Strategic Innovation and Competitive Advantage in Kenyan Oil Marketing

Chapter one. Introduction

1.1 Background of the Study

Competitive advantage positions a firm product or a service in a way that it outperforms its competitor’s product or service. According to Beadreau (2016), competitive advantage involves communicating and enjoying a greater perceived value to target market than a firm competitor can provide. Competition is at the core of the success or failure of any firm, competition determines the appropriateness of a firm’s activities that can contribute to its performance (porter 1985), Portal engineered the “Five Forces Model” to illustrate the theory of competitive advantage. Porter argues that the Five Forces define the rules of competition in any industry.

According to Brasina (2013) in current times of globalization, competitive business environment, market saturation, and increased consumer power the client becomes increasingly more definitive in terms of his needs. Possession of competitive advantage should deliver to a company a higher level of profit than obtained by its rivals (Black et al, 2012). Globally the oil multinationals continue to suffer stiff competition from new entrants in foreign as well as domestic markets. Competitive advantage ensures a firm not only can compete favorably, but also survives globally and local onslaughts on its market share (Yabs, 2010).

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Strategic innovation is an important factor for organization, Competitive sustainable advantage, and financial performance (Nybakk & Janssen, 2012) strategic innovation is a plan to grow market share or profit through product and service innovation. According to Luecke and Katz (2003), innovation is the embodiment, combination or synthesis of knowledge in an original, relevant, valued new product or service. For innovation to take place creative ideas must be generated, seeded, and be realized into inventions and then the inventions must be transformed to something of marketable and of commercial value. Why is it so hard to build and maintain the capacity to strategically innovate? The reasons go much deeper than the commonly cited cause: a failure to execute. The problem with innovation improvement efforts is rooted in the lack of strategic innovation.

According to Agnolucci (2009), the oil industry worldwide has experienced constant volatility in pricing, operations, and a competitive business environment. Significantly. Regionally and locally organizations have challenges in achieving and sustaining competitive advantage over their competitors and have to employ new ways of maintaining their relevance this can only be attained by conjoining their strategy and innovation. According to Juma (2016) the top three oil marketers in Kenya Total, Vivo Energy, and Kenol Kobil lost a combined 20.6% market share in the first three months of 2016 to smaller oil markers and independent dealers. Competitive advantage grows market share or profits through product and service innovation, the area of strategic innovations and its impact on competitive advantage has been done in many sectors and regions in Kenya, there is no study done specifically for Oil marketing companies in Nakuru county it’s this motivation behind this study.

1.1.1 Strategic Innovation

Strategic innovation refers to the process undertaken by firms that totally changes the nature of competition within an industry as well as the gaining of competitive advantage by employing strategies different from their competitors(Afuah,2009). According to Gebauer et al (2012) strategic innovation is about the creation of new markets and leaps in customer value and reshaping the existing markets to achieve value improvements for customers. It can be said that strategic innovation is a fundamentally different way of competing in an existing business (Charitou & Markides, 2003). According to Govindarajan & Gupta, 2001). Strategic innovation makes value chains more efficient more transformative and expands market size (Govindarajan & Gupta, 2001). Strategic innovation can take the approach of process, product, market or technological innovation (Kiptoo & Koech,2019) The measures of innovation at the organizational level include financial efficiency, process efficiency, employees’ contribution and motivation, as well benefits for customers. In this study we shall focus on the following strategic innovation types and see how they relate with a competitive advantage: Process innovation, Product innovation, Market innovation, and technology innovations

Technological innovation is the process where an organization (or a group of people working outside a structured organization) embarks in a journey where the importance of technology as a source of innovation has been identified as a critical success factor for increased market competitiveness,

According to Baum (2001), Technological innovation influences organizational populations profoundly by disrupting markets, changing the relative importance of resources, challenging organizational learning capabilities, and altering the basis of competition. Its affected by research and development, benchmarking, and novial technology adoption.

Market innovation focuses on developing the mix of a target market, while determining how companies can serve the target markets best It is also described as progress in marketing mix Nevertheless, innovation and marketing must go hand in hand (Aksoy,2017). marketing innovation comprises of pricing strategies, promotion, and market orientations. A firm can develop new process either by itself or with the help of another firm (Polder et al.,2012). According to Kiptoo and Koech (2019). Process innovation is about improving the production and logistic methods significantly or bringing significant improvements in supporting activities such as purchasing, accounting, maintenance, and computing. Organization structure, production, and delivery forms metrics for process innovation. Product innovation involves the development and introduction of New products, Increasing Product portfolio, and Product enhancement.

1.1.2 Competitive Advantage

According to Porter (1985), Competitive Advantage describes the way a firm can choose and implement a generic strategy to achieve and sustain a competitive advantage. It addresses the interplay between the types of competitive advantage cost and differentiation and the scope of a firm's activities and that value chain is the basic tool for competitive advantage diagnosis. Competitive advantage is obtained when an organization develops or acquires a set of attributes (or executes actions) that allow it to outperform its competitors(Wang,2014). Competitive advantage is a key theme in current strategic management because it forms the path for the survival of an organization.

Twin (2019) states that Competitive advantages are conditions that allow a company or country to produce a good or service of equal value at a lower price or in a more desirable fashion. These conditions allow the productive entity to generate more sales or superior margins compared to its market rivals. Comparative advantage and differentiation advantage are the two-broad metrics for competitive advantage. Comparative Advantage a firm's ability to produce a good or service more efficiently than its competitors, which leads to greater profit margins, creates a comparative advantage. Rational consumers will choose the cheaper of any two perfect substitutes offered. Differential Advantage a differential advantage is when a firm's products or services differ from its competitors' offerings and are superior.

