MIDLANDS STATE UNIVERSITY

FACULTY OF COMMERCE
DEPARTMENT OF ACCOUNTING
IMPACT OF INNOVATION ON THE FINANCIAL PERFORMANCE OF
FUNERAL ASSURANCE COMPANIES IN ZIMBABWE.

A CASE OF VINEYARD FUNERAL ASSURANCE PVT LTD.

BY
TAFARA DENNIS USHE

THIS RESEARCH PROPOSAL IS SUBMITTED, TO THE DEPARTMENT OF

ACCOUNTING AT MIDLANDS STATE UNIVERSITY, IN PARTIAL
FULFILLMENT OF THE REQUIREMENTS OF BACHELOR OF COMMERCE
ACCOUNTING HONOURS DEGREE.

Gweru, Zimbabwe
 CHAPTER 1
1.0 Introduction

Profit maximization is the main objective of every commercial business set up, This is usually
achieved through different business strategies adopted by organizations for example innovation,
sales volume maximization, cost minimization, synergies and mergers amongst many others.
Measuring profitability is one of the many ways used to determine the financial performance of
an entity. This research endeavors to assess the impact of innovation on the financial
performance of Funeral Assurance Companies in Zimbabwe. This research proposal therefore
incorporates the background of the study, Statement of the problem, Research objectives and
questions, Significance of the study, Delimitations, Limitations, Research methodology and the
Budget.

2.0 Background of the Study

Businesses especially those that produce homogeneous goods and services operate in
environments characterized by stiff competition, changing consumer tastes and wants. The
dynamic world therefore requires a topnotch level of management acumen that is capable of
coming up with the most appropriate business strategy to cop up with current market demands
and business environment. According to the research conducted on Canadian firms by Zhan and
Jianmin (2016), Firms that focus on innovation strategies tend to be more productive than firms
focusing on cost-cutting strategy, but however there is no evidence that suggest whether
innovation does make a difference in profitability. More so Martin (2009) highlights that the
success of firms in these modern times is pinned on the firm’s innovative ability to discover new
ideas in order to develop new products for the ever changing markets and some firms do not
perform well because they often focus on exploiting past ideas like production, processing and
cost-cutting strategies. According to Shaharoun, Laosirihongthong, Yusof, & Zukan, (2010)
Competition is prevalent in the world over, and with the generational changes taking place,
consumer’s demand changes quickly and the organization environments also changes quickly
because the business cannot survive in the market without changes therefore companies must
innovate in order to survive in the market markets.
Innovation has mainly in recent times been viewed from the digital perspective, but it is not
merely technological advancement or just a change of one procedure to another. Ferrari and
Rocca (2015) argues making reference to both product and process and they say innovation has a
broader meaning it is not only technology-driven, but marketing-driven as well, this broader
concept of innovation, embraces product innovations, process innovations, marketing
innovations, and organizational innovations. According to Bercovitz and Feldman (2007)
innovation includes any product, process, structure, or policy that managers perceive to be new.
Pimmpnarnar Roongchirarote and Yan Zhao (2014) describes innovation in an organization as
having four types which are namely; organizational; process, marketing and product, in their
research on the relationship between innovation and financial performance they concluded that
organizational, marketing and product innovation has an impact on financial performance and
amongst these three marketing innovation has a greater impact. In another research done to
determine the determinants of financial performance of Life Assurance companies by Mutugi
(2012) one of the conclusions drawn was that, innovation improves the quality of service
delivery, determines the premium underwritten, reduces the operational costs, improves staff
morale and productivity and finally improves the marketing strategies of the long term life
insurance company. There is a weakness in the conclusion drawn above in that they do not
incorporate the accounting perspective to the matter. The question, Does investment in
innovation yield any increment in profitability is not answered. There is need to investigate more
into the relationship between innovation and financial performance using a quantitative approach
so as to address the numbers side of the matter.

