Knowledge driven economies have been recognized as the next frontier in developing and developed
world. Universities are important institutions in the creation, dissemination, growth and preservation of
knowledge from all sectors. This paper aims to provide an analysis and contribute to the discourse on the
effect of University – Industry interaction on firms’ innovative performance. Firm innovativeness is
hereby measured as the degree of use or implementation of new or significantly improved method of
production (Process Innovation); novelty of product (Product Innovation); and implementation of new
organizational methods in the firms’ business practices (Organizational Innovation). This study draws
from data obtained from the Kenya Innovation Survey (2012) based on the Oslo Manual (which provides
the guidelines on the methods and questions to be included in innovation surveys) and it was designed to
measure the innovation activity based on a set of core indicators to inform policies that will help the
country configure the national system of innovation in order to respond to socio-economic challenges.
The analysis of the results is based on a sample of 296 enterprises located in Kenya which were randomly
selected by ISIC sector from an entire sampling frame. A total of 194 firms were selected in Nairobi and
its environs while 102 firms were selected upcountry as follows: Mombasa (25 firms), Kisumu (25 firms),
Eldoret (24 firms) and Nakuru (25 firms). The results of this study indicate that universities are an
important knowledge partner for firms to develop innovations. Most of the sectors indicate that the
interaction between them and the universities has significant effect on product as well as process
innovations.