Mediating

J. Eng. Technol. Manage.
29 (2012) 7194
Contents lists available at SciVerse ScienceDirect
Journal of Engineering and

Technology Management
journal homepage: www.elsevier.com/locate/jengtecman
Performance effects of IT capability, service process

innovation, and the mediating role of customer service
Ja-Shen Chen a,*, Hung-Tai Tsou b
a
b
College of Management, Yuan Ze University, 135 Yuan-Tung Road, Nei-Li, Chung-li 320, Taiwan
Department of Global Marketing and Logistics, Ming Dao University, Taiwan
A R T I C L E I N F O
A B S T R A C T
JEL classication:
M15
M31
Keywords:
IT capability
Customer service
Service process innovation
Few academic studies have investigated how information technology (IT) capability and service process innovation can create
performance gains for rms through customer service. We propose
that customer service is a signicant mediator through which IT
capability and service process innovation inuence the performance of a rm, and that IT capability is also a critical factor that
facilitates service process innovation. Empirical support for our
argument was derived from data collected from 174 rms in the
Taiwan IT industry. The results suggest that managerial initiatives
should be directed at developing IT capability and service process
innovation and leveraging them to facilitate customer service to
attain superior rm performance. Furthermore, greater IT capability
would lead to a higher degree of service process innovation.
2011 Elsevier B.V. All rights reserved.
Introduction
The impact of information technology (IT) on rm performance is best measured through
intermediate-level contributions such as marketing and operations effectiveness. This has been the
subject of considerable interest among information system (IS) research, marketing academics, and
practitioners, spurred by the original work of Sambamurthy et al. (2003). Due to the ever-increasing
importance of customer service in customer satisfaction and loyalty, a number of IS customer
relationship management (CRM) research scholars (e.g., Albert et al., 2004; Lankton and Wilson, 2007;
Luo and Seyedian, 2003; Mithas et al., 2005; Jayachandran et al., 2005) have begun to examine how to
identify and use IT to manage customer service activities. At the same time, special attention has been
* Corresponding author. Tel.: +886 3 463 8800x2633; fax: +886 3 463 0377.
E-mail address: jchen@saturn.yzu.edu.tw (J.-S. Chen).
0923-4748/$ see front matter 2011 Elsevier B.V. All rights reserved.
doi:10.1016/j.jengtecman.2011.09.007
72
J.-S. Chen, H.-T. Tsou / Journal of Engineering and Technology Management 29 (2012) 7194
given to electronic CRM (e-CRM; Jukic et al., 2002; Pan and Lee, 2003). This increased emphasis on IT
may enable rms to change the way they interact and coordinate practices with customers, reecting
an appropriate implementation of IT. This, in turn, could create more competitive services and serve as
a strategic resource that facilitates major changes in competitive behavior, marketing, and customer
service. Nonetheless, there is limited empirical research on how customer service may lead to superior
rm performance and how IT may be exploited to facilitate customer service (Levenburg and Klein,
2006). Thus the relationships among these factors remain incomplete and unclear. Furthermore, the
fundamental elements of customer service are not well understood. Thus, this article lls this void by
applying a resource-based view (RBV) to investigate the effects of IT capability on rm performance
due to the intervening role of customer service.
The demands of customers concerning the quality and innovativeness of products and services put
rms under pressure. Together with the rising pressure to reduce service costs, this may require rms
to redesign their organizational structure. One possible solution is to focus service innovation
practices on the processes of service delivery. While many essential service processes that support
customer service are invisible to rms, understanding how innovative service processes can facilitate
competitive customer service is essential to attain superior rm performance. Despite substantial ISCRM and e-CRM research on IT applications for customer service, there is a lack of studies
demonstrating the potential benets and pitfalls of service innovation practices. In particular, there is
little information on the roles and contribution of service process innovation in managing and
facilitating customer service. Furthermore, from the RBV, to maintain a competitive advantage, it is
imperative for rms to possess rare and valuable resources (Barney, 1991). Interacting with customers
is critical for rms to share resources and capabilities and develop new products/services, which in
turn lead to competitive customer service. Firms should understand that customer value can be
generated by (re) designing or innovatively utilizing resources and capabilities that may be embedded
in service processes. Accordingly, developing a deeper understanding of service process innovation is
but one of many challenges facing rms that attempt to redesign service processes and develop
innovative service delivery methods.
