Managing market innovation for competitive advantage: how external dynamics hold sway for financial services

From the complexity theory, it is argued that external factors largely determine the effectiveness of firm-level strategies. Hence, firms must seek to align their strategies such as market innovation with the prevailing business environment to achieve competitive advantage. We investigate the moderating effect of three environmental factors, regulatory regime, competitive intensity and customer demand, on the relationship between innovation and competitive advantage creation in financial services firms. Data were collected from the Ghana's financial services sector with a focus on banking and insurance institutions. Constructs were validated through confirmatory factor analysis while robust regressions estimates were run to test their hypothesised relationships. We found that both competitive intensity and regulatory regime positively increase the effect of market innovation on competitive advantage. It was also found that the interaction between competitive intensity and regulatory regime has a positive effect while the interaction between customer demand and regulatory regime dampens the positive relationship between market innovation and competitive advantage creation. The concurrent occurrences of the three factors were found to have a negative moderating effect.