Service-innovation capability founded on knowledge from customers

Abstract

This article expands current knowledge by assessing how customer knowledge management influence services innovation capability and what is the reciprocal effect of innovation capability on particular dimensions of customer knowledge management. Unexplored in earlier studies, the article has developed a list of hypothesis through an extensive literature survey, hypothesis were empirically tested, with survey data collected from 319 managerial employees. The results show that knowledge about customers, knowledge for customers, knowledge from customers and knowledge co-created with customers significantly influences service-innovation capability. Yet knowledge from customers appears to have a most powerful effect on innovation capability. The results from reciprocal causation show that innovation capability has significant impact upon all selected dimensions of customer knowledge management. But, the most power influence is found upon knowledge for customers. The article concludes with the study’s qualifications, plus it offers pivotal recommendations for both practitioners and future-research directions.

Keywords

Customer knowledge management innovation capability services success

Humaira Yasmeen is a PhD candidate in the College of Economics and Management, Nanjing University of Aeronautics and Astronautics, Jiangsu, Nanjing, China. She has 3 years of teaching and research experience. Her research interests lie in Management Science. Humaira Yasmeen is a corresponding author and can be contacted at E-mail: humaira.yasmeen@nuaa.edu.cn.

Dr. Ying Wang is a Professor of College of Economics and Management, Nanjing University of Aeronautics and Astronautics, Jiangsu, Nanjing 211106, China. Her research interests include Marketing Management, Global Value Chains, Industrial Economics and Management. E-mail: yingwang@nuaa.edu.cn.

Hashim Zameer is a PhD candidate in the College of Economics and Management, Nanjing University of Aeronautics and Astronautics, Jiangsu, Nanjing, China. He has more than 6 years of teaching and research experience. His research interests lie in Services Marketing, Consumer Behavior and Brand Management. His work has appeared in internationally recognized journals including the International Journal of Bank Marketing, Marketing Intelligence & Planning, Renewable and Sustainable Energy Reviews, Human Systems Management and International Journal of Customer Relationship Marketing and Management.

Abdul Waheed is a PhD candidate at Donlinks School of Economics and Management, University of Science and Technology Beijing, Beijing-China. Waheed has performed the duties as Lecturer Marketing for more than two years at Mohi-Ud-Din Islamic University, AJ&K, Pakistan. He had been working as a Principal for one year at Mohi-Ud-Din Islamic Inter-College, AJ&K, Pakistan. Despite, Waheed is a honorary Director Marketing & Promotions at more than four educational institutes of Pakistan. His teaching and research interests include sales management, promotion management, supply chain management, and electronic marketing.

1 Introduction

In the last decade, the rapid expansion of financial services sector in Pakistan has attracted academics and practitioners to explore the innovation capability of these firms [1]. Today customers are more informed due to web 2.0 and social media [2]. Similarly, they make more informed decisions which significantly influence firms to not only emphasize on the quality of services, but firms should also focus on the novelty of services [3]. Ensuring a higher level of service quality and novelty of services are major challenges faced by the organization operating in the financial services sector of Pakistan. Consequently, to obtain and maintain competitive advantage over rivals, service innovation in these firms is more frequent [4]. Similarly, for services innovation on a frequent basis, customer knowledge is highly significant [5]. Because customer knowledge not only provides a basis for services innovation, but it also highlights the needs of customers those can be incorporated in services innovation.

Due to recent advancements in technology, customers can contribute toward service innovation from anywhere and anytime. Customers can share their ideas, they can give feedback on services which help firms to use these ideas and feedback to innovate services on a continues basis [6]. Customer knowledge, ideas and feedback provide in-depth insight of customer preferences, purchase intentions and personalized needs through which financial sector firms can gain more profits, market share and customer loyalty [7, 8]. Customers are the prime source that effectively promotes the services of a bank. Customer engagement during service delivery can significantly improve customer satisfaction and service quality perception [9]. Customers are the crucial resource in service delivery and service innovation [10]. Consequently, it can be stated that innovation capability founded on knowledge from customer can help business enterprises and other societal organizations transform themselves, perhaps by integrating knowledge from customers in their high-technology, self-organizing and self-governing societal human processes and administrative structures. Though, management of customer information and knowledge from customers are highly significant. But, in past empirical studies have not paid attention to the importance of customer knowledge management and how it can contribute toward banking services innovation capability.