Our approach examining how IT capability and service process innovation impact rm
performance via customer service is consistent with the research of Brynjolfsson et al. (2000),
who studied information technology, organizational transformation, and business performance. This
suggests complementarity between the factors of organizational structure and IT, indicating that rm
performance is greatest when both IT and organizational structure are emphasized. We consider
service innovation a type of organizational structure and a crucial factor that affects rm performance.
Although there is a wealth of evidence indicating a positive relationship between innovation and rm
performance (e.g., Akgun et al., 2009; Fallah and Lechler, 2008; Irwin et al., 1998), specic analyses on
the relationship between service process innovation and rm performance are still relatively rare. In
this respect, we argue that IT capability and service process innovation support customer service
activities, and therefore the impacts of these factors on rm performance should be assessed where
the customer service effect is expected to be realized. In addition, we examine the relationship
between IT capability and service process innovation.
Our research is based on Brynjolfsson et al.s (2000) suggestion and was motivated by a desire to
demonstrate from a service-orientation perspective how IT capability (i.e., IT factor) and service
process innovation (i.e., organizational factor) enable customer service to yield gains in performance,
and how IT capability enables service process innovation. Specically, we addressed the following
questions: How does IT capability impact customer service and service process innovation? How does
service process innovation enable customer service? What are the performance consequences of ITenabled and service process innovation-enabled customer service for rms? The remainder of the
paper is organized as follows. In the sections Literature review and Model hypotheses, we synthesize
research constructs from a literature review and develop hypotheses. In the section Research
methodology, we present our research methodology and describe how the constructs developed in the
section Literature review were operationalized into a survey instrument used to survey 174 IT
managers in Taiwan. Statistical analyses of the data are presented in the section Data analysis and
results. The paper concludes with a discussion of the ndings as well as directions for future research
in the section Discussion and conclusions.
73
Literature review
An examination of the literature revealed that little has been published on the possible
relationships among IT capability, customer service, service process innovation, and rm performance
in the IT industry. We based our approach on the assumption that we could increase understanding of
the interactions among these factors by applying the RBV as well as new empirical data from our
survey and analysis of 174 IT rms. Fig. 1 depicts the research model. IT capability can be leveraged to
develop customer service and service process innovation, which are important to rm performance.
Further, service process helps facilitate customer service.
IT capability
IT capability is the capacity to control IT-related costs, deliver systems when needed, and affect
business objectives via IT implementation (Ross et al., 1996). It has been examined from multiple
perspectives, such as how it relates to work design, process transformation, power relationships, and
coordination (Mulligan, 2002), and some studies have examined IT capability from the RBV (e.g.,
Bharadwaj, 2000; Han et al., 2008; Tyler, 2001). Building on the RBV of diversication, rms with
value, rareness, inimitability, and non-substitutability resources may gain a competitive advantage.
Thus, IT may be viewed as a resource that leads to a competitive advantage that translates into
superior performance (Zhang, 2005). This would suggest that unique resources cannot be easily
duplicated, and will be used to develop IT capability. Further, building on resource-advantage (R-A)
theorys (Hunt and Morgan, 1995) notion of basic resources (typically human, organizational,
informational, and relational) and higher-order resources, Madhavaram and Hunt (2008) proposed a
hierarchy of basic, composite (e.g., resource A + resource B + resource C = composite operant resource
D), and interconnected (e.g., A B, A C, B C, and/or A B C on each other and on desired outcomes)
operant resources. Because capabilities and/or competences are operant resources that bundle basic
resources (Hunt, 2000), we proposed that IT capability is a hierarchy of composite operant resources
(COR). COR can be formatively measured, and the lower-order resources that combine to become the
COR can be either tangible or intangible (Madhavaram and Hunt, 2008). Therefore, IT capability can
have as many dimensions as the number of distinct IT-related resources.
However, to develop a set of dimensions for the IT capability construct, it is important to focus on
IT-related resources that are likely to lead to IT capability. Taking this stand, we identied several
streams of pertinent research, which provided the basis for establishing our construct of IT capability
derived from the RBV. Key contributions came from Bassellier et al. (2003), Bharadwaj (2000), Bhatt
and Grover (2005), and Ross et al. (1996). For example, Ross et al. (1996) posited that IT capability
depends on the status of three types of IT assets, including IT human resources, technical assets, and
the IT relationship. They regarded IT capability as the ability to manage these three IT assets to deploy
Control
variables
Service process
innovation
H6
H3
H2
Customer
service
H1
IT
capability
Fig. 1. Research model.
