ABSTRACT

This study examines the effect of managerial innovations on the profitability of commercial banks in Buea, Cameroon. Managerial innovations, which include new management practices, strategic planning methods, and innovative organizational structures, are critical for enhancing the efficiency and competitive edge of financial institutions. The research utilizes a mixed-methods approach, combining quantitative data from financial statements and profitability metrics of selected commercial banks with qualitative insights from interviews with bank managers and staff. The findings indicate a positive correlation between the adoption of managerial innovations and improved profitability. Specifically, banks that implement advanced management practices and embrace organizational change tend to exhibit higher profit margins, better customer satisfaction, and increased market share. The study also identifies barriers to the adoption of managerial innovations, such as resistance to change and limited resources, and provides recommendations for overcoming these challenges to foster a more innovative and profitable banking sector in Buea.

Keywords

Managerial Innovations, Profitability, Commercial Banks, Financial Performance, Organizational Change, Buea, Cameroon.

Chapter One: Introduction

1.1 Background of the Study

Innovation is the only concept that has not been obsolete and will not be obsolete. This is because it represents a constant and continuous focus on finding what is new, whether in the new idea, the new product (or the new service) and finally in the new market. (Sterlan,2006)  If specialization in a given field (i.e., having a field of experience of rules and procedures) represents the past, innovation is the future that develops the specialization in new concepts, tools, and applications. This applies to management as a system governed by principles and theories. Management innovation is what provides management with all that is new in improving the effectiveness of achieving the objectives and the efficiency of means. (Klisig, 2011)

Although managerial innovation has been an essential part of the innovation movement since ancient times, it has only received secondary attention compared to technological innovation. Perhaps this explains many things.(Sunji,2012) For example, the Egyptian pyramids considered an exciting technical achievement represented in the transfer of large stones weighing 2.5 tons to long distances and then raised them at high altitudes during the era in which they were built. But the managerial achievement in the construction of pyramids has not been talked about only recently. The great achievement is the organization of more than 100,000 slaves, who were divided into groups and directed to achieve the great goals and provide them with food, water, shelter and many more (Duncan, 1995).

At the beginning of the Industrial Revolution, we find another example: textile mills in Yorkshire in England represent a model of technological innovation that has greatly increased efficiency. However, there was no reference to the managerial innovation that accompanied it and led to a significant increase in productivity by managerial methods no less important than the efficiency of new textile machines at the time.(Aretha,2007)  The concept of division of labor introduced since the beginning of the Industrial Revolution was a managerial innovation. In his book “The Wealth of Nations,” Adam Smith spoke of the three advantages that led to increased productivity at unprecedented rates. This great managerial innovation is still the basis of managerial thinking. The development of management concepts since the beginning of the twentieth century has contributed to the development of our ability, to exploit our resources in a way that exceeds the impact of any other innovation in other areas. Therefore, the division of labor was a managerial achievement that contributed to the transformation of technological efficiency from a technical concept to productivity, as a holistic management concept that led to the development of different aspects of life in industry. More importantly, technological innovation has been and continues to be of great importance, while managerial innovation, despite its many manifestations and great effects, has been the least interesting.(Mauning,2013)

Innovation strategy gives a clear direction and concentrates the effort of the whole organization on a common innovation end on the performance of commercial banks (Gachimu & Njuguna, 2017). Currently, most of the commercial banks are adopting products innovations, process innovations, market innovations and stimulus innovations and these innovation strategies should specify how the significance of innovation was communicated to all the employees to attain their buy-in and must openly reflect the significance that management places on innovation. The management of high performing institutions was tangibly and visibly committed to new product development and overtly formulated and communicated the institution‟s new product development strategy (Mohamud & Mungai, 2019).Financial performance of commercial banks is the extent to which objectives of the banks was met or have been met. The banks financial performance subject to how effectively a firm uses its assets from its principal role of conducting business and its subsequent generation of revenues. Financial performance can also refer to the general well-being of a firm as far as finance is concerned over a certain period of time. Financial performance focuses more items that affect the financial statements or reports of a firm directly. The financial performance analysis can deal with items such as dividend growth, sales turnover, capital employed, asset base among others about the firm (Yahaya & Lamidi, 2015).

Setiyono and Tarazi (2018) highlight the board of directors’ role in fully executing functions to maximize the benefits of shareholders and related parties to ensure that being under the board of directors’ control can reduce the bank’s risks and improve the bank’s performance. Adams and Ferreira (2007) report that BOD has two related functions, namely, consultancy and supervision. In addition, Fama and Jensen (1983) also assert that the advisory function of the BOD provides strategic direction for the banks and accesses the usage of resources appropriately and effectively.

