? Estimation of a CDM model for Norway", Economics of Innovation and New Technology, 20, 637-658.

[17] Chang.et.al (2012), ''How do Established Firms Improve Radical Innovation Performance?'' The organizational capabilities view. Technovation Vol 32 Iss 7 pp. 441-451.

[18] Chang, C-L., Chen, S-P. and McAleer, M. (2013) Globalization and knowledge spillover: international direct investment, exports and patents, Economics of Innovation and New Technology, 22, 329-352.

[19] Chaoren L &Thawattehatree, A (2011), ''Use of Value Innovation to create Competitive Advantages in Blue Ocean'', A Case of IKEA in Nanjing.

[20] Cheboi J. Nasma (2014), ''The effects of Donor Funding on the organizational Performance of Government Ministries in Kenya'',University of Nairobi.

[21] Choong.et.al (2015), ''The Factors Affecting Product Innovation of Manufacturing Industry in Malaysia'', Organisational Factors and Product Innovation.

[22] Crépon, B., Duguet, E. and Mairesse, J. (1998)"Research, Innovation, and Productivity: an Econometric Analysis at the Firm Level", Economics of Innovation and New Technology, 7(2), 115–158.

[23] Christopher R.Thomas and Charles S Maurice (2013), ''Managerial Economics'', Foundation of Business Analysis and Strategy McGraw Hill Education and China Machine Press, Vol11 p. 135.

[24] Chryssochoidis George (2003), ''Factors Affecting Product Innovations'', A literature review: Vol 4 Iss 1.

[25] Claessens Maximilian (2015), ''Principles of Marketing Explained'', Marketing-Insider,Three levels of Product

[26] Crane (2010), ''Measuring Financial Performance'', A Critical Key to Managing Risk Report

[27] Deshati E. (2015), ''Bussiness Strategies of SMEs' Innovation Types and Factors Influencing their innovation'',Albanian case. European Scientific Journal, Vol 11 Iss 34 pp. 268-286.

[28] Dostie, B. (2014) Innovation, Productivity, and Training, IZA DP No. 8506. September 2014, Discussion Paper No. 8506.

[29] Feimi D.&Kume,V. (2014), ''Innovation Management: Types management and Innovation Performance in Albania'', European Scientific Journal Vol 10 Iss 7 pp. 239-248.

[30] Financial-Times (n.d.), ''Defination of Stakeholder Theory ft.com/lexicon''.

[31] Giniuniene&Jurksiene (2015), ''Dynamic Capabilities, Innovation and Organizational learning: Interrelations and Impact on Firm Performance'', Social and Behavioral Sciences 20 : Vol 213 Iss 20.

[32] González Cerdeira, X., Miles Touya, D. and Pazó, C. (2012), "R&D, Worker Training, and Innovation: Firm-level evidence", Documentos de traballo do Departamento de Economía Aplicada, Nº. 3, 2012

[33] Greenhalgh, C and Rogers, M (2010), ''Innovation, Intellectual Property and Economic growth'', Princeton University Press.

[34] Greenhalgh, C., Rogers, M., Schautschick, P., and Sena, V. (2011), "Trade Mark Incentives", UK Intellectual Property Office.

[35] Grolleau, G., Mzoughi, N. and Pekovic, S. (2013)"Is there a relationship between workplace atmosphere and innovation activities? An empirical analysis among French firms", Economics of Innovation and New Technology, 22, 566-580.

[36] Gruber and Kamin (2007), ''The Evidence and Impact of Financial Globalization'',Journal of Business and Economics, Academic Press pp.67-78

[37] Günday G.., et al. (2011), ''Effects of Innovation Types on Firm Performance International'', Journal of Production Economics Vol 133 Iss 2 pp. 662-676.

[38] Hacer et.al (2015), ''The Mediating Role of Innovation Capability of Market Orientation and Export Performance'',An Imlementation on SMEs in Turkey, Procedia-Social and Behavioral Science.

[39] Hana U (2013), ''Competitive Advantage Achivement through Iinnovation and Knowledge '', Journal of Competitiveness Vol 5 pp. 82-96.

[40] Hanasyah J. (2016), ''The Importance of Product Innovation in Driving Brand Success'',An Empirical tudy from Automotive Industry, American. Journal of Economics and Business Administration, March 26, Vol 8 Iss 1 pp. 35-43.

[41] Hecker, A. and Ganter, A. (2014)"Path and past dependence of firm innovation", Economics of Innovation and New Technology, 23, 563-583.

[42] Hempell, T. and Zwick, T. (2008) ‘New Technology, Work Organisation and Innovation’, Economics of Innovation and New Technology, 17, 331-354.

[43] Herly and Sisnuhadi (2011), ''Corporate Governance and Firm Performance in Indonesia'', International Journal of Governance. International Journal of Governance Vol 1 Iss 1.

[44] Hermann et.al (2007), ''An Empirical Study of the Antecedents for Radical Product Innovations and Capabilities for Transformation'', Journal of Engineering and Technology Management Vol 24 Iss 1 pp. 92-120.