H5
H4
Firm
performance
74
IT to meet strategic objectives. Bharadwaj (2000) modied this categorization and classied rmspecic IT resources as IT infrastructure, IT human resources, and IT-enabled intangibles. This view has
received much support in the IT literature. To this extent, Bhatt and Grover (2005) further identied
competitive, dynamic, and value capabilities as three distinct types of IT capability. Regarding
competitive capability, they suggested that better IT business experience and IT relationship resources
enhance the competitive advantage of rms. In addition, Bassellier et al. (2003) dened IT competence
of business managers as their experience with IT and in managing IT projects.
We integrated these studies and R-A theorys notion of basic resources to develop a greater scope of
IT capability built on four critical IT-based resources: IT infrastructure, IT business experience, IT
relationship resources, and IT human resources. More specically, our concepts of IT infrastructure
and IT human resources are based on Ross et al. (1996) and Bharadwaj (2000); that of IT business
experience is based on Bhatt and Grover (2005) and Bassellier et al. (2003); and that of IT relationship
resources is based on Ross et al. (1996) and Bhatt and Grover (2005). These resources are
heterogeneously distributed across rms, and their presence or absence may explain the differential
scope of IT capabilities and outcomes.
IT infrastructure. IT infrastructure provides the foundation for rms to deliver business applications
and services, share information across different functions, and respond to changes in business
strategy. Keen (1991) dened IT infrastructure in terms of its reach and range. Whereas reach
determines the locations a platform can access and to which it can link (i.e., hardware), range denes
the kind of information that can be seamlessly and automatically shared across systems and services
(i.e., software). Thus, two types of IT infrastructure that are especially relevant for building IT
capability are hard and soft infrastructure, referring to the set of general hardware and software
(Bharadwaj, 2000; Ross et al., 1996; Weill and Broadbent, 1998).
IT business experience. IT business experience gives a rm the ability to integrate IT strategy and
business strategy (Sambamurthy and Zmud, 1997). When a rm solves problems through IT, it
facilitates the development of IT knowledge and competence of IT staff. In addition, we adopted Bhatt
and Grovers (2005) conceptualization of business experience and extended it to include IT staffs
understanding of business. That is, IT staff with higher technical skills and superior knowledge in
business operations and strategies would have a better understanding of business advantage.
IT relationship resources. Relationship resources are the rms ability to incorporate IT functions into
business units and exploit IT resources. The stronger the relationship between IT and business unit
management, the more effective those IT resources will be. Karimi et al. (2007) indicated that
relationship resources facilitate the free ow of information, allowing the rm to transform and
exploit information; a cooperative ITbusiness relationship, in turn, enables knowledge or
information dissemination throughout the organization. In addition, IT leads to the decentralization
of organizational decision making (Malone, 1997), and supports employees with greater
responsibilities and empowered roles (Psoinos et al., 2000). In the context of building IT capability,
knowledge dissemination and trust building require building relationship resources, which can be
accomplished by IT groups and business unit involvement in implementation (Karimi et al., 2007).
IT human resources. IT human resources are a key component of the IT asset base, and represent a
strategic organizational resource and a signicant organizational capability. To identify the key
dimensions of IT human resources, this study includes two critical dimensions based on Grants (1991)
classication scheme, namely technical IT skills (e.g., competencies in emerging technologies) and
managerial IT skills (e.g., the effective management of IS functions). This categorization is commonly
used when measuring IT human resources from the RBV perspective (e.g., Bharadwaj, 2000; Ross et al.,
1996). More specically, we focused these resources on the ability of IT staff to use (new) IT (Ross et al.,
1996). Firms with these capabilities can enable organizational changes and achieve greater
organizational effectiveness (Roepke, 2000).
Customer service
An increased emphasis on customer service has emerged as a key driver for IS priorities (Negash
et al., 2003) and a strategic imperative for most rms (Reichheld and Sasser, 1990). Customer service,
which is associated with the delivery of a tangible/digital product, shares attributes with trade and
75
professional services. In this study, we view customer service as a type of customer solution, or a
customized and integrated combination of goods and services for meeting a customers business
needs (Tuli et al., 2007). This denition highlights two key dimensions in which customer solutions
can be categorized: the degree of integration and the degree of customization (Sawhney, 2006). From
the integration perspective, services and products are the solutions (in marketing and operational
terms) that are delivered using an integrated services platform. From the customization perspective,
the value of a solution derives from the fact that it is customized to the contexts of specic customer
segments, namely, for the customers specic needs and context. As mentioned above, to provide a
more in-depth examination and discussion, the value of integration and customization represent the
difference between the whole (the value of the solution) and the sum of the parts (the value of
component products and services). The RBV is a useful tool when discussing value creation. It views a
rm as a bundle of resources and emphasizes the joint creation and exploitation of resources by the
client and the provider. Based on RBV and a customer solution perspective, we illustrated the
classication of customer service in two key dimensions: service delivery and service customization.
