DYNAMIC CAPABILITIES, FIRM INNOVATION AND COMPETITIVE ADVANTAGE OF COMPANIES LISTED AT NAIROBI SECURITIES EXCHANGE

Abstract

Recent studies show that dynamic capabilities as high order organizational capabilities enable firms to attain a competitive advantage. Additionally, firm innovation which entails the creation of products, processes as well markets result in competitive advantage. However, dynamic capabilities have an influence on firm innovation which in turn results in a competitive advantage. The purpose of this study was to examine the effect of firm innovation on the relationship between dynamic capabilities and competitive advantage of companies listed at Nairobi Securities Exchange. The study applied cross sectional descriptive survey as its research design and all the sixty-three firms listed at the NSE formed the study population. In order to ascertain the mediation, the hypothesis was tested by following Baron and Kenny four steps. The study established that firm innovation partially mediates the relationship between dynamic capabilities and competitive advantage of companies listed at Nairobi Securities Exchange. The study recommends that the listed firms should not only emphasize on the development of dynamic capabilities for combating environmental challenges but also invest in firm innovation as it will result in the achievement of a competitive advantage. The results contribute to theory development, policy and management practice from the importance of dynamic capabilities and firm innovation in achieving competitive advantage. The study points out room for more research using a larger population, more organizational factors and incorporating other companies that are not listed at Nairobi Securities Exchange.

Key Words: Dynamic Capabilities, Competitive Advantage, Firm Innovation, Nairobi
Securities Exchange