In developing countries, the lack of electronic banking infrastructure block impacts of the expected cost effectiveness and profitability. In some developing countries, there is no strong influence on the ROA of bank innovation activities because of inadequate information technology infrastructure of the branch and ATM network are limited. The same is true for other bank innovation activities. Information technology infrastructures based on relatively old technology hinder the achievement of expected financial performance of banks in developing countries (Alam et al., 2007; Gutu, 2014).

The technology, knowledge, and innovation are the main characteristic of successful organizations in today’s economy (Karlsson, Johansson & Norman, 2011). By beginnings of twenty-first century, innovation as a managerial concept has become vital asset and competitive edge for many organizations operating in rapidly changing, complex and competitive environments (Neely & Hii, 1998).

Therefore, innovation as a key asset is fundamental to building an organization’s competitive advantage (Hajikarimi, Hamidizadeh, Nasrin & Hashemi, 2013). Recently the importance of innovation is increasing, because organizations have realized that they live in dynamic business environment (Rowley, Baregheh & Sambrook, 2011). Thus, organizations have to respond to rapidly changing customer preferences in order to deal with available opportunities, through the adoption of new technology, opening new markets, redesigning organizational structures, and implementation different administrative practices to satisfy their customers (Birkinshaw, Hamel & Mol, 2008); Damanpour & Aravind, 2011). Managerial Innovation (MI) which refers to an adoption and implementation of management practice (Birkinshaw & Mol, 2008), containing new administrative techniques and methods through a change in strategy, policies and organizational structure (Damanpour & Aravind, 2011), organizing and operating the organization, to achieve the goals of organizations efficiently and effectively (Ahmed & Shepherd, 2010) .

Furthermore, MI is considered to be one of the most common types of innovation, because it means the development of the social system within the organization (Tanninen, Jantune & Saksa, 2008), and its relationships and related communications between individuals and their organization in surrounding environment (Damanpour & Evan, 1984), as well as management practices and relations with the development of human resources (Damanpour & Aravind, 2011). Additionally, Managerial innovation differs from other types of innovation, whether technological innovation on the introduction of new technology or related to product attributes (Ahmed & Shepherd, 2010). MI aims at changes in management techniques and the introduction or development of methods that have a role in increasing the competitive advantage and affect to firm performance (Vaccaro, Jansen, Van Den Bosch & Volberda, 2012), as well as its relationship to changes in managers in how to run their work, how to make decisions, how to coordinate and how to motivate subordinates (Hamel, 2006).

The Cameroonian banking sector has experienced tremendous dynamism in adoption of bank innovation over time. A great deal of changes have been embraced in the area that have prompted expansion of money related items, exercises and hierarchical structures that have.

Problem statement

The need for innovation is crucial for commercial banks operating in a continuous uncertain and competitive environment (Gakuo & Rotich, 2017). Most importantly, to survive and succeed in the current competitive global financial environment, commercial banks need to be innovative by producing a regular stream of innovations so as to gain competitive advantage. Many banks have at some point undertaken some form of incremental innovative initiatives (Chege, 2017).Despite the evident impacts of the different innovation types on the profitability of financial institutions, these impacts are insufficiently tested. Additionally, there is imperfect information about the motivation for innovation (Gakuo & Rotich, 2017). Empirical findings from other researches relating innovation and profitability have been found inconclusive (Nicholas, 2018). Other studies relating innovations and bank‟s profitability have yielded varied results. Although studies have been carried out on the contribution of managerial innovation to the effectiveness of the monetary policy; few studies have sought to relate managerial innovation on profitability in the banking sector (Chipeta & Muthinja, 2018).Several prevailing researches likewise assume a basic methodology to the innovation-performance association failing to put into consideration the antecedents to innovation strategies on profitability of commercial banks and the sum of which might impact this association (Lukango, 2017). Innovation studies have been based on the financial markets with little emphasis on the banking sector. This research paper intends to fill the research gap by determine the influence of innovation strategies on profitability of commercial banks in Cameroon. Therefore, this study sought to fill the existing research gaps.

1.4 RESEARCH QUESTIONS

1.4.1 Main Research Question

What is the effect of managerial innovations on profitability of commercial banks in Buea Cameroon?

1.4.2 Specific Research Questions

• What is the significant of E-planning on profitability of commercial banks in Buea Cameroon?
• What are the determinants of E-control and its effect on profitability of commercial banks in Buea Cameroon?

1.5 OBJECTIVE OF THE RESEARCH

1.5.1 Main Objective

The goal of this study is to find out the effect of managerial innovations on the profitability of commercial banks?

• Specific Objective`

• To examine the significant of E-planning on the profitability of commercial banks.
• To find out the determinants of E-control and its effect on profitability of commercial banks.

1.6 HYPOTHESES

Based on the study problem, the following hypotheses were developed in their null form to examine the influence of managerial innovation on profitability in Commercial Banks.

Hypothesis:

H0: There no significant influence of E-planning on profitability of Commercial Banks.

H0: There is no significant influence E-control on profitability of Commercial Banks.