Service delivery. Resources (i.e., assets and capabilities; Wade and Hulland, 2004) are used to
perform the actual work of delivering a service. A rms ability to deliver targeted levels of quality,
speed, customization, and cost for given resource levels depends on both how much work is done
ahead of demand and how the rm allows customers to tap into its resources (Chopra and Lariviere,
2005). Here, service delivery refers to a rms ability to assemble nal elements and deliver services/
products (i.e., rms goods) to the customer (Zeithaml et al., 1988). To provide quality and efcient
delivery services, an organization must examine the various aspects of service delivery. In addition to
the traditional format (face-to-face), companies are using voice-to-voice (toll-free telephone support)
and bit-to-bit (online service delivery) modes, as well as combinations thereof (Wiertz et al., 2004).
From an IT management perspective, Pavlovski (2007) illustrated the key components essential to a
service delivery platform, which consists of transport functions (e.g., protocol gateways, messaging
gateways, and network element nodes), access control (e.g., quality of service), core functions (e.g.,
service menu, registration for services, and maintaining personal proles), and integration services
(e.g., Web service gateway, download managers, and content repositories). From a service
management perspective, service delivery may be regarded as a service prot chain, which
encompasses the linkages among organizational features, employee attitudes, service quality,
customer responses, and nancial outcomes (Dean, 2004).
Service customization. Pine et al. (1995) described customization as a learning relationship between
the organization and its customers that results in a direct response to a particular customers needs
and preferences over time. Accordingly, service customization refers to a rms ability to tailor
products and services that more precisely t the individual customers needs (Chen and Ching, 2004),
and capability to rely on customer segmentation based on that customers preference information
(Liang and Tanniru, 2006). In addition, service customization requires integrating the customer into
the process of designing the service. For example, Cao et al. (2006) developed an interactive service
customization model to support individual service for customers. They argued that the service
activities were customized dynamically according to the customers requirements. The service
providers could integrate the knowledge of a specic customer into the model to provide customized
products or services to the customer.
Bitner et al. (2008) indicated that the service process can be viewed as a chain or constellation of
activities that allow the service to function effectively. It is also the existence of the customer within
the production process (Silvestro et al., 1992). Most studies of service processes have focused on
resources1 as the key factor in service design (Chopra and Lariviere, 2005). However, without the
customer, service processes cannot take place (Krishnan et al., 1999), because they require customer
interaction with the production of the service provider. According to this view, Flie and
Kleinaltenkamp (2004) distinguished service processes in four ways: (1) they should be characteristic
1
Here, we refer to operant resources (e.g., customer knowledge and information).
76
for innovative services where neither the customer nor the service provider has the knowledge to
direct the service process; (2) the customer has a knowledge advantage to direct the service process
and therefore the service outcome; (3) the service provider knows more than the customer does
regarding how, where, and when the customer will participate in the service operating system; (4) the
customer and service provider know exactly how to deliver the service. Thus, developing innovative
service processes requires changing not only the service process itself but also the design of the
servicescape and service encounters (Hill et al., 2002).
Model hypotheses
IT capability, service process innovation, and customer service
The RBV asserts the potential of resources and capabilities to create economic value by enabling
rms to create and implement strategies (Barney, 2002). Most research in strategic IT has traditionally
focused on the ability of IT to add economic value to a rm by differentiating its products or services
(e.g., Porter and Millar, 1985). With the implementation of IT (e.g., CRM system), organizations can
offer their customers a variety of products, lower prices, and personalized service (Karakostas et al.,
2005). Moreover, to meet the increasing customer demand for more diverse product/service offerings,
and to develop customized or personalized products/services, rms are adopting relevant
technologies to customize their services (Pine, 1993). For example, Dell Computers has an extensive
CRM system that tracks its customers and transactions and helps customers congure computers to t
their needs (Orman, 2007). Other technologies, such as data warehouses and data mining techniques,
also allow individual customer behavior and characteristics to be traced and analyzed, which make
customization more feasible (Kalakota and Robinson, 2001). It seems that IT could help to enhance and
support service operations by increasing convenience, collecting service performance information for
management use, and offering extra services. Thus, we postulate that IT capability would have a
positive and signicant effect on customer service.
