THE EFFECT OF USE OF STANDARDS ON FINANCIAL PERFORMANCE OF SMALL AND MEDIUM ENTERPRISES IN KENYA: A SURVEY OF TOP 100 SMES IN KENYA

Abstract

In the current globalized economy, quality of products and services offered by an enterprise is a critical factor for gaining competitive advantage in the market. Recent trends indicate increased adoption of different quality improvement initiatives by organizations as they focus on quality to improve their business performance. Studies that have been conducted on adoption of quality improvement initiatives and their effects on financial performance of organizations in different sectors of Kenyan economy are limited and their outcomes are inconclusive. The purpose of this study was to determine the effect of use of standards as a quality improvement initiative on the financial performance of SMEs in Kenya. Financial performance was measured by growth in revenue, Return on Assets, Return on Investment, Profit and reduction in unit cost of production. The sample for the study were the Top 100 SMEs in Kenya in 2019 according to the survey carried out by the consulting group KPMG and Nation Media Group. Descriptive research survey was applied in this study. A census approach was adopted for data collection. The primary data was collected from each enterprise using a questionnaire which was administered online. The descriptive statistics were analysed using Statistical Package for Social Scientist (SPSS). The results showed that the use of standards has statistically no significant effect on financial performance of SMEs in Kenya. However, awareness on relevant standards is high (81.8%) and the use of standards has a potential to explain 0.8% of financial performance of SMEs in Kenya. According to this study, financial performance of SMEs in Kenya is explained by other factors other than the use of standards. Considering the potential of Standards to contribute to financial performance of SMEs and being the foundation for meeting minimum quality requirements, it is recommended that the relevant stakeholders should actively engage SMEs to develop relevant standards that apply to their products and services and support them to use standards in conjunction with other quality improvement strategies to improve their financial performance in the long term.