The scientific literature from the past shows that customer oriented information provide strong basis to service sector firms in the process of service innovation [11]. Thereby, it significantly enhances service innovation capabilities because firms are now shifting to open innovation and customer driven innovation [5]. In the process of service innovation, many firms engage their customers to obtain customer knowledge [12]. Although, some scholars have emphasized on exploring the relation among customer knowledge management and innovation capability of firms, but studies addressed how particular dimensions of customer knowledge management can influence innovation capability of financial sector firms are scant in academic research. Similarly, further study is required to explore the sources of customer knowledge management which can significantly contribute toward improving banking services innovation capability.

Therefore, the purpose of this study is to bridge the research gap by exploring how different dimensions of customer knowledge management can influence innovation capability of firms operating in the banking sector of Pakistan. The study provides a novel set of hypothesis that opens new horizons for research in the area of knowledge management. Further, this paper provides a basis to improve the service innovation capability of banking sector firms. And also, this paper emphasized on the role of customer participation in service innovation which provides new directions for future research. Finally, the article concludes with the study’s qualification, plus some practical implications, suggesting future research directions.

2 Literature review and hypothesis formation

Knowledge management is going through a paradigm shift toward a customer focused approach [13], where customers can perform an important role in business process improvement. In recent years, the customer is considered as the most important source of knowledge for firms [14]. Keeping in mind the complex and a highly competitive environment in which firms operate now days, knowledge management has been divided into another category called customer knowledge management [15]. Therefore, in the process of enterprise service innovation, customer knowledge is considered as the highly significant asset and it occupies the most important position as compared to other customer values [16]. In service sector organizations, specifically banking services, customer needs more information about services during interaction with the bank [17]. According to Brenner, Kolbe [18] companies can also obtain customer knowledge during interaction with a customer. Today, banks have a suggestion box in all branches where customers can put their suggestions based upon his/her experience and knowledge about the bank services.

Academic research has shown that some of the scholars believe that customer information are basically customer knowledge [19, 20]. The study of Campbell [21] has stated that customer information process starts from customer data acquisition followed by interpretation which turns data into customer information. Rowley [22] argued that there are two types of customer knowledge. The one is about customers that include the knowledge of potential customers and customer segments including distinctive customer knowledge. Secondly, the knowledge processed by the customers, it basically refers to the customer knowledge about products and services of the firm. According to previous studies, customer knowledge basically consist of three streams, it includes knowledge about customer, knowledge for customer and knowledge from customers [20 , 24].

Knowledge about customers represents customer knowledge management strategies those are adopted by the firm to manage knowledge flow among customers [13]. The CKM dimension that emphasizes on knowledge about a customer basically incorporate customer consumption patterns and other personalized information, including customer historical purchase information, needs, expectations and other purchase related activities [25]. The CKM activities that focus on knowledge about customer help firms to better comprehend the needs of a customer, so that firms can offer them better services to retain existing customers and attracting new customers.

Knowledge for customers represents the knowledge that a customer attains from an organization to know more about the products and services of the firm [24]. The study of Taherparvar, Esmaeilpour [5] has stated that the knowledge which firms prepare to meet and satisfy the customer knowledge needs is categorized as knowledge for customers. Zanjani, Rouzbehani [24] argued that knowledge for customers can be attained from internal and external sources such as workforce, consumers and competitors. Initiatives taken to improve knowledge for customers not only improves customer perception of service quality, but it also facilitate firms in value co-creation [15]. It can be stated that such kind of knowledge management in the organizations is essential to assist consumer decision making.

Knowledge from customers refers to the knowledge customers have about firm products and services. The knowledge from customers is an important source of knowledge for firms operating in a competitive environment [26, 27]. The core reason is that knowledge from customers plays an important role in the knowledge process of firms, especially for creating successful innovations [28]. Previous research has consensus that knowledge from customers provides the basis for value co-creation [29 –32]. Knowledge from customers is used by firms for an idea generation, service innovation and improvement of existing products and services [5, 16]. Further, firms attain this kind of knowledge to improve the sustainable growth of enterprises.

