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.

CHAPTER 1

BY
TAFARA DENNIS USHE

THIS RESEARCH IS SUBMITTED, TO THE DEPARTMENT OF ACCOUNTING

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

SUPERVISOR: MR KAZEMBE
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 chapter therefore incorporates
the background of the study, statement of the problem, research objectives and questions,
significance of the study, delimitations, limitations and definition of key terms.

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 cope 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 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.

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 the conclusion was
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 companies. There is a weakness in the conclusions
drawn above in that they do not incorporate the accounting perspective to the matter. To what
extent does investment in innovation yield any increment in profitability? , still remains 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 to 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 in form 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% 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. VFA introduced products like a Believers Plan
which is a group policy for churches and Zunde Plan which covers villages and chiefdoms. VFA
has won various accolades within the field of innovation and in spite of being branded as an
innovative company, VFA financial performance has been on a decline since 2015 up to date.

TABLE 1.0: VFA Revenue and Profit from 2015-2017

YEAR 2015 2016 2017

REVENUE(NPW) $million 1.27 1.012 0.995
PROFIT (%) 0.32 0.18 0.21
SOURCE: IPEC QUARTERLY REPORTS (2015-2017)

This trend 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

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 non-service 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

 To investigate the innovation practices adopted by Vineyard Funeral Assurance (pvt) ltd
 To assess the benefits associated with innovation
 To measure the Financial Performance of Vineyard Funeral Assurance
 To evaluate the extent to which innovation practices being implemented by Vineyard
Funeral Assurance affect its Financial Performance.
 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;

 To what extend does innovation affect the financial performance of funeral assurance
companies in Zimbabwe?

The research also strives to answer the following sub question;

 Which innovation practices have been implemented by VFA?

 What are the benefits associated with innovation?
 To what extend does adopting innovation practices lead to increased financial
performance of funeral assurance business?
 To what extend does investment in innovation yield a return?
  What is the relationship between innovation and firm financial performance?

6.0 SIGNIFICANCE OF STUDY

6.1 To the Researcher

This research is done in partial 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 as 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 organization in
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 under the assumption that the provided data is truly and fairly stated to form
reasonable grounds to base conclusions.
 The research is limited to innovation and financial performance concepts
 Geographically the research will be focused on VFA located in the CBD of Harare,
Zimbabwe.
8.0 LIMITATIONS

 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 researcher will make use of
secondary data and also communicate to the organization that the data collected is purely
for academic purposes and therefore the confidentiality of data will be preserved.
 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. The researcher will make use of
technologies such as email and skype so as to limit travelling expenses.
 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 will be overcome
by creating extra time by making use of nights and weekends.
 This research is self-funded and due to economic challenges prevalent in the country
there is bound to be financial limitations therefore to overcome this the researcher has
budgeted beforehand from personal resources.

9.0 CHAPTER SUMMARY

This chapter was aimed at introducing the subject under research and as such it articulates the
background to the study exposing the relevant practical and literature problems to be addressed
by the research. The subject is then narrowed down in the statement of the problem and turned
into research objectives and questions. The chapter also reveals the significance of the study to
the researcher, university and organization under study. More so the researcher highlights the
delimitations and limitations that are likely to be encountered during research and the necessary
measures put in place in order to overcome them. The next chapter will focus on literature
review.
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, (2015) “QUARTERLY REPORT FOR

FUNERAL ASSURERS Q4” Harare, Zimbabwe.

Insurance and Pensions Commission of Zimbabwe, (2016) “QUARTERLY REPORT FOR

FUNERAL ASSURERS Q4” Harare, Zimbabwe.

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

FUNERAL ASSURERS Q4” 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,
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