LAUSR

Abstract Service innovation has become an essential element for firms to promote their business successes, attract new customers, accelerate growth, and increase profitability. Service innovation requires customers to be more deeply involved in service product innovation. Yet, few empirical studies have examined the business outcomes of customer involvement in service innovation. There has been a lack of convincing arguments for firms to improve their service innovation performance by enhancing their internal knowledge absorptive capacity or their external relationship learning. To fill these research gaps, the current work explores the internal mechanisms and contextual conditions of the relationship between customer involvement in service innovation and firms’ service innovation performance. Our findings suggest that (1) higher degrees of customer involvement in service innovation significantly contribute to the improvement of service innovation performance, (2) relationship learning plays a mediating role in the link between customer involvement in service innovation and service innovation performance, (3) greater knowledge absorptive capacity substantially increases the impact of customer involvement in service innovation on relationship learning, and (4) greater knowledge absorptive capacity significantly increases the indirect effects of customer involvement in service innovation on service innovation performance via relationship learning. Drawing on both service-dominant logic (SDL) and resource dependence theory (RDT), our findings contribute to the literature on service innovation for both manufacturing and service sector firms by revealing that the improvement of service innovation performance requires a full understanding not only of customer involvement but also of internal and external organizational learning capacities.