A Research Paper on Impact of Corporate Innovation on a Company’s Financial Performance

Impact of Corporate Innovation on a Company’s Financial Performance'

1.0 Introduction 

Corporate innovation entails the out-of-box thinking within the corporate environments (Barman & Potsangbam, 2017). It involves coming up with ideas that enable a company to reengineer its products in a way that is different in terms of quality. It also refers to division innovation or business model innovation. The company might want to have changes with its products, its division, or with its business model depending on the prevailing factors of the market. Most corporations carry out innovation with an aim of growing or differentiating themselves from their competitors. There are several factors that may help a company determine whether it needs to innovate. First, it depends with the consumers. Millenials and Generation Z have dynamic needs. Companies whose main consumers fall under the two groups need to carry out innovation especially when the number of the company’s current consumers start to decline (Skinner et al., 2018). The second aspect involves carrying out an assessment of the market the corporation is currently operating in to determine whether there are needs to innovate such as all competitors applying the same business model. In regards to this, there is a need to conduct a research on whether innovativeness of a corporation affects its financial performance. 

• Background of the Study
• Innovation

 This is one of the most important aspects of the long-term success of companies. Factors such as fast advancements in the world, advancement in the level of technology, and the rate of globalization has brought changes in needs and expectation of companies (Litvinenko, 2020). Today, most consumers are conscious of the products they consume. For corporations to meet the expectation of their consumers, they need to carry out changes in products, processes and the services they provide to their consumers. Research and development has been at the forefront for companies that thrive in highly competitive business environments (Chun & Lee, 2021). All companies including the small and medium firms need to innovate to seek new tactics and new business models that are important in enhancing their competitive advantage in the market. Innovation also enables firms to introduce new and better products that enable them remain relevant in the global markets. 

• Financial Performance

  This term refers to the estimate of how efficient a company can utilize its assets from its current activities and generate sales (Ganyam & Ivungu, 2019). It can also be utilized to estimate the general health of a company. It is used by analysts and investors to compare the company’s level of profitability with other companies within the same industry. Several estimates are utilized to determine the level of financial performance of a company. Factors such as the level of debt the company currently has can be used as an estimate of financial performance of the company (Batchimeg, 2017). Other factors include line items such as the level of revenue from operations, operating income and cash flows from operations. For investors to accurately measure financial performance, metrics such as the return on equity, return on assets and the indicator of financial leverage are utilized. Profitable companies have low indicators of financial leverage. 

• Innovation and Financial Performance

 Different types of innovation influences different aspects of company’s performance. Laszlo and Zhexembayeva (2017) state that the use of know-how promotes sustainability, growth, and can lead to business success. The previous studies have found a strong pragmatic association between innovation and monetary success. Researchers indicate that the positive impacts include the competitive advantage, access to finance from investors and improved marketing strategies that in turn increase the firms’ level of profitability. However, there are studies that indicate that there is a negative association between innovation and monetary success. They note that developing a product or a process through following only a single goal is prone to consequences which are inevitable. Kokina and Blanchette (2019) note that some companies may innovate with a single goal of streamlining the production process without taking into consideration the usability of the system hence making it to suffer. 

• Research Aims

 Corporate innovation and its effects on the financial performance of firms is an area that has been studied broadly by many researchers. The studies done in this area, however, have mostly dealt with the effects of innovation and its association with financial performance of small and medium firms. Few studies have been done on the effect of innovation on manufacturing firms. This study aims to conduct a research on manufacturing firms. It will determine the relationship of corporate innovation and financial performance on manufacturing firms in Beijing. 

• Research Objectives
• General Objective
• The main objective of the study is determine the impacts of corporate innovation on financial performance of manufacturing firms in Beijing.
• Specific Objectives
• To assess the function of innovation technology on financial performance of manufacturing firms in Beijing.
• To evaluate the effect of innovation of a product on the financial performance of manufacturing firms in Beijing.
• To analyze the impacts of innovation of new markets on the financial performance of manufacturing firms in Beijing.
• To establish the effects of innovation of processes on the financial performance of manufacturing firms in Beijing.

 Literature Review

2.0 Introduction This chapter will present the empirical works of other scholars that is related to the topic of study. It will give an overview of what other researchers have done on the topic. It will first present the empirical literature on innovation, then followed by financial performance, and lastly on innovation and financial performance. It will then give a summary of the review by pointing out the gaps in the literature. 

2.1 Review on Innovation 

There are different types of innovation. They include process innovation, product innovation, technological innovation, and new marketing methods innovation. According to the study done by Lerner and Nanda (2020), innovation is a great source of wealth to companies however it demands a lot of initial capital. They state that innovation of products entails the act of introducing new goods in the market. It also entails the process of operations, and disposal over the product lifecycle. Product innovation is a key source of competitive advantage especially when it is packaged well. Varian (2018) alludes to this fact by saying that innovation is one of the factors that has been recognized by several researchers as a source of wealth. Innovation of products enables consumers to receive more value and hence making the organizations more competitive.  In a study done in Chinese manufacturing firms, it was found that the Chinese manufacturers have resorted to product innovation and large customization (Chea & Wang, 2017). This is because of the new regulation that ensures environment safety, prices, and costs of labor.  On the other hand, process innovation refers to the act of doing an activity in a new way while utilizing specific change tools to change the company’s processes.  This type of innovation involves the adoption of technologically and improved method of production. Kahn (2018) defines this type of innovation as the finished product that can be sold to consumers. One important factor found by scholars is that for process innovation to be successful, having a background knowledge is very important. Background knowledge can be obtained from external sources such as customers, competitors, and suppliers. 

