ABSTRACT
The study focused on the effect of product innovation on corporate performance of selected consumer goods firms in Lagos state, Nigeria, with special emphasis on 27 Quoted consumer companies. The overall objective of the study was to examine the effects of product innovation on corporate performance of selected consumer goods firms in Lagos state, Nigeria; while the specific objectives were to determine the effect of research and development cost on profitability of consumer goods firms; ascertain the effect of product modified version (PMV) on consumption experience; assess if product modified version affects customer patronage; examine the effect of product modified version on firm’s competitiveness and to determine the effect of research and development cost on market share of consumer goods firms in Lagos State, Nigeria. Primary and secondary data were used for the study, questionnaire and annual reports of various issues of firms under study (2008-2017) respectively. The mixed research design was adopted for the study. All hypotheses were tested at 0.05% significance level, all analyses; both descriptive and inferential statistics were done via STATA 13.0 statistical software. In view of the above, multiple and simple regression models were formulated based on the dependent and independent variables. The F-calculated of 5.43 is found to be higher than that of the table value (F-tabulated). The P-value of 0.0005 is less than the degree of freedom (0.05%) which indicates that there is a significant effect of product modified version (PMV) on consumption experience. Hence, the null hypothesis is rejected and the alternative is accepted that product modified version (PMV) has significant effect on consumption experience of consumers of the selected firms. The study therefore concludes that product innovation components significantly affect corporate performance indicators of the selected consumer goods firms. Therefore, the researcher recommends that the firms in the consumer goods sector should focus on product innovation with the aim of improving overall corporate performance.
TABLE OF CONTENTS
Title i
Declaration ii
Certification iii
Dedication iv
Acknowledgements v
Table of Contents vi
List of Tables ix
List of Figures x
Abstract xi
CHAPTER 1: INTRODUCTION
1.1 Background to the Study 1
1.2 Statement of the Research Problem 5
Objectives of the Study 7
1.4 Research Questions 7
1.5 Research Hypotheses 8
1.6 Significance of the Study 8
1.7 Scope of the Study 9
1.8 Definition of Terms 10
CHAPTER 2: REVIEW OF RELATED LITERATURE
2.1 Conceptual Review 12
2.1.1 Conceptual framework 12
2.1.1 The concept of product innovation 13
2.1.2 Classifications of innovation 16
2.1.2.1 Technology and business performance 17
2.1.3 The concept of organizational performance 18
2.1.4.1 Measuring organisational performance 21
2.1.5 Performance variables of the study 22
2.1.6 Importance of product packaging/repackaging 28
2.2 Theoretical Framework 29
2.2.1 Disruptive innovation technology theory 29
2.2.2 Theory of innovation diffusion 31
2.3 Empirical Review 33
2.4 Summary of Empirical Studies 57
2.5 Gap in Literature 66
2.6 Operationalization of the Conceptual Framework 68
2.6.1 Operationalized conceptual framework 68
CHAPTER 3: METHODOLOGY
3.1 Research Design 69
3.2 Study Area 69
3.3 Population of the Study 70
3.4 Sample and Sampling Techniques 71
3.5 Sources of Data 72
3.6 Validity and Reliability of Questionnaire 73
3.7 Analytical Technique 74
3.7.1 Description of statistical testing techniques 75
CHAPTER 4: DATA PRESENTATION AND ANALYSIS
4.2 Data Presentation 79
4.2.1 Bio-data of respondents 80
4.2.2 Mean responses of survey data 81
4.3 Test of Research Hypotheses 88
4.4 Discussion of Results 98
CHAPTER 5: SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary of Findings 101
5.2 Conclusion 102
5.3 Recommendations 102
5.4 Contribution to Knowledge 103
5.4.1 Heuristic model 104
5.4.2 Limitation/suggestion for further studies 105
References 106
Questionnaire 122
LIST OF TABLES
1: Summary of empirical studies 57
3.1 List of companies in the consumer goods sector 71
4.1: Table showing the bio-data of respondents representing product innovation and performance of selected consumer goods firms 80
4.2A: Annual reports of various issues 2008 – 2017 81
4.2B: Hausman test result I 83
4.3: Analysis of questions on customer patronage (CustPatr) and product
innovation among selected consumer goods firms in Nigeria 84
4.4: Analysis of questions on consumption experience (ConsExp) and product modified version among selected consumer goods firms in Nigeria 85
4.5: Analysis of questions on competitiveness (Compt) and product modified version among selected consumer goods firms in Nigeria 86
4.6: Regression of research development costs on profiability of selected consumer goods companies 88
4.7: Regression result of product modified version (ntcusinnov, inno_exprod, cap_innov and ntfirminnov) and consumption experience (ConsExp) 90
4.8: Regression result of PMV (ntcusinnov, inno_exprod, cap_innov and ntfirminnov) and customer patronage (CustPatr) 92
4.9: Regression result of product modified version (ntcusinnov, inno_ exprod, cap_innov and ntfirminnov) and competitiveness (Compt) 94
4.10: Hausman test result II 96
4.11: Regression of research development costs on market share of selected consumer goods companies 97
LIST OF FIGURES
2.1: Conceptual framework for product innovation and corporate performance of selected consumer goods firms in Lagos state, Nigeria. 12
2.2: Operationalized conceptual framework for product innovation and corporate performance of selected consumer goods firms in Lagos state, Nigeria. 68