Most of the studies in the past have studied only aforesaid three dimensions of customer knowledge management. However, the study of Smith and McKeen [33] asserted a fourth dimension of customer knowledge management that is a knowledge which is co-created. As the study of Gibbert, Leibold [20] argued that very little attention has been paid to customers as knowledge creation partners. This dimension emphasized on the interaction among company and customers for the sake of developing new knowledge. As in real life, we can see that most of the software companies release a trial version of their software to pivotal customers in order to learn from them for better products and services. According to the views of scholars, customer knowledge should be composed of four parts: knowledge about customers, knowledge for customers, knowledge from customers and knowledge that is jointly created with customers.

It can be stated here that customer knowledge management is comprised of various management activities those emphasizes on customer knowledge. Customer knowledge is a highly useful tool [34], service companies need to clearly comprehend how to effectively use customer knowledge to promote service innovation and to achieve sustainable business performance [35]. Customer knowledge management is the process of dynamic acquisition and integration of knowledge and it has important implications for service sector organizations. The scientific literature indicates that different scholars have different interpretations of the concept of customer knowledge management. The study of Tseng [36] shows that, in business enterprises and other societal human organizations, the handling of knowledge from customers requires designing a societal human structure, from which a system emerges by or of itself, which acquires customer information and generates knowledge from customers, resulting in most valuable customer relations. Mehdibeigi, Dehghani [14] believes that customer knowledge management is to effectively acquire, develop and maintain knowledge and experience that are beneficial for both customers and organization. According to (Salomann, Dous [23],Khodakarami and Chan [37],Taghizadeh, Rahman [38]) customer knowledge management is the effective use of knowledge about customers, knowledge for customers and knowledge from customers. Smith and McKeen [33] asserted that customer knowledge management is not only the effective use of knowledge about customers, knowledge for customers and knowledge from customers, but knowledge co-created is also important. It can be stated that different scholars and different organizations use distinguish ways for customer knowledge management. But, in the past very limited studies have emphasized on which customer knowledge management practice is more important for service innovation capability in the context of a banking sector organization of Pakistan.

Innovation capability refers to the ability to generate new, potentially relevant, useful ideas about the product, service or practice [39 –41]. According to Rajapathirana and Hui [39] innovation capability is a valuable asset that provide competitive advantage, and it is helpful in implementation of entire business strategy. Hurley and Hult [42] argued that it is necessary for sustainable corporate performance that innovation must perform. Moreover, the study indicates that numbers of new ideas used by the organization are an indicator of organizational innovation capabilities. According to [43, 44] the number of patents and the proportion of new product sales are indicators for measuring innovation capability. Koc and Ceylan [45] stated that an idea generation, technological environment, technological acquisition and exploitation are main drivers of innovation capacity. Scientific literature indicates that innovation capability is vital for organizations to attain sustainable business performance [46 –48]. According to Yam, Lo [49] innovation capability comes from internal and external sources. Magnusson [50] asserted that innovation quality and innovation speed indicate the innovation capability of firms. Innovation quality refers to the extent to which newly offered products and services meets customer needs and expectations [51]. Innovation speed refers to the speeding up business operations to attain a competitive advantage over rivals [52]. The increased acceptance of speeding up business operations is based on the belief that fast innovator can catch a first mover advantage [53].

2.1 Hypothesis formation

Academic literature has shown that only those companies attained sustainable growth which emphasized on innovation instead of merely focusing on cost reduction. The intense competition in which firms operate now days has further influenced an organization to focus more over innovation. The recent era of globalization and technological advancements has developed potential technologies for managing customer knowledge, which can be utilized for service innovation and then improve service innovation capability [54, 55]. In the process of service innovation, the role of customers has been transformed from a traditional role to the role of an equally important partner that co-operate with firm for knowledge co-creation [56]. Customers share their knowledge which helps an organization to identify and determine the needs of consumers in the process of innovation [57]. The study of Reichwald, Seifert [58] found that not only leading users can influence the quality of innovation, but also ordinary customers have the capability to influence the process of innovation. Similarly, customer knowledge management is also acknowledged by scholars and business community in the process of innovation. Even though theoretical research has shown that knowledge management can provide support in an innovation. But, studies that empirically explore which dimension of knowledge management provides more support toward innovation capability are scant in literature.