[45] Hult et.al (2004),"Innovativeness:Its Antecedents and Impact on Business Performance", Industrial Marketing Management. Vol 33 Iss 5 pp. 429-438.

[46] Ibidunni et.al (2014),"Product Innovation, a Survival Strategy for Small and Medium Enterprises in Nigeria", European Scientific Journal. - [s.l.] : European Scientific Journal, Vol 10 Iss 1 p. 209.

[47] Jang Mina (2017), "Determinants of innovation in SMEs", An empirical analysis of South Korea, Radboud University, 2017.

[48] Javed Sidra A. Mirza and Attiya (2013), "Determinants of financial performance of a firm: Case of Pakistani Stock market", Journal of Economics and International Finance. - Islamabad : ISSN 2006-9812 ©2013 Academic Journals, May Vol 5 Iss 2 pp. 43-52.

[49] Jayasingam et.al (2012), "Organizational Culture and Innovation among Malaysian Employees", The Journal of Human Resources and Adult Learning. The Journal of Human Resources and Adult Learning, Vol 8 Iss 2 pp. 147-157.

[50] Jeff D.C (n.d.), "The Six Core Values of Innovation".

[51] KadarejaA.(2016),"InnovationManagement",www.innovationmanagement.se/2012/08/20/external-risks-of-projects/.

[52] Kamran M. R and Sabi, F (2012), "Knowledge Management A Gate Way to Analyze Effective Organizational Performance", Far East Journal of Marketing and Management Vol 2 Iss 1.

[53] Kor B and Maden.C (2013), "The Relationship between Knowledge Management and Innovation in Turkish Service and High-Tech Firm", International Journal of Business and Social Science Vol 4 Iss 4.

[54] Kotler P. and Gary Armstrong (2010), "Principles of Marketing", New Jersey : Pearson Education Inc.

[55] Kull, Narasimhan and Schroeder (2012), "Laboratory Management Information Systems; Current Requirements and Future", IGI Global Disseminator of Knowledge.

[56] lft.com/lexicom (n.d.), Financial Times "Defination of Stakeholder Theory", ft.com/lexicom.

[57] Le Bas, C. and Scellato, G. (2014) ‘Firm innovation persistence: a fresh look at the frameworks of analysis’, Economics of Innovation and New Technology, 23, 423-446.

[58] Li H. and Atuahene-Gima, K (2001), "Production Innovation Strategy and the Performance of New Technology Ventures in China", Academy of Management Journal. - [s.l.] : Academy of Management Journal Vol 44 Iss 6 pp. 1123-1134.

[59] Louw L and Venter, P (2013)"Strategic Management: Developing Sustainability in Southern Africa", Cape Town : Oxford University Press Southern Africa - 3rd e.d. pp. 294-295.

[60] Maggitti P. G., Smith, K. G., and Katila, R (2013), "The complex search process of invention" Research Policy Vol 42 Iss 1 pp. 90-100.

[61] Makkonen Sari (2012), ''The concept suggests''.

[62] Mamoghli.C & Mabrouk.A. (2010), ''Is financial innovation influenced by financial liberalization?'' Evidence from the Tunisian banking industry. Banks Systems journal Vol 5 Iss 3 pp. 45-50.

[63] Marketing.net Learn (n.d.), ''Augmented Product Concept'',Three Levels Of A Product/Total Product Concept.

[64] Mate-Sanchez-Vala, M and Harris, R. (2014), "Differential empirical innovation factors for Spain and the UK", Research Policy, 43, 451– 463.

[65] McGuirk, H, Lenihan, H. and Hart, M. (2015), "Measuring the impact of innovative human capital on small firms propensity to innovate", Research Policy, 44, 965–976.

[66] Miller D (1998), ''Relating Porter's Business Strategies to Environment and Structure: Analysis and Performance Implications'',Academy of Management Journal Vol. 31 Iss 2 pp. 280-308.

[67] Mulder, P (2012), ''Five Product Levels'', http://www.toolshero.com/marketing/five-product-levels-kotler/.

[68] Musando A.J (2013), ''Financial Performance of Small and Medium Enterprises in Nairobi City Centre Kenya, Nairobi''.

[69] Nazem F. (2011), ''The Structural Model of Knowledge Management in Higher Education Institutions'', Department of Education, Roudehan Branch. Rouden : Islamic Azad University.

[70] Ngumi Patrick M (2013), ''Effects of Bank Innovations on Financial Performance of Commercial Banks in Kenya, Nairobi''.

[71] Njogu W.T (2012), ''The Effect of Innovation on the Financial Performance of Small and Medium Enterprises''.

[72] Njogu W.T (2014), ''The Effect of Innovation on the Financial Performance of Small and Medium in Nairobi Country, Kenya''.

[73] Nonaka I and Takeuchi, H. (1995), ''The Knowledge-Creating Company, Hardvard Business Review''.

[74] NSDP (2013), ''The National Strategic Development Plan (NSDP):2012/13-2016/17 Maseru : Government of Lesotho''.