5.1: Heuristic model for product innovation and corporate performance of selected consumer goods firms in Lagos state, Nigeria. 104
CHAPTER 1
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
Innovation is the process or art of bringing new products or services to market; it is one of the most contending issues in marketing research in our contemporary society (Youn, Sungmin, & Jeong, 2019). Innovation is in charge of raising the quality and bringing down the costs of items and administrations that have drastically improved consumers' lives. By finding new answers for issues, advancement pulverizes existing markets, changes old ones, or makes new ones. It can cut down goliath occupants while moving little untouchables into prevailing positions. Without advancement, occupants gradually lose the two deals and benefit as contenders advance past them. Innovation gives a significant premise by which world economies contend in the worldwide commercial center. Advancement is an expansive theme, and an assortment of orders address different parts of advancement, including showcasing, quality administration, tasks the executives, innovation the board, authoritative conduct, item improvement, key administration, and financial matters (Hauser, Tellis, & Griffin, 2006).
Research on advancement has continued in numerous scholastic fields with inadequate connections over those fields. For instance, examination on the market spearheading regularly does not interface with that on dispersion of advancements or the innovative structure of new items. Generally speaking, advertising is all around situated to take an interest in the comprehension and the board of advancement inside firms and markets, in light of the fact that an essential objective of development is to grow new or changed items for improved benefit.
An important segment of gainfulness is income, and income relies upon fulfilling client needs better (or all the more productively) than contenders can fulfill those necessities. Research in product innovation has strived in showcasing characteristically client and contender centered, and in this manner all around arranged to think about how a firm may better guide development to meet its customer satisfaction and profitability goals successfully.
The ever changing and increasing customers' demand for high quality products have given consistent rise to product development as a form of innovation, which has increasingly received attention from innovation environment (Gakure & Haruna, 2015). Voncken, Broekhuis, Heeres and Jonker, (2004) opined that product innovation is the science and art of creating and developing products that meet with the demands and requirements of society.. Product innovation, by definition is novel, although the degrees of such novelty vary by products (Arundel & Hollanders, 2015).
Accordingly, several studies have described product innovation as a source of competitive advantage to business firms which can lead to enhancing performance in times of difficulties (Ibidunni, Iyiola, &Ibidunni, 2014; Hanif &Marnavi, 2009; Kuo& Wu, 2008). Product innovation is achieved by adding value to materials, improving existing products and designing new ones Product innovation is a creative process or an approach through which industrial firms adapt to global changes over the years.
Product innovation is essential in the bid towards improving firms' performance as it engenders cost reduction in the production process and/or enables the production of new products (Gakure, Orwa, & Haruna, 2015). Rosli and Sidek (2013) also reported that small and medium scale Enterprises (SMEs) in Finland agree that innovation process is positively related to firm's performance.
This is affirmed by Olughor (2015) whose study specifically showed that innovation process in product development is a vital feature in both financial and capital market performance. While studies have continued to stress on the importance of innovation to the performance of firms, there are empirical evidence that certain factors either impede or enhance the innovation process.
In view of this, Talegeta (2014) held that lack of finance and skilled personnel, coupled with insufficient research and development (R&D) on innovative ventures and products are foremost in impeding innovation process especially with SMEs. Another vital factor to product innovation is packaging technique. This incorporates processes with careful and numerous consideration that result to packaging with superior quality.
The main thrust of developing packaging techniques of high quality and standard is simply to enhance sales, boost market share and create avenues for new markets (Gangar, 2015). Correspondingly, Chiva and Alegre (2009), argued that a manufacturing firm's competitive position is determined by two factors; first, the firm's ability to innovate in its product portfolio, and second, the time required to introduce new products to the market.
A firm may therefore decide to invest in product design to reduce its cost, improve its product quality, and differentiate its products from those of competitors or to offer a completely new product. In the views of Cicriaci (2011), where firms design products with superior features and higher prices or charges, there is bound to be increase in profitability. This according to prior studies has a multiplier effect on the overall performance of firms. By performance, we simply refer to all benefits accruing to a firm, and stemming from firms' shares as a result of the efforts of management and employees (Rouf, 2011).