H1. Firms with a higher degree of IT capability will have better customer service.
Innovation requires a great variety of resources and a departure from existing technology and
practices (McDermott and OConnor, 2002); a rm can achieve innovation using its technology
resources, knowledge, and relationship network (Chapman and Soosay, 2003). Firms with more IT
resources should have a high degree of innovation. Firms take advantage of IT in designing or
modifying new service processes (Avlonitis et al., 2001), such as using Web services for customer
information inquiry and consultation, enriching multi-channel purchasing features, and enhancing
after-sale services. Firms with greater service process innovation often require using IT applications to
analyze and identify customer needs and preferences. Hence, IT plays an even more critical role in the
provision of innovative service processes. For example, Cisco Systems processes a large percentage of
its orders online, and continuously provides innovative services. Because most new service processes
developed and provided by Cisco rely heavily on the use of IT systems, Ciscos IT applications have
greater effects on service process innovation compared to many other rms. Therefore, we suggest
that IT capability has positive and signicant effects on service process innovation.
H2. Firms with a higher degree of IT capability will have better service process innovation.
According to the RBV, innovation resources may inuence a rms ability to create value that will
transform the way customers interact with service offerings. Innovation in service process can be
viewed as a service-logic innovation2 that is a customer-oriented term (Michel et al., 2008). Service
process innovation requires changes in customer thinking, participation, and capabilities to create and
realize value (Michel et al., 2008). Once rms have information about customers needs, requirements,
and behavior, customer service practices are often initiated by service process redesign. Therefore,
new service processes should involve both the input of prospective customers and the active
2
Michel et al. (2008) indicate that all innovation, whether a service process or a tangible product, should be viewed as a
service-logic innovation.
77
cooperation of the rms that will ultimately be delivering the customer service. Further, when
customer requirements are identied, new service processes that are needed to meet these needs are
dened and customer service is undertaken. Customer service requirements are determined by
developing innovation practices of service processes. Through this activity, rms have found that
customers value constant feedback about customer service practices. Firms can thus identify
information about customers, such as their individual preferences, and develop the supporting
innovation resources necessary to meet their expectations. Thus, the input of business resources and
output of service process redesign can be used by rms to facilitate customer service practices.
Accordingly, we propose the following hypothesis.
H3. Firms with a higher degree of service process innovation will have better customer service.
Customer service and rm performance
The RBV states that rms can achieve superior performance by owning and deploying resources
and capabilities (Barney, 1991). From a service delivery perspective, empirical research supports the
notion that superior service delivery has a positive impact on performance in terms of sales growth,
return on assets (ROA), market share gain, and overall competitive position (Tracey and Tan, 2001). A
better service delivery helps a rm differentiate its offerings, extract more business from existing
customers, and attract new customers, which in turn leads to improved nancial performance.
Furthermore, from a customization practices perspective, rms implement customization practices to
effectively improve performance (Rabinovich et al., 2003). Similarly, Ghosh et al. (2006) indicated that
companies that take customization practices seriously provide a better match between their offerings
and customer needs and preferences, foster customer loyalty, and increase prot. For example, Dell
Computers quickly customizes products to an individual customer to enhance performance in
efciency, satisfaction, and prot. Thus, customization is an important factor determining customer
satisfaction (Fornell et al., 1996). We propose that the implementation of customer service practices is
a possible determinant of rm performance. Hence, we hypothesize the following.
H4. Firms with a higher degree of customer service will perform better.
The mediating role of customer service
Previous RBV studies have argued that resources and capabilities will have a direct effect on
business performance. The basic assumption is that rms should have the ability to effectively make
use of their resources and capabilities to further increase their performance. Whereas IT resources
enable rms to gain benets in the ITperformance relationship, IT capability involves the exchange
and transfer of information and/or resources from the project to the organizational level. The
implementation of customer service projects should interact with technological resources to promote
IT capability and convert into favorable performance. For example, customer service practices can
integrate technological resources and capabilities into service forms such as the creation of new
products or services to attain superior performance. Furthermore, technological resources can be well
adapted to customer-oriented settings in information gathering and retrieval, human skills training
and idea generation, repositories for organizational knowledge, and infrastructure building. We
propose that customer service converts IT capability to support service operations that achieve
performance. According to the RBV, when rms take advantage of such resources effectively, they are
more inclined to be effective and efcient and to achieve favorable performance. Based on these
arguments, customer service acts as an intermediate variable to mediate the relationship between IT
capability and rm performance. IT capability will affect rm performance but will do so primarily
through the mediating inuence of customer service.