[75] Nwokah.et.al (2009), ''Product development and organizational performance'', Journal of Business administration, Vol 2 Iss 3 pp.4-11.

[76] Palangkaraya, A., Spurling, T., and Webster, E., (2016), "What Drives Firm Innovation? A Review of the Economics literature."

[77] Qu H.Tavitiyay aman P and Zhang H.Q (2012), ''The Effect of Competitive Strategies and Organizational Structure on Hotel Performance'', International Journal of Contemporary Hospitality Management Vol. 24 Iss 1 pp. 140-159.

[78] Rosli M and Sidek S (2010), ''Innovation and Firm Performance:Evidence from Malaysia Small and Medium Enterprises, Enterpreurship Vision 2020'', Innovation, Development Sustainability, and Economic Growth pp. 794-809.

[79] Rosli and Sidek (2013), ''Innovation and Firm Performance'', Evidence from Malaysian Small and Medium Enterprises.

[80] Rouf M.A (2011), ''The relationship between Corporate Governance and Value of the Firm in Developing Countries: Evidence from Bangladesh'', The International Journal of Applied Applied Economics and Finance Vol 5 Iss 3.

[81] RowleyJennifer (2002), "Using Case Studies in Research,'' Management Research News, Vol.25 Iss1, pp.16-27, https://doi.org/10.1108/01409170210782990.

[82] Samad S (2012), ''The Influece of Innovation and Transformation Leadership on Organization Performance'', Procedia-Social and Behavioral Sciences, Vol 57 pp. 486-493.

[83] Sekaran (2003), ''Research Methods For Business: A Skill Building Approach'', New York : John Wisley and Sons.

[84] Setijino (2008), ''Value Innovation and Cognitive Map of Stakeholder-Oriented Quality Management'', The International Journal of Quality and Reliability Management. Helsingborg : Quality Management and Organizational Development Attaining Sustainability from Organizational Excellence to Sustainable Excellence, August 20-22, Vol 24 Iss 7.

[85] Siedschlag, I. and Zhang, X. (2015) Internationalisation of firms and their innovation and productivity, Economics of Innovation and New Technology, 24, 183-203.

[86] Sinclair-Desgagne Bernard (2016), ''Measuring Product Innovation:A data mining approach'', The Wall Street Journal. Cote-Sainte-Catherine: International Business, August 8, Vol 1.

[87] Solomon, D. and Spurling, T. (2014) The Plastic Banknote: from concept to reality, CSIRO Publishing, Melbourne, 2014, 222pp.

[88] Spacey John (2017), ''Types of Augmented Product'', https://simplicble.com.

[89] Terziovski (2010), ''Innovation and its Performance Implication in Small and Medium Enterprices in Manufacturing Sector:A Research Based View'', Strategic Management Journal, Vol 31 Iss 8 pp.892-902.

[90] Vendenbempt K and Begrhman L, (2012), ''Value-innovation'', Deliberate Learning Machanisms and Information from Supply Chain Partners' Industrial Marketing Management Vol 41 pp. 27-55.

[91] W.Chan Kim and Renee Mauborborgne (2004) Value Innovation: The Strategic Logic of High Growth Harvard Business Review, July-August.

[92] W.Chan Kim and Renee Mauborgne (2005), ''Blue Ocean Strategy''.

[93] Wanjugu Murigu J. (2014), ''The Determinants of Financial Performance in General Insurance Companies in Kenya'',Nairobi.University of Nairobi.

[94] Watkins W. (2007), ''Principles of Marketing,prenticehall. 9th ed''.

[95] Yin R.K (2009), ''Case Study research'', Design and Methods. Newbury Park,CA:Sage.

APPENDICES: Questionnaire

Dear Respondent,

This is a study on how product value-innovation can be used to achieve the companies’ financial performance: The case from Brick Manufacturing Companies in Lesotho. This study is required as part of the requirements for the award of International Master of Business Administration Degree at Zhejiang Normal University in China. The questionnaire has been designed for academic purpose only and your response will be treated with the strictest confidentiality and anonymity.

Thank you for your cooperation.

Yours faithfully,

Ts’oanelo Mildred Seiboko

SECTION A: Profile of Respondents

Abbildung in dieser Leseprobe nicht enthalten

SECTION B: CORE VALUE-INNOVATION MEASUREMENTS

Abbildung in dieser Leseprobe nicht enthalten

SECTION C: FORMAL PRODUCT INNOVATION

Abbildung in dieser Leseprobe nicht enthalten

SECTION E: FINANCIAL PERFORMANCE INDICATOR

Abbildung in dieser Leseprobe nicht enthalten

Details

Pages
92
Year
2018
ISBN (Book)
9783668770645
File size
2.9 MB
Language
English
Catalog Number
v432521
Grade
good (3,4 Points)
Tags
product value innovation companies financial performance study brick manufacturing lesotho

Author

Share

Previous

Title: How the use of Product Value Innovation can assist Companies to achieve Financial Performance. The Study of Brick Manufacturing Companies in Lesotho