According to Al-Matari, Al-Swidi and Fadzil (2014), in principle, the idea of execution frames the center of vital administration and experimentally, most vital investigations utilize the develop of business execution in their endeavor to inspect different technique substance and procedure issues. In the board, the essentialness of execution is clear through the numerous solutions accommodated execution improvement.
Thus, the performance of organizations can be viewed from various dimensions like information contents of financial report, firms' activities, market share, level of customer satisfaction amongst others. These measures are either quantitative or qualitative. Consequently, a company that is performing creditably well will reinforce management for quality disclosures (Herly & Sisnuhadi, 2011). Generally, the performances of firms are objectively analyzed through the use of quantitative measures (financial ratios) which express relationships between variables reported in the financial statements of firms. This is why prior studies on firm performance have mainly used data in financial ratio forms under different classifications and scenarios (Al-Matameh, 2009). Profitability ratios are indicators of a company's general productivity. It is generally utilized as a measure for profit produced by the organization during a timeframe dependent on its dimension of offers, customer satisfaction, assets, market share, capital employed, net worth, growth and earnings per share.
Notable examples of profitability ratios include Return on asset (ROA), Return on equity (ROE), Profit Margin (PM), Return on Investment (ROI), Earnings Per Share (EPS), Operating Profit (OP), Return On Capital Employed (ROCE). Other forms of performance measurement are market-based measurement which could be categorized as long term. Examples include Tobin's Q, Market Value Added (MVA), Market-to-book value (MTBV), Annual Stock Return (RET), Dividend Yield (DY) among others (Al-Matameh, 2009). Desires for firm execution may result in the executives motivator to change their and invest in innovative technologies on the basis of their expectations of future performances. This is where product innovation becomes very critical to the achievement and enhancement of the overall expected performance of organizations.
In view of the aforesaid, the purpose of this study is to quantitatively examine the nature of new-to-market product innovation, in order for us to understand better how such innovation would contribute to firm performance. The firm belief is that outcome of the study would help to indicate whether or not; there would be need for public policy that would promote product innovation in Nigeria.
Most studies on product innovation and firm performance utilized indices such as customers' satisfaction, market share, and sales while there are other performance indices such as earnings per share, return on asset, and return on equity and Tobin Q among others which have not been deeply researched. Hence, this study will be carried out with the view to fill the gap in literature on the effects of product innovation on firm performance with emphasis on Sales, Earnings Per Share (EPS), Return On Equity (ROE), Return On Asset (ROA) and Tobin's Q of selected firms in Nigeria.
1.2 STATEMENT OF THE RESEARCH PROBLEM
In recent years, many large and small firms have closed down and the existing ones struggle under a myriad of challenges which have led to lack of patronage of products both in Nigeria and the world over (Onuoha, 2012). This is accounted for by evidence from prior studies that firms have not performed creditably well and have not played the expected role in the economic growth and development process in Nigeria (Onugu, 2005 & Olughor, 2015). Hassan et al., (2013) noted that upgrading companies processes and activities via innovation maybe the only way for them to gain sustainable competitive advantage.
Noteworthy is the fact that an understanding of the relationship between product innovation and performance in both large and small firms has become relevant for researchers, policy-makers and managers of large and small firms alike (Teece, 1980; Liberman & Montgomery, 1998 and Haruna, 2013). However, extant studies from developed and other developing countries have established that there is a positive influence of product innovation on performance of business. (Subrahmanya, Mathirajan & Krishnaswamy, 2010; Rosli & Sidek, 2013; Hassan, Shaukat, Nawaz & Naz, 2013). But no study of this nature has pulled quoted companies from various sectors together in Nigeria to test the effect of their product innovation on corporate performance. This is considering the fact that similar studies has been carried out in other developed countries and none have been done in Nigeria which happens to be a developing nation.
Despite the numerous studies on firm performance and the causes of failure among organisations, there are still evidences of business failures in Nigeria. In addition, there seem to be limited studies from Nigerian environment on the effect of product innovation on firm’s performance with emphasis on consumer goods companies that are quoted on the floor of the Nigerian Stock Exchange. Scholarly as this concept may be, prior studies on innovation in Nigeria have given little or no attention to the link between product innovation and profitability and market based performance indices like, ROA, Sales (turnover) and Tobins’Q of firms in the consumer sector in Nigeria. The above thus creates empirical gap which needs to be filled. This study is therefore designed to examine the effect of product innovation on corporate based performance measures of selected quoted firms in the consumer sector in Nigeria.
1.3 OBJECTIVES OF THE STUDY
The general objective of the study is to examine the effects of product innovation on corporate performance of firms in Nigeria. The specific objectives of the study are to:
1. determine the effect of research and development cost (R&D) on the profitability of consumer goods companies in Nigeria.