Further, service process innovation improves rm performance by reducing costs or improving
quality or operations effectiveness and efciency (Tushman and Nadler, 1986). According to the RBV,
the expected output of the service process innovation is enhanced competitiveness and/or improved
78
rm performance. However, not all innovations may necessarily have a direct impact on performance
(Orla-Sintes and Mattsson, 2009). They may have an indirect or lagged impact that it is difcult to
measure. Therefore, innovation practices may impact rm performance through mediators. In fact,
rms utilize new service processes to introduce new service operations, improve delivery process
effectiveness and efciency, and realize favorable innovation outcomes and performance. It follows
that rms that constantly innovate service processes would improve rm performance by excelling at
utilizing new service delivery methods and/or new customization practices and enhancing customer
satisfaction to fulll the constantly changing needs of their customers. Accordingly, we argue that
service process innovation will affect customer service and that customer service will, in turn,
positively affect rm performance.
Thus, we argue that IT capability and service process innovation will affect rm performance via
customer service. We propose the following hypotheses.
H5. Customer service mediates the inuence of IT capability on rm performance.
H6. Customer service mediates the inuence of service process innovation on rm performance.
Research methodology
Measures and scale development
The structured questionnaire was generated based on academic- and practitioner-oriented
literature. Following the suggestions of Churchill (1979), we adopted, modied, and extended existing
scales. We conducted in-depth pilot interviews with 5 academic domain experts and 10 executives,
including chief information ofcers, chief technology ofcers, and business managers who were
knowledgeable about the IT organizations of their rms. We asked them to complete the
questionnaire and indicate any ambiguity regarding the phrasing of the items. During follow-up
interviews, we invited these participants to provide suggestions for improving the questionnaire.
After this pretest, we and our colleagues further rened the phrasing of some items to produce the
nal version of the questionnaire. The data were secured by means of a four-page self-administered
questionnaire as part of a wider examination of IT capability, service process innovation, service
delivery, service customization, and rm performance. Information was gathered using a ve-point
Likert-type scale that ranged from (1) strongly disagree to (5) strongly agree (see Appendix A).
Independent variables. We developed an integrated measurement scheme for IT capability. As
discussed in the literature review, this study identied four formative rst-order dimensions for the IT
capability construct, by IT infrastructure (ITI), IT business experience (ITBE), IT relationship resources
(ITRR), and IT human resources (ITHR). IT infrastructure was measured using two items that focus on
the investment of common hardware and software (Bharadwaj, 2000; Ross et al., 1996; Weill and
Broadbent, 1998). IT business experience was measured using four items, two of which are based on
the fact that IT staff are knowledgeable about business strategy and procedure; the other two, which
were adopted and modied from Sambamurthy and Zmud (1997), emphasize IT applications and
strategy that can be aligned with business strategy. IT relationship resources were measured using
four items that focus on the relationship between IT and business units (e.g., IT function interacts and
integrates with the business units, and business units use IT resources to support employees in their
empowered roles). IT human resources were measured using three items drawn from Ross et al.
(1996) that focus on IT employee competencies in emerging technologies (e.g., building bridges
between old IT systems and new ones, delivering data across locations and applications, and
recognizing opportunities to apply new technologies as they become available). Service process
innovation (SPI) was adopted and modied mainly from Davenport and Short (1990) and Zeithaml
et al. (1988), and included ve items, namely post-service, information inquiry, marketing campaign,
purchasing, and new service development.
Mediating variable. Customer service was measured with two reective rst-order constructs, by
service delivery (SD) and service customization (SC). Service delivery was mainly adopted and
modied from Wouters (2004), with three items, namely, delivery reliability (e.g., deliver services or
79
products on time), quality of deliveries (e.g., offer quality to satisfy customers needs), and commercial
exibility (e.g., shorten the transaction process to reduce customers waiting time). Service
customization was measured using four items: use personal preference information to create
customized products for individual customers, provide services matched with different customers
needs, have highly exible manufacturing integration capability to facilitate the response to
customers demands, and be tailor-made for different types of customers. These items were an
adaptation of Glazer (1991) and an extension of Liang and Tanniru (2006), Pine (1993), and Pine et al.
