How much and when to innovate : The nexus of environmental pressures, innovation and service firm performance

Purpose The purpose of this paper is to examine the role of market innovation in driving service performance in the context of environmental pressures. This paper argues from the complexity theory that the development and the implementation of market innovation must critically examine the effect of customer demand and competitive intensity in the innovation efforts of service firms. Design/methodology/approach Data from different sub-sectors of the services industry of a growing emerging African economy are used. Structural equation modeling was used in analyzing the interconnection among environmental pressures, market innovation and firm performance. Findings The study found that both market demand and competition impact on innovation development positively. However, in terms of the moderation effects, competition negatively moderates the relationship between innovation and performance, while customer demand moderates the relationship positively. Practical implications The implications are that the implementation of market innovation must be reduced in low demand periods and high competitive periods in order to maximize financial and non-financial performance benefits for the service firm. Originality/value The current study complements the complexity theory by stating that the complex nature of business environment presents both opportunities and threats. However, for effective sense making out of the information provided by environment, service firms must evaluate environmental effect differently. While a factor may promote the development of strategy, same environmental factor may hinder the positive influence such strategy may have on overall firm performance.