2. ascertain if product modified version significantly influences the magnitude of customers’ patronage to consumer goods companies in Nigeria.
3. assess if product modified version influences the level of consumption experience in the consumer goods companies in Nigeria.
4. evaluate if product modified version affects the level of competitiveness of consumer goods companies in Nigeria.
5. examine the influence of research and development cost on the market share of consumer goods companies in Nigeria.
1.4 RESEARCH QUESTIONS
In order to achieve the above mentioned objectives, the following research questions were raised:
1. how does research and development cost affect the profitability in the consumer goods companies in Nigeria?
2. to what extent does product modified version affect the magnitude of customers’ patronage in the consumer goods companies in Nigeria?
3. to what extent does product modified version affect the consumption experience in the consumer goods companies in Nigeria?
4. how does product modified version affect the level of competitiveness in the consumer goods companies in Nigeria?
5. what is the effect of research and development cost on the market share in the consumer goods companies in Nigeria?
1.5 RESEARCH HYPOTHESES
This research was predicated on the following hypotheses
HO1: Research and Development Cost has no significant effect on the profitability in the consumer goods companies in Nigeria.
HO2: Modified Product Version has no significant influence on the magnitude of customers’ patronage in the consumer goods companies in Nigeria.
HO3: Modified Product Version has no significant influence on the magnitude of consumption experience in the consumer goods companies in Nigeria.
HO4: Modified Product Version has no significant effect on the level of competitiveness in the consumer goods companies in Nigeria.
HO5: Research and Development Cost has no significant effect on the market share in the consumer goods companies in Nigeria.
1.6 SIGNIFICANCE OF THE STUDY
As earlier mentioned in the section above, business firms that engage in the innovative, proactive, and risk-taking behavior that characterized firm level entrepreneurship are major contributors to the economic development and growth in world economies. Thus, the findings of this study is relevant to the Nigerian economy as the continuous birth of businesses as well as the sustenance of these businesses lead to a robust economy especially in this time of economic crunch.
The findings of this study is beneficiary to industrialist and investors as they will understand the need to stay abreast with changes in market and consumer taste as they will be guided on when to improve their products.
The finding this study is important to marketing scholars as the study have added to the existing literature in the field of marketing with special emphasis on product innovation and marketing performance.
This study is also significant to the employees of the consumer goods firms as they will understand fully the role that product innovation does to improved customer experience.
This study is significant for entrepreneurial development in Nigeria as well as in helping businesses engage in creative and innovative processes towards ensuring their sustainability. Evaluation of business performance is a topic that has attracted the interests of several researchers but it is still at its nascent stage in Nigeria. Thus this adds to knowledge in this area and may form a base for future research and academic criticisms.
1.7 SCOPE OF THE STUDY
The study examined the effects of product innovation on corporate performance of firms in Nigeria. However, it was delimited in scope to consumer goods companies quoted on the floor of the Nigerian Stock Exchange during the period 2008 – 2017. The choice of this period is based on data availability of firms that has carried out innovation in the recent time and the conscious need to avoid historical time series bias common with studies covering longer periods of time. To effectively measure product innovation and firms’ performance, this study considered both profitability and market-based performance indicators.
A total of five (5) organizational performance indicators were considered (profitability-Profit After Tax (PAT), level of customers’ patronage, consumption experience, level of competitiveness and market share), while four (4) measures of product innovation (Modified Product Version- new to firm, new to customer, innovation to existing product and innovation capacity of firms) were the focus of this study. In addition, customers of the selected consumer goods companies were studied in order to validate issues relating to customers patronage and consumption experience while Annual reports of various issues were used to extract data for PAT, Market share and Research and Development cost.
1.8 DEFINITION OF TERMS
· Innovation: This occurs when an organisation successfully implements novel ideas (creativity) in the production process or in the rendering of services. It is simply the product of implementing a novel plan or idea, thus bringing out the uniqueness of an organisation through the production or rendering of a unique/outstanding product or service (Sigala, 2015).
· Productivity: This is an arithmetic measure of the efficiency of production. It is practically defined as the ratio of output (finished products) to input (raw materials). It could also be seen as output per unit of input (Salim & Sulaiman, 2011).
· Profitability: This is a measure of a firm’s ability to generate profit from sales of her products or from the rendering of services over a defined period of time. It could be measured using financial ratios or reported earnings (Terziovski, 2010).
· Sales/Revenue/Turnover: This refers to the total revenue generated by businesses within a given time frame (Reid & Sander, 2012).
· New Technology: These are machines and information employed in the production process whose aim is to make easier, the production process (Reid & Sander, 2012).
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