According an IPEC Q1 (2017) report, The Zimbabwean Funeral Assurance Industry is composed
of nine (9) registered Funeral Assurers. These entities sale homogeneous funeral assurance
products that are inform of group or individual funeral cover policies. This Industry is
characterized by stiff competition with the greater portion of the market share being dominated
by industry giants which are Doves, Moonlight and First Funeral which boast of 47.35%, 28.40%
and 15.15% market share respectively. Vineyard Funeral Assurance (pvt) ltd (VFA) which has a
market share based on gross premiums underwritten of 2.6% as at the end of the third quarter of
2018 has had to innovate its marketing strategies, products and business processes to ensure
survival in such an environment. VFA was the first assurer to move from offering the traditional
funeral services that were currently being offered in the market and introduced new products that
incorporated benefits such as groceries, airtime, cement and reed met, it introduced products like
a Believers Plan which is a group policy for churches. VFA has won various accolades within
the field of innovation. In spite of being branded as an innovative company, VFA financial
performance has been on a decline since 2015 up to date, recording a Net Premium Written
(NPW) of USD 1.27m, USD 1.012m and USD 0.995m in the last quarter of 2015, 2016 and 2017
respectively. The NPW afore mentioned converts to a net profit percentage of 0.32%, 0.18% and
0.21% for 2015, 2016 and 2017 respectively. This presents a paradox to business strategists
when deciding which alternative between cost cutting and innovation yields a better off position
for the business as these two strategies are diametrically opposed to each other in that innovation
requires increase in expenditure in research and development, therefore cost cutting might
discourage innovation. According to IPEC Q4 (2017), The Commission continues to encourage
industry players to be more innovative and introduce funeral assurance products that appeal to
the uninsured section of the population. With the governing board of the insurance industry
encouraging innovation it is imperative to do a research that assesses the relationship between
innovation and financial performance of funeral assurance companies. Therefore this research
aims to explore if to any extend the innovation practices adopted by Vineyard Funeral Assurance
has had any effect on its financial performance.

3.0 STATEMENT OF THE PROBLEM

Businesses adopt different business strategies in accordance to their vision, mission and goals. In
most recent times due to economic hardships the main objective of most Zimbabwean business
organizations has been centered on survival. In order to survive businesses have had to innovate
their products, processes and many other aspects of their businesses. This research aims to assess
the impact that product innovation, organizational innovation, process/service innovation and
marketing innovation has on the financial performance of funeral assurance companies in
Zimbabwe. The available literature on innovation and financial performance variables has been
gathered mostly from nonservice industries such as manufacturers and retailers and very few
papers have been written in the context of Zimbabwean Funeral Assurance Industry. There is
need to do research on the impact of innovation on financial performance of Funeral assurance
companies in Zimbabwe.
4.0 RESEARCH OBJECTIVES

The research will be carried out guided by the following objectives

1. To identify and investigate innovation practices adopted by Vineyard Funeral Assurance

2. To assess the benefits associated with innovation
3. To measure the Financial Performance of Vineyard Funeral Assurance
4. To evaluate the extent to which innovation practices being implemented by Vineyard
Funeral Assurance affect its Financial Performance.
5. To recommend the best course of action in line with innovation practices

5.0 RESEARCH QUESTION

This research endeavors to answer this main research question;

1. Is there an association between Innovation and Financial Performance?

The research also strives to answer the following sub question;

1. Does adopting innovation practices lead to increased financial performance of Funeral

Assurance Business?
2. What are the benefits associated with innovation?
3. What is the return on investment in innovation?

6.0 SIGNIFICANCE OF STUDY

6.1 To the Researcher

This research is done in fulfillment of the requirements prescribed by the Midlands State
University to enable the Researcher to attain a Bachelor of Commerce Honors Degree in
Accounting. More so the Researcher is going to gain some research skills and exposure in
organizational activities which will build confidence and experience that enables one to tackle
greater research challenges.
6.2 To Midlands State University
The findings and recommendations from this research work will be used research material for the
other students pursing the same degree in future periods.