Technological innovation refers to any improvement in the current manufacturing in the current manufacturing technologies. This type of innovation entails several activities that contribute to the research, design and new techniques development that are used to increase production. According to Song et al., (2019), this type of innovation promotes large scale production. Its main driver is availability of technology. It is a type of innovation that enhances the level at which firms in the manufacturing sector offer new products and services thus creating new products to the consumers. New marketing methods innovation has not been extensively researched by scholars. However, Quaye and Mensah (2018) note that new markets methods innovation entails the employment of new marketing methods involving tangible changes in design of the product, placement of the product, and promotion of the product. 

2.2 Review of Financial Performance  

Suhadak et al., (2018) state that financial performance estimates how well the firm is generating value for its owners. There are several ratios that can be used to estimate the firm value. Return on assets, profit after tax, and earnings per share are measures that can be utilized in measuring the profitability of the company. It is a factor that consists of four elements. Among the four elements is organizational effectiveness which is achieved through innovation.  Firms that score high in organizational effectiveness have a higher level of innovation. Todeschini et al., (2017) confirm that most manufacturing companies have high levels of innovation hence making them effective when it comes to production process. 

2.3 Review of the relationship between Innovation and Financial Performance 

A lot of studies have been done to help in understanding the effects of corporate innovation on its monetary success. In a study done by Cahn et al., (2019), a survey was conducted on Italian manufacturing firms. The findings indicated that research and development increases the potentiality that firms will employ product innovation to increase their monetary success. Most studies on the relationship between innovation and monetary success have reported positive associations. Companies that innovate have a higher potential of increased financial performance than companies that do not innovate. An innovative product characteristics can differentiate a product from competitive offerings hence allowing the product to get a good position in the market. Chen (2019) confirms that innovativeness of products enhances quality, lead to changes in price of products offered by firms, and fasten the rate of product progression hence making it easy to satisfy the changing needs of consumers. This in turn enhances the level of productivity of a firm. Process innovation can be used to reduce the unit price of production. This in turn leads to the increased production of significantly improved products hence enabling firms to offer high quality services to their consumers (Sjodin et al., 2018). Not all types of innovation enables firms to save on cost of production. However, they enable the company to market their products at competitive prices due to increased quality. 

2.4 Summary of Literature Review 

Most study findings indicate a pragmatic association between firm innovation and monetary success. However, some researchers have found a negative relationship between innovation and company’s success. This presents a research gap. There is need to conduct further research to determine whether they would be inconclusive results with manufacturing firms or the study findings would be conclusive i.e. either showing a positive or negative association between the two factors. 

2.5 Research Questions 

The research questions include; 

• What is the function of innovation technology on the financial performance of manufacturing companies in Beijing?
• What influence does product innovation have on the financial performance of manufacturing companies in Beijing?
• What are the impacts of new marketing methods innovation on the financial performance of manufacturing companies in Beijing?
• What impact does process innovation have on the financial performance of manufacturing companies in China?

 2.6 Conceptual Framework 

It entails the relevant variables for the study. It also maps out how the relevant variables relate to each other in the study. The following figure 1 shows the conceptual framework of the study;

Figure 1

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  Research Methodology

3.0 Introduction 

This section presents the procedures and techniques that will be employed to collect information that will be used during the analysis process. It will present the design used during the study, target  population, data collection techniques and data analysis. 

3.1 Research Design  

Alipour (2019) defines research design as the overall strategy taken to combine varied components of study in a sequential manner. In this study, descriptive research design will be used. This type of design gives the traits of factors under study. It is also helpful in this type of study because it only addresses “what” questions. 

3.2 Target Population 

The study will use employees and managers of selected manufacturing firms in Beijing as the target population. 

3.3 Sampling This is a technique that is used in the process of coming up with individuals who will take part in the study. This study will use a simple random sampling method. In this case, a total of 656 employees will be the total target population for the study. The total sample that will be used will be 195 employees. One manager from each company will be sampled. 

3.3.1 

Sampling Frame 

The sampling frame is made up of different types of individuals in the study. This study will have employees and managers of different manufacturing firms in Beijing. 6 companies will be selected randomly. The companies each had 120, 48, 75,200,123, and 90 employees respectively. It should be noted that if the target population is less than 100, then the study should employ 100% of the total target population. However, if the target population is between 100-1000, a sample size of 30% is employed. The sample size is presented in table 1 below; 

Table 3.1 Sample size 

 Source: 

3.4 Data Collection  

The study will utilize the primary sources of data. It will utilize structured questionnaires on both the employees and managers of the six companies. The questionnaires will be distributed to all the participants and enough time will be granted to them to enable them complete the copies before handing them for analysis. 

3.5 Data Analysis 

After data has been collected from the participants, all the questionnaires will be organized. The resulting data will be analyzed by the use of descriptive statistics.  All the variables of the study will be measured using the Likert Scale. Regression model will be used during the analysis process. An excel software will be used to run data. Below is the regression model that will be used in the study; Y= β₁X₁ +β₂X₂+β₃X₃ +β₄X₄ + Where Y= financial performance X₁=Technological Innovation X₂=Product Innovation X₃= New marketing Methods Innovation X₄= Process Innovation E is the error term 

3.6 Ethical Considerations 

Before collecting data, there must be ethical aspects to be considered. The study will seek permission from the participants before engaging them in the data collection process. All participants’ details will also be kept confidential. The study will also only collect relevant data and will only be used for this study’s purpose only. 

3.7 Timeline 

The following timeline will be followed throughout the study period; Table 2: Timeline of the study 

3.8 Project Significance and Project Value 

This research will help firms to realize the importance of corporate innovation. This is because innovation has the capability of enhancing the market share of the firm. This research will enable firms to know the best type of innovation that can help in enhancing their level of financial performance. 

References 

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