CORPORATE CULTURE, INNOVATION PRACTICE, REGULATORY FRAMEWORK AND PERFORMANCE OF COMMERCIAL STATE CORPORATIONS IN KENYA

Abstract

In Kenya, “commercial state corporations play a pivotal role in the country’s socio-economic development, with the government leveraging them to transform Kenya into a newly industrializing, middle-income country providing a high quality of life to all its citizens by 2030 in a clean and secure environment.” Even before the COVID-19 pandemic, these corporations were experiencing declining overall performance, evident in lower profitability indicators such as return on equity, return on assets, and net profit margins. This study aimed to examine, “the effects of corporate culture, innovation practice, and regulatory framework on the performance of commercial state corporations in Kenya.” “The research was guided by four specific objectives: to assess the relationship between corporate culture and performance; to investigate the mediating role of innovation practice in the relationship between corporate culture and performance; to evaluate the moderating effect of the regulatory framework on the relationship between corporate culture and performance; and to determine the moderated mediation effect of regulatory framework and innovation practice on the relationship between corporate culture and performance.” The study was grounded in the Denison cultural model and supported by three theoretical frameworks; Diffusion of Innovation Theory, the New Public Management theory and Shareholders Theory. The study adopted positivism research philosophy. The target population for this study were all thirty two (32) commercial state corporations in Kenya as of 30th June 2023 (State Corporations Advisory Committee, 2023) which was the latest data published state corporations advisory committee then. The study adopted a census to meets its objectives. The unit of observation in this study was one hundred and ninety two (192) respondents where primary data was sourced through a questionnaire from six respondents who are top managers at the Kenya commercial state corporations. Quantitative data was analyzed using descriptive and inferential statistics which included correlation and multiple regressions. The study revealed that corporate culture significantly influenced the performance of commercial state corporations in Kenya, accounting for 45% of the variation in performance outcomes (Rsquared = 0.450). Additionally, the combined effect of corporate culture and innovation practices was found to explain 65.2% of the variance in performance (R = 0.807, R-squared = 0.652). Innovation practices were identified as a partial mediator in the relationship between corporate culture and performance, as evidenced by a reduction in the coefficient from ß = 0.699 to ß = 0.298 when innovation practices were introduced. Furthermore, the regulatory framework was shown to moderate this relationship, with an R-squared change of 0.020 and a significant Fchange statistic (10.897, p = 0.001), enhancing the impact of corporate culture on performance. The study also confirmed a significant moderated mediation effect, where both the regulatory framework and innovation practices jointly influenced the relationship between corporate culture and organizational performance. The study recommends that commercial state corporations in Kenya incorporate corporate culture development into their strategic planning and performance management processes, emphasizing shared values, employee engagement, and alignment with organizational goals. Leveraging technology is also advised to help align corporate culture with regulatory requirements, promoting innovation, accountability, and enhanced performance. Additionally, policymakers are urged to design regulatory frameworks that balance oversight with flexibility, fostering innovation while maintaining accountability by reducing unnecessary bureaucratic constraints.