Knowledge about customers is attained by the organization to better comprehend its customers [36]. Similarly, it is highly significant for firms to obtain knowledge about customers to develop new product or service [24]. Once the new product or service has been introduced based on knowledge about customers, it can be predicted that it will meet customer needs. The study of Lin [59] affirmed that having knowledge about customer can improve the success of new product or service. According to Salomann, Dous [23] knowledge about customer can help financial service organizations in optimization of customer profiles, segmentation and campaign management, which in result enhances the success of new services. Based upon the aforesaid arguments, we have postulated the following hypothesis:

H₁: Knowledge about customer has a significant positive impact on innovation capability

Knowledge that is attained by customers to know more about products and service offered by an organization is categorized as knowledge for customers. Khodakarami and Chan [37] found that knowledge for a customer is highly important and it provides pivotal support for innovation and growth. Similarly, it can be further postulated that this kind of knowledge can play a vital role to boost service innovation capability. According to Tseng [36] knowledge for customers can improve the quality of services which can further improve the success rate of service innovation in competitive market conditions. Moreover, to support customer decision making process, it is essential to manage and transfer knowledge from an organization to customers [60]. Thus, it can be postulated that knowledge for customers will improve innovation capability of banking sector organizations. Therefore, we postulated the following hypothesis:

H₂: Knowledge for customer has a significant positive impact on innovation capability

When a bank obtains information/knowledge from customers about products and service offered by the bank or it may be related to the customer experiences with the bank, it is categorized as knowledge from customers. As previous research has consensus that customers are an important source of innovation success [29 –32], the study of Massaro, Handley [28] asserted that knowledge from customers plays an important role in a knowledge process of firms, especially for creating successful innovations. In a current era of intense competition, knowledge from customers is attained and used by firms for an idea generation, service innovation and improvement of existing products and services [5, 16]. But, scientific literature is silent to answer that is knowledge from customers enhance an innovation capability of banks? Even though, some theoretical papers in the past indicated that knowledge from customers can improve innovation capability of banks. But, no empirical study explored the role of knowledge from customers toward innovation capability specifically in a context of developing county like Pakistan. To empirically test the argument that knowledge from customers significantly improves innovation capability of banks, we postulated the following hypothesis:

H₃: Knowledge from customer has a significant positive impact on innovation capability

The advancements in technologies, growth of social media and importance of innovation platforms have increased the role of customers in innovation success. Kazadi, Lievens [61] has stated that stakeholder co-creation capability provides valuable support in the creation of knowledge. Fidel, Schlesinger [62] argued that collaborating with customers is vital for knowledge management, and it can significantly improve innovation capability. The study of Reichwald, Seifert [58] asserted that customers can play an active role at every stage of value chain. Similarly, it is important that an organization should ensure a customer participation in an innovation process to improve innovation capability [58]. Rossi [63] argued that organizations can collaborate with customers through online communities to improve innovation success. Thus, it can be postulated that knowledge co-created with customers can significantly improve innovation capability of organizations. To test this argument, we postulated the following hypothesis:

H₄: Knowledge co-created with customers has a significant positive impact on innovation capability

In the aforesaid discussion, we have postulated that customer knowledge management consists of four diminutions which include knowledge about customers, knowledge for customers, knowledge from customers and knowledge that is co-created with customers. Further, based upon theoretical analysis we assumed that these four dimensions significantly contribute toward an innovation capability of banking sector organizations.

3 Methodology

The present study has been conducted to explore how different dimensions of customer knowledge management contribute toward an innovation capability of banks. A close ended structured questionnaire has been developed using five point Likert scale ranging from “strongly disagree” (1) to “strongly agree” (5) following the study of Zameer, Tara [64]. The questionnaire consists of five sections, first section is related to knowledge about customers, second is knowledge for customers, third is knowledge from customers, fourth is knowledge co-created and fifth section is innovation capability. The items used in the aforementioned sections were adopted from previous studies. Knowledge about customers has been measured using Taherparvar, Esmaeilpour [5] scale; we retained seven items (item#1 Our bank has been informed about customer’s background, item#2 Our bank has been informed about customer’s requirements and prerequisites, item#3 Our bank has been informed about customer’s job and income level, item#4 Our bank has been informed about customer’s problems, item#5 Our bank has been informed about customer’s credit and validity, item#6 Our bank has been informed about number of customer’s referrals and item#7 Our bank has been informed about customer’s demands and requests).