(1995).
Dependent variable. Firm performance (FP) is a complex and multidimensional construct (Dvir
et al., 1993). Because of the typical unwillingness to share actual performance data, and the difculty
of creating valid measures of rm performance, we followed Moorman and Rusts (1999) approach
and collected managers subjective perceptions of performance. Previous studies have found a strong
correlation between subjective assessments and their objective counterparts (Moorman and Rust,
1999). In our study, we asked managers to rate rm performance relative to their rms stated
objectives. The subjective performance measures focused on three domains (Moorman and Rust,
1999). Firm nancial performance reects the rms perceived protability (Venkatraman and
Ramanujam, 1987) and market performance (e.g., market share) (Kaplan and Norton, 1996).
Customer relationship performance refers to the rms perceived ability to satisfy and retain
customers (e.g., customer satisfaction and customer loyalty (Evans and Laskin, 1994)) by offering
quality products and services. Finally, new product success in general assesses the rms perceived
nancial performance, speed, and creativity of new product/service development. Here, we referred
to the rms perceived business brand and image (e.g., Aaker, 1991; Biel, 1992) by offering new
products and services.
Control variables. Firm size can inuence rm performance (Zhou et al., 2005). Larger rms, with
their larger operating budgets, technology base, and resources, are generally able to develop better
customer service practices. In addition, larger rms have more resources that can lead to differences in
relative rm performance. This study controlled for rm size by taking the logarithm of the rms
number of employees. In addition, rm capital may have a positive effect on sales growth (Florin et al.,
2003). Firms that are able to accumulate more funds and resources can better afford to grow fast
(Chandler and Hanks, 1994), which, in turn, may lead to superior performance. Therefore, we included
rm capital as a control variable. Firm age may inuence performance (Baum et al., 2000). Established
rms may have a rst-mover advantage in obtaining sustained superior performance (Barney, 1991)
or, alternatively, startups could enhance their initial performance by forming alliances with
established rivals that provide access to diverse information, capabilities with minimum operational
costs, more opportunities for learning, and less risk of intra-alliance rivalry (Baum et al., 2000).
Therefore, we included rm age as a control variable and measured it as the number of years the rm
has been established.
Sample and data collection
Data were collected from a sample of 827 IT rms in Taiwan, drawn from Top 5,000 The Largest
Corporations in Taiwan, published by the Taiwan Credit Information Center. We chose the IT industry
for this study primarily for three reasons. First, as Patrakosol and Olson (2007) noted, the industry has
had a great inuence on global business, which relies heavily on IT to offer and innovate products and
services, and conduct business in new ways. Second, as market competition grows more intense, the
role of customer service becomes more critical for IT rms, because most IT product life cycles are
short (and growing shorter). Third, the industry is one of the largest in Taiwan, and a number of Taiwan
IT rms are well known worldwide as global supply chain operations. Thus, we feel that surveying
Taiwan IT rms may provide more valuable insights for a global audience. The key target respondents
for the survey were IT managers because we were concerned about IT-based resources, particularly
with regard to IT capability, and they were best positioned to answer questions related to technology
management and innovation practices and their effects on rm performance. The questionnaire was
accompanied by a cover letter explaining the purpose of the research and assuring respondents that
answers would remain condential. We indicated that we would provide a summary of the survey
80
results, and a gift certicate, after receiving their responses. Three weeks after the initial mailing, we
received a total of 74 responses. Telephone calls were subsequently made to IT managers of rms that
did not reply to the questionnaire. This effort increased the total responses to 174 (via return mail, email, and fax). The effective response rate was 21%, which is acceptable for survey research.
To examine non-response bias, following Armstrong and Overton (1977), we compared the early
and late respondents. The rst mailing was classied as early (n = 74), while the follow-up contacts
were considered late (n = 100). The independent-sample t tests revealed no statistically signicant
differences between the two groups in terms of capital (t = 1.94, p = .06), years established (t = 0.63,
p = .56), the percentage of IT spending to annual revenue (t = 0.74, p = .45), the percentage of new
products/services revenue to annual revenue (t = 0.52, p = .61), or number of employees (t = 0.83,
p = .42). The analysis indicated that the two groups were statistically similar on all demographics. Early
and late respondents were also compared using a chi-square test, and again no signicant differences
Table 1
Demographics of the sample rms.
