This paper aims to examine the quadratic relationship between customer involvement capability and performance, and innovation of small- and medium-scale service firms. The study answers the critical question of how SMEs make the most benefit from their involvement capability.
Data from small and medium enterprises (SMEs) operating in the service sector of an emerging economy in sub-Saharan Africa were used. A two-stage data analysis with a quadratic estimation was used to assess the hypothesized relationships.
The study found that the influence of involvement capability over SME performance differs in terms of financial and non-financial. And that, while increasing customer involvement will improve non-financial performance such as customer satisfaction and service quality, it is only at the intermediate level that financial performance is optimized.
The relationships (involvement, and performance and innovation) are not linear, and that at some levels, the relationship with financial or non-financial performance is more positive than other levels. The findings also suggest that involvement capability influences both process and product innovations most at intermediate levels than at low and high levels.