Knowledge for customers is also measured using Taherparvar, Esmaeilpour [5] scale; we retained four items (item#1 Our bank provides information about current services for customers, item#2 Our bank provides information about benefits of innovative and new services for customers, item#3 Our bank provides information about innovative and new services for customers and item#4 Our bank helps customers to make better decisions by providing information). Knowledge from customers is also measured using Taherparvar, Esmaeilpour [5] scale; we retained four items (item#1 Our bank asks customers about current service quality, item#2 Our bank asks customers about competitor’s service quality, item#3 Our bank asks customers about their required services and item#4 Gaining customer’s ideas affects development of novel and innovative services of our bank).

Knowledge co-creation scale was developed based upon the studies of Smith and McKeen [33],Chuang and Lin [65]; we developed four items (item#1 Our bank cooperate with customers to come up with new ideas, item#2 Cooperation with customers enhances the chances of new idea success, item#3 Our bank cooperate with customers when selling new products or services and item#4 Cooperation with customers provide positive support for success of new services). Finally, innovation capability was measured using six items, two items retained from [66] scale; item#1 the number of new or improved products and services launched to the market is superior to the average in your industry, item#2 The number of new or improved processes is superior to the average in your industry. Four items including (item#3 Our bank has fast speed in launching new service, item#4 Our bank has fast speed in developing new service, item#5 Our bank has good performance in developing new service and item#6 Our bank has good performance in using new technology and equipment) were adopted from Taherparvar, Esmaeilpour [5].

Using a convenient sampling approach, the questionnaire was distributed among 350 managerial employees working in different banks of Pakistan. The respondents also provided demographic information on a categorical scale, these information include gender, age, education and current job in the bank. 332 questionnaires were retrieved. However, some of them were removed prior to final analysis due to higher level of missing values and unengaged responses. Finally, 319 questionnaires were processed for final analysis.

4 Results and findings

The 319 questionnaires completed in all respects, accumulating the response rate of 91% were further utilized for analysis. The study used SPSS version 18.0 and AMOS graphics version 21.0 for analysis purpose. Initially, Cronbach’s Alpha coefficient was calculated to see the reliability of data. The Cronbach’s Alpha coefficient was found 0.923. According to George [67], the value of Cronbach’s Alpha Coefficient greater than 0.70 indicate the reliability of data. Similarly, in case of this study the value of Cronbach’s Alpha is higher than 0.70, thus it can be stated the data is reliable and it can be further processed for analysis.

4.1 Demographic profiles of respondents

Participants of this study consist of employees of banking sector organizations. The demographic profile of respondents indicates that 66% are male and 34% are female respondents. The majority of employees participants (32.6%) are categorized in age group from 41–50, 27% participants are categorized in age group of 31–40, 21% are categorized in age group of above 50 years and 19.3% participants of this study are in the age group of 20–30 years. Education of respondents comprise of 68% holds a master degree while 29% hold a bachelor degree and other 03% intermediate, diploma certificates. Most of the employees (74%) are working at a middle management.

4.2 Reliability and validity analysis

The study used confirmatory factor analysis (CFA) to determine the convergent and construct validity. For confirmatory factor analysis, we measured five factor measurement model (knowledge about customers, knowledge for customers, knowledge from customers, knowledge co-created with customers and services innovation capability). According to Babin, Hair [68] factors loaded in wrong factor or factor with loadings lower than 0.40 must be deleted from the model prior to the evaluation of reliability and validity of constructs. Thus, in this study one factor that belongs to innovation capability construct was highly correlated with other factor and was deleted prior to further evaluation. The factors loading from five factor measurement model are shown in Table 1. All the factor loadings are significant at p < 0.01. The fitting results from measurement model indicate that CFI (0.944), GFI (0.880), TLI (0.936), RMSEA (0.056), RMSEA HI90 (0.063) and CMIN/DF (1.997), these fittings results meets the goodness criteria and acceptable as per minimum threshold level asserted by [69, 70]. Hence, we believe that our fitted model show the reasonable fit with observed data. Thus, it can be stated that results indicate the overall construct validity.

