Enhancing service firm performance through customer involvement capability and innovativeness

Purpose: Because of the paucity of empirical research on firm-level capabilities of firms for effective customer involvement, the purpose of this study is to evaluate service firms’ capacity to coopt customers to enhance the innovativeness and firm performance relationship. This study conceptualizes involvement capabilities of service firms as a strategic driver that exploits their internal firm assets, which in turn facilitates the positive relationship between innovativeness and firm performance. Design/methodology/approach: Data were collected from 344 managers of service firms across different sub-sectors in an emerging economy. The study first confirmed the constructs through confirmatory factor analysis before analyzing hypothesized relationships. Regression models were specified with robust standard errors to test the hypothesized relationships. Findings: The study found that involvement capability of service firms helps them to exploit their relational assets and create and manage strong customer participation. Additionally, it was found that involvement capabilities enable service firms to capitalize on the competencies of customers, which in turn improves the outcomes of their innovativeness. The results showed that the interaction between involvement capability and innovativeness enhances firm performance significantly. Practical implications: Service firms can enhance customer participation in the value creation process by increasing their involvement capabilities. The increase in such capabilities will enhance the innovativeness of service firms, thereby improving their financial and non-financial performance. Originality/value: This study offers guidance on how a firm’s innovativeness and customer involvement work together within the service operation to enhance firm performance.