Advanced technology, patent-protected products or processes, superior personnel, and strong brand identity are all drivers of differential advantage. These factors support wide margins and large market shares. Reed et al (2000) suggest two models of competitive advantage: The market-based model which focuses on cost and differentiation and contends that the environment excludes out firms that are inefficient or that do not offer products for which consumers are prepared to pay a premium price, the second model is the firm resources model driven by internal firm’s factors.

Koufteros et al (1997) describe a research framework for competitive capabilities and define the following five dimensions: competitive pricing, premium pricing, value-to-customer quality, dependable delivery, and product innovation. The empirical literature has been quiet, and consistent in identifying price/cost, quality, delivery, and flexibility as important competitive capabilities (Tracey et al,1999). This paper will use cost structure, branding, the quality of product offerings, the distribution network, intellectual property, and customer service, and superior personnel as metrics to measure competitive advantage.

1.1.3 Oil Marketing Companies Operating in Nakuru Kenya Pipeline Company Depot.

There are more than fifty oil marketers operating in Nakuru Kenya Pipeline Depot a key government strategic infrastructure in terms of petroleum storage and delivery which averages three million liters of petroleum sales daily. The Oil marketing companies store and draw products from the facility for the local market consumption as well as the export market where the product goes to Uganda, South Sudan, Congo and Rwanda. The Top 6 companies at the depot in terms of the last 6-month average market share for 2019 were; Total Kenya (9.1%), Royal Energy (7.4%), Vivo Energy (6.72%) Kenol Kobil,6.4% Stabex internal (6.2%) and Hass Petroleum at 4.1% the lest of the 60% is shared by the lest of the Oil marketers. This study will data from a sample of 10 oil marketing companies from the 52-number population of oil marketers to study the effect of strategic innovation on the influence of completive advantage.

1.2 Statement of the Problem

The market share for oil marketers has never been stable due to the dynamic nature of stiff competition within the industry, Data from PIEA Kenya and the ministry of Petroleum shows fluctuations in market share shifts unpredictably among the Oil marketers. Only very few marketers who position themselves through strategic innovation can sustain competitive advantage, and maintain and grow their market share. Many studies have been done in other sectors to get the relationship between strategic innovation and its influence on competitive advantage eg Kariuki (2017) studied the Effects of Innovation Strategy in Enhancing Competitive Advantage among Commercial Banks in Kenya where he found out that there is a significant impact of innovation on the competitive advantage of commercial banks in Kenya.

Nyambura (2014) studied the effect of Strategic Innovation on the performance of mobile Telecommunication Firms in Kenya where she recommended the study of the same in other industries. This paper, therefore, wants to explore the gaps that are there between the effect of strategic innovation and competitive advantage among Oil marketers operating in the Nakuru Kenya Pipeline facility.

1.3 Objective of the Study

The General objective of the study is to establish the effect of strategic innovation on the competitive advantage of oil marketing companies in the Nakuru Kenya pipeline depot.

1.3.1 Specific Objective of the Study

1. To establish the effect of strategic process innovation on the competitive advantage of oil marketing company in the Nakuru Kenya Pipeline Company depot
2. To determine the effect of Market innovation on the competitive advantage of oil marketing companies in operating in the Nakuru KPC depot
3. To investigate the effect of strategic product innovation on the competitive advantage of Oil marketing companies operating in the Nakuru KPC depot
4. To analyze the effect of Technological innovation on the competitive advantage of oil marketing companies operating in Nakuru KPC depot.

1.4 Research Hypothesis

1. Ho1: Strategic process innovation does not have a significant effect on the competitive advantage on oil marketing companies operating in the Nakuru KPC depot.
2. Ho2: Strategic market innovation does not have a significant effect on the competitive advantage on oil marketing companies operating in the Nakuru KPC depot.
3. Ho3: Strategic technological innovation does not have a significant effect on the competitive advantage on oil marketing companies operating in the Nakuru KPC depot.
4. Ho4: Strategic Product innovation does not have a significant effect on the competitive advantage on oil marketing companies operating in the Nakuru KPC depot.

1.5 Significance of the Study

This study will be significant to several stakeholders, to start with Oil marketing companies will benefit from the study, Other organizations will benefit from the finding and future scholars will also benefit.

1.6 Limitation of the Study

This study is likely to have several limitations to start with their might be a challenge of non-response since OMCs are very secretive, to deal with this limitation the researcher will obtain an introductory letter showing that the research is purely for academic purposes.

The second challenge would be financial constraints and the researcher will work under a strict budget

1.7 Scope of the Study

This study will be done in Oil marketing companies in operating in Nakuru KPC depot and the objective is to study the Effects of Strategic innovation on the competitive advantage of OMCs operating in Nakuru KPC depot the time scope of the study will be from February 2020 to June 2020. the methodology of the research will be descriptive and explanatory research design type

1.8 Organization of the Study

This study is organized into three sections. Chapter one focuses on the background of the study, then the statement of the problem then after that the General and Specific objective of the study limitation of the study, and the scope of the study. Chapter two consists of a literature review, an empirical literature review, a summary of the Empirical literature review, and a conceptual literature review. Chapter three contains the research design, the population of the study, samples and sampling techniques, data collection, validity and reliability, data analysis data presentation, and ethical considerations.