Table 1
Factor loadings of constructs and reliability statistics

Construct Factor loadings (>0.5) C.R AVE

Knowledge about customers 0.845 0.515

Statement/Item#1 0.71

Statement/Item#2 0.78

Statement/Item#3 0.77

Statement/Item#4 0.75

Statement/Item#5 0.54

Statement/Item#6 0.52

Statement/Item#7 0.63

Knowledge for customer 0.853 0.596

Statement/Item#8 0.77

Statement/Item#9 0.88

Statement/Item#10 0.79

Statement/Item#11 0.63

Knowledge from customers 0.852 0.591

Statement/Item#12 0.76

Statement/Item#13 0.77

Statement/Item#14 0.77

Statement/Item#15 0.77

Knowledge co-created with customer 0.879 0.645

Statement/Item#16 0.82

Statement/Item#17 0.71

Statement/Item#18 0.84

Statement/Item#19 0.83

Banking service innovation capability 0.913 0.677

Statement/Item#20 0.81

Statement/Item#22 0.79

Statement/Item#23 0.80

Statement/Item#24 0.90

Statement/Item#25 0.82

Construct	Factor loadings (>0.5)	C.R	AVE
Knowledge about customers		0.845	0.515
Statement/Item#1	0.71
Statement/Item#2	0.78
Statement/Item#3	0.77
Statement/Item#4	0.75
Statement/Item#5	0.54
Statement/Item#6	0.52
Statement/Item#7	0.63
Knowledge for customer		0.853	0.596
Statement/Item#8	0.77
Statement/Item#9	0.88
Statement/Item#10	0.79
Statement/Item#11	0.63
Knowledge from customers		0.852	0.591
Statement/Item#12	0.76
Statement/Item#13	0.77
Statement/Item#14	0.77
Statement/Item#15	0.77
Knowledge co-created with customer		0.879	0.645
Statement/Item#16	0.82
Statement/Item#17	0.71
Statement/Item#18	0.84
Statement/Item#19	0.83
Banking service innovation capability		0.913	0.677
Statement/Item#20	0.81
Statement/Item#22	0.79
Statement/Item#23	0.80
Statement/Item#24	0.90
Statement/Item#25	0.82

Note. All factor loadings are significant at: p < 0.01.

Following this, we also measured reliability of constructs using composite reliability. The results are presented in a Table 1. The results indicate that all the factors have composite reliability greater than 0.80. The minimum acceptable threshold level for composite reliability is 0.60. Thus, the composite reliability in a context of this study is higher than 0.60 which show the acceptable level of composite reliability. Further, the convergent and discriminant validity was estimated using AVE (average variance extracted). In overall evaluation, the value of AVE is greater than 0.50 which show the acceptable level of convergent and discriminant validity.

Once the data evaluation and model fitting is completed the next step is hypothesis testing. Similarly, the next section is designed to explain the results and to test the hypothesis developed the previous section.

4.3 Hypothesis testing

The study developed four hypothesis based upon extensive literature review. These hypotheses are being tested path diagram of estimated model is shown in Fig. 1 and summarized results are presented in a Table 2. The first hypothesis (H₁) was developed to show that how knowledge management about customers influence banking services innovation capability. The results indicate that knowledge about customers significantly influence banking service innovation capability with (β= 0.180, p < 0.001). Hence, H₁ is accepted. These results are in line with the study of Chua and Banerjee [13]. Therefore, it can be stated that banking sector organizations need to emphasize on managing knowledge about customers such as customer information management, customer buying behavior and customer expectations from service being offered by the bank. This kind of initiatives will make banks capable for service innovation.

Fig.1

Path diagram of research model.