6.3 To the organization (VINEYARD FUNERAL ASSURANCE)

The recommendations from this research can be useful information to guide the organizations
policy formulation and business strategy selection which can lead to efficient allocation of
resources resulting in improved Financial Performance.

7.0 DELIMITATIONS

The research will be conducted on a sample with one organization amongst a population of nine
registered funeral assurance companies in Zimbabwe for the period 2016-2018. Data will be
collected through interviews, questionnaires and analysis of published reports, this research
therefore assumes that the provided data is truly and fairly stated to form reasonable grounds to
base conclusions.

8.0 LIMITATIONS

Due to time constraints the researcher cannot manage to cover more than one company and
hence the research is only limited to one company. This research is based on a sensitive subject
and hence the nature of the information and data involved is of a confidential nature which
therefore delays the completion of the project due to stringent organizational controls. The
research target company is situated in Harare whereas the researcher is resident in Gweru, these
places have a considerably lengthy geographical distance between them, and this then can pose a
financial constraint resulting from travel expenses for data collection purposes as well as loss of
time during travel. Furthermore the project is expected to be completed within one semester
(three months) during which the researcher will be having other demands such as attending
lectures, writing assignments, in-class tests and examination preparations. This research is self-
funded and due to economic challenges prevalent in the country there is bound to be financial
limitations.

9.0 RESEARCH METHODOLOGY

The researcher is going to implement a combined research approach the main reason being that
the objectives of this study are both qualitative and quantitative in nature. A combined research
approach involves gathering both of quantitative and qualitative data in a research. This research
will use questionnaires to explore Vineyard Funeral Assurance innovation practices in all
dimensions as it affect its financial performance. The researcher will apply a structured survey
questionnaire for all the types of innovations in the same order as it was used by Gunday (2011).
Also following a survey structure used by Wan (2013), Financial Performance will be measured
using the profitability ratios; return on investments (ROI) and return on assets (ROA). In the
questionnaire, a seven-point Likert scale will be used to explore the association that exists
between the innovation practices of Vineyard Funeral Assurance and its financial performance.

10.0 BUDGET

Details Amount
Stationery and Printing $100
Internet and Calls $30
Transport $120
Total $250

Time frame 3 months

REFERENCES

Bercovitz, J. L. and Feldman, M. P. (2007), “Fishing Upstream: Firm Innovation Strategy and
University Research Alliances,” Research Policy, pp 930–948.

Insurance and Pensions Commission of Zimbabwe, (2017) “QUARTERLY REPORT FOR

FUNERAL ASSURERS Q1” Harare, Zimbabwe.

Gunday, G., Ulusoy, G., Kılıc, K. and Alpkan, L. (2011), “Effects of innovation types on firm
performance” International Journal of Production Economics, 133(2), 662–676.

Martin, R. (2009), “The Design of Business: Why Design Thinking is the Next Competitive
Advantage”, Harvard Business Press, Boston, MA.

Mutugi, P. P. (2012), “THE DETERMINANTS OF FINANCIALPERFORMANCE OF LIFE

ASSURANCE COMPANIES IN KENYA”, University of Nairobi: School of business, Department

of Finance and Accounting

Wan Mohd Nasir, W. (2013), “The Relationship between Strategic Orientation and Firm
Performance: Evidence from Small and Medium Enterprises in Malaysia”.

Zakuan, M. N., Yusof, S. M., Laosirihongthong, T., & Shaharoun, A. M. (2010). “Proposed
relationship of TQM and organizational performance using structured equation modeling”.
Total quality management, 21 (2), 185-203

Zhan Su, Jianmin Tang, (2016), "Product innovation, cost-cutting and firm economic
performance in the post-crisis context: Canadian micro evidence", Journal of Centrum Cathedra,
Vol. 9 Issue: 1, pp 4-26, https://doi.org/10.1108/JCC-08-2016-0009