Process Innovativeness and Firm Performance in Technology Service Firms: The Effect of External and Internal Contingencies

Innovativeness is the capability for innovation or the ability to innovate, and has been acknowledged as a key organizational capability. Process innovativeness is considered as an organization's capability to marshal, integrate, and leverage organizational resources to improve or create new processes. Researchers have noted that though growth in the service sector has been strong in recent years, research on innovation in service processes is sparse. Further, as information and communication technologies become an important component of many service firms' offerings, there is a growing need for research on service firms offering technology intensive services, i.e., technology service firms (TSFs). TSFs may be defined as firms that sell or provide technology in the form of management consultations, evaluations, tests, analyses, maintenance, purchasing advice, studies, designs, plans, and other artifacts. Our research, therefore, examines the relationship between process innovativeness and firm performance in TSFs. Using contingency theory arguments, our model proposes that environmental hostility (external contingency) and aggressive posture (internal contingency) moderate the relationship between process innovativeness and performance in TSFs. Based on data from 108 firms, our results show that firm performance in TSFs is positively related to process innovativeness. Further, we find that while environmental hostility has a moderating effect on the relationship of process innovativeness with TSF performance, no such relationship is found with aggressive posture.