Table 2

Hypothesis testing

Hypothesis				β	S.E.	C.R.	P	Decision
H1	KAC	⟶	INNCAP	0.180	0.060	3.699	***	Accepted
H2	KFORC	⟶	INNCAP	0.335	0.099	5.015	***	Accepted
H3	KFROMC	⟶	INNCAP	0.367	0.083	4.854	***	Accepted
H4	KCCC	⟶	INNCAP	0.107	0.057	1.744	0.081	Accepted

Second hypothesis (H₂) was designed to explore the role of knowledge for customers toward services innovation capability. The results indicate that knowledge for customers significantly influence banking service innovation capability with (β= 0.335, p < 0.001). Hence, H₂ is supported. Our results are consistent with previous studies [5, 15]. Thus, to improve innovation capability, banking sector organizations need to improve their capability of knowledge for customers. For this purpose, organizations can dedicate staff to fulfill customer information needs whenever customer visits to the bank. In other words, after providing customers with comprehensive information they need, the service innovation capability of banks improved significantly, and the efforts of banks in this area can greatly improve the service innovation capability.

Third hypothesis (H₃) was postulated to show the relation of knowledge from customers with services innovation capability of banks. The results indicate that knowledge from customers significantly influence banking service innovation capability with (β= 0.367, p < 0.001). Therefore, H₃ is accepted. The results are consistent with previous studies [15, 16]. These results provide guiding insight for banking sector firms that knowledge from customer is highly important for service innovation capability. Thus, it can be argued that banks should give importance to the suggestions and complaints provided by the customers. It will help bank to improve innovation capability of their services.

Finally, the fourth hypothesis (H₄) was developed assuming that knowledge that is co-created with customers significantly improve services innovation capability. The results indicate that knowledge co-created with customers significantly influence banking service innovation capability with (β= 0.107, p < 0.10). Hence, H₄ is supported. Previous theoretical papers [20, 33] indicated that very less attention has been paid to this dimension of customer knowledge management. Even though, knowledge co-created with customers has a weaker role toward service innovation capability, but for the first time this study empirically explore the role of fourth dimension of customer knowledge management. In overall, evaluation of four dimensions of customer knowledge management, the results indicate that knowledge from customers is the most important dimension of customer knowledge that has a highest role toward innovation capability.

4.4 Reciprocal causation

Causation basically is the relation among two variables, where the second variable called effect, which is consequence of first variable that called cause. Causation is different from a correlation, because in correlation researcher can only see that two variables are related but it can’t be explored the nature of a relation [71]. The concept reciprocal causation means that how two variables can influence each other simultaneously. Similarly, in this study we also measured reciprocal causation to explore the simultaneous relation of customer knowledge management with innovation capability. In the previous section, the paper discussed the role of different dimensions of customer knowledge management toward innovation capability. In this section, another model is developed to explore how innovation capability influences different dimensions of customer knowledge management. The path diagram of a structural model is shown in Fig. 2.

Fig.2

Path diagram for reciprocal causation.

The structural model that is developed to estimate the impact of services innovation capability on different dimensions of customer knowledge management can be seen in Fig. 2. The fitting results show that CFI (0.934), GFI (0.871), TLI (0.927), RMSEA (0.060), RMSEA HI90 (0.067) and CMIN/DF (2.134), these fitting results meet the goodness criteria and are acceptable as per minimum threshold level asserted by [69, 70]. Hence, we believe that our fitted model show the reasonable fit with observed data.

The results from reciprocal causation are shown in a Table 3. The results indicate that banking service innovation capability significantly influence knowledge about customers with (β= 0.482, p < 0.001). Innovation capability significantly influence knowledge for customers with (β= 0.771, p < 0.001). Innovation capability significantly influence knowledge from customers with (β= 0.747, p < 0.001). Innovation capability significantly influence knowledge that is co-created with customers with (β= 0.615, p < 0.001). In overall evaluation of reciprocal causation, it is found that innovation capability has greater influence on knowledge for customers as compare to other dimensions of customer knowledge management. These results also provide guiding insight for banks that if banks improve their innovation capability it will result in improved knowledge for customers. Improved knowledge for customers can further improve service quality of banks and customer satisfaction toward bank services.

Table 3

Reciprocal causation

			β	S.E.	C.R.	P
INNCAP	⟶	KAC	0.482	0.052	7.530	***
INNCAP	⟶	KFORC	0.771	0.051	9.339	***
INNCAP	⟶	KFROMC	0.747	0.060	11.599	***
INNCAP	⟶	KCCC	0.615	0.065	10.079	***

5 Conclusion and implications

5.1 Conclusion

In the process of service innovation, customers often participate in it. Similarly, new services developed with customer participation can attain more success. The ideas and suggestions of customers can play a significant role in service innovation. To enhance the chances of success for new service, banking sector organizations has started to focus on customer knowledge management. Therefore, it is highly significant to study the impact of customer knowledge management practices on services innovation capability. This paper has developed a set of hypothesis to show how different dimensions of customer knowledge management can influence service innovation capability. To test the hypothesis, the study used the data collected from employees working in a banking sector of Pakistan. Using confirmatory factor analysis, structural equation modeling and reciprocal causation, the study analyzed the data to check how different dimensions of customer knowledge management influence service innovation capability and also the reciprocal effects of innovation capability on different dimensions of customer knowledge management. We found that knowledge from customers has a highest influence on services innovation capability as compare to the other dimensions of customer knowledge management. The results have shown that all the dimensions of customer knowledge management significantly influence services innovation capability. But, knowledge that is co-created with customers has weaker role. Further, we also measured reciprocal effects of services innovation capability on different dimensions of customer knowledge management. We found that innovation capability has significant positive influence on all selected dimensions of customer knowledge management. But, the most powerful influence is found on knowledge for customers.

5.2 Managerial implications

Based on the empirical research results of the banking sector organizations with typical service industry characteristics, the following management implications can be provided for the banking sector organizations to improve the service innovation capability by using customer knowledge management.

First, the knowledge about customers can improve service innovation capability of banking sector organizations. To enhance the innovation capability of banking sector organizations can’t ignore the significance of knowledge about customers. It is suggested that banking sector organizations establish customer studios to analyze customer service needs, and banks can promote employee’s rotation form one department to other and sharing of customer information. Further, banks can focus on motivation of front line employees so that they can collect and share knowledge about customers. In this way banks can improve their customer satisfaction and customer loyalty. Secondly, knowledge for customers also significantly influences innovation capability of banks. Therefore, it is suggested that banks can improve innovation capability by focusing on managing knowledge for customers. For this purpose banks can develop special customer service centers to provide information to customer on timely basis. On one end it will improve banks innovation capability. While on the other end it will help banks to retain customers by providing them accurate and timely information.

Thirdly, knowledge from customers has a greatest influence on service innovation capability. It provides valuable managerial insight for banks to obtain knowledge from customer which leads to the significant improvement of service innovation capability. Thus, it is suggested to banks to collect information from customer about their services expectations and also adopt the suggestions provided by customers to improve innovation capability. Finally, knowledge that is co-created with customers also has significant influence upon innovation capability. In order to improve the service innovation capability, banks can focus on the management of knowledge co-creation with the customer. The knowledge sharing between employees and the customers can be increased by establishing the knowledge learning community or the customer interaction platform.

5.3 Limitations and avenues for future research

This study presents a first foray into the conceptualization of the role of customer knowledge management toward service innovation capability within a banking context. However, the finding of this paper should be interpreted in the light of some limitations that are potential avenues for future research. The study has been conducted in Pakistan and the only banking sector has been taken as a sample, whereas in a different country and multiple sectors, the finding may not be same. Although, authors developed the survey instrument and its items based on the qualitative analysis of previous studies formed in different settings, the distinguish culture and environment in Pakistani banks could affect higher or smaller degree, of constructs used in this study. Therefore, authors recommend that a future study may be carried out to repeat this study in other countries and distinguish industries to test the generalizability of the results.

The research design adopted in this study could be another limitation. The study used structured questionnaire method for data collection; survey instrument consists of close ended questions. However, the close ended questions have probably limited opportunities to generalize the measurement items. Further study is recommended with different methods of data collection and having qualitative and open-ended questions. Moreover, the lack of financial resources and access to the whole sampling framework led present study to use convenient sampling. Ideally, the probability sampling method should be used that enable research to approximate the sampling error and eliminate probable bias in the term of generalizability and validity of scales [72]. This study used the role of customer knowledge management toward innovation capability; in the future more variables can be incorporated to extend this study such as the role of customer knowledge management in innovation performance, customer satisfaction and customer loyalty.

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