Variable
Category
Rate (%)
Years since established
Less than 3 years

35 years
610 years
1115 years
1620 years
Over 20 years
Aggregate
1
14
50
33
31
45
174
.6
8.0
28.7
19.0
17.8
25.9
100.0
Firm capital (1 US dollar 6 32.5 NT dollars)
Less than USD 3.1 millions

USD 3.131 millions
USD 3193 millions
USD 93155 millions
USD 155310 millions
Over USD 310 millions
Aggregate
5
110
35
11
11
2
174
2.9
63.2
20.1
6.3
6.3
1.1
100.0
% of IT (software, hardware, and staff) spending

comparing to annual revenue
Less than 1%
13%
35%
510%
1030%
Over 30%
Aggregate
61
62
29
16
5
1
174
35.1
35.6
16.7
9.2
2.9
.6
100.0
% of new products/services revenue to annual revenue
Less than 5%
610%
1119%
2029%
3050%
Over 50%
Aggregate
45
44
22
29
26
8
174
25.9
25.3
12.6
16.7
14.9
4.6
100.0
# of employees
Less than 100

100500
5001000
10002000
20003000
Over 3000
Aggregate
34
93
25
12
4
6
174
19.5
53.4
14.4
6.9
2.3
3.4
100.0
Sectors of IT industry
Electronic devices and

Semiconductors
Computers and Peripheries
Telecommunications
Aggregate
79
45.4
58
37
174
33.4
21.2
100.0
81
were found. Because the data were self-reported, we used Harmons one-factor test to examine
whether a common-method bias was present. The items used to measure the dependent and
independent variables were entered into a single exploratory factor analysis. The results did not
suggest a common-method bias, because a single factor did not emerge, nor did one factor account for
most of the variance. The demographics of the rms surveyed are shown in Table 1. Among them,
28.7% had been established 610 years at the time of the survey, 63.2% had annual earnings of
USD$3.131 million, 35.6% had an IT spending-to-revenue ratio of 13%, 25.9% had a new products/
services-to-revenue ratio of less than 5%, and 53.4% had 100500 employees. In addition, the sample
represented a wide range of IT rms, involved in the following sectors: electronic devices and
semiconductors (79 companies, or 45.4% of sample); computers and peripheries (58, 33.4%); and
telecommunications (37, 21.2%).
Data analysis and results
Partial least squares (PLS) analysis was chosen as the most appropriate technique for analyzing
our model. The analysis, including signicance tests for path coefcients, was performed using
PLS-Graph 3.0 (Chin, 2001). Our choice of PLS was guided by four considerations: (1) Its ability to
model latent constructs as formative or reective. Patnayakuni et al. (2007) suggested that
constructs are modeled as formative if the direction of causality is from indicators to constructs;
indicators do not have to co-vary or be interchangeable and the nomological net of indicators can
differ. In contrast, if the opposite conditions apply, they are modeled as reective. Thus, items
within a formative scale are not expected to correlate. In our research model, two second-order
constructs of IT capability are modeled as formative while customer service is modeled as
reective. Two rst-order constructs (SPI and FP) are considered reective. (2) Its ability to assess
the psychometric properties of the constructs (the measurement model) within its theoretical
context (the structural model). (3) Its ability to support the hierarchical component approach for
modeling second-order factors in which the second-order factor is measured using the rst-order
factor scores as manifest indicators of the second-order construct (Karimi et al., 2007). (4) Its
ability to examine a relatively small sample size (Chin et al., 1996) (N = 174 rms). The analyses
were conducted in two stages. First, the measurement model was tested to ensure that the
constructs had sufcient psychometric validity; this was followed by an assessment of the
structural model in which the hypotheses were tested. A bootstrap resampling procedure was
conducted and coefcients were estimated.
Measurement properties
After data collection, measures were subjected to a purication process to assess their construct
reliability, convergent validity, and discriminant validity. No unidirectional path was specied among
any latent variables. The Cronbach alpha values ranged from 0.71 to 0.94 for the eight constructs that
exceeded the .7 threshold (Nunnally, 1978), indicating high internal consistency of measure
reliability. Likewise, the composite reliabilities for all measures were high, ranging from 0.81 to 0.95.
Accordingly, as seen in Table 2, convergent validity was assessed by reviewing the item loadings. All
factor loadings of the indicators for each underlying construct were signicant. Further, we examined
the item total correlations for these constructs (see Table 3). The correlation pattern indicated that
every item had a stronger correlation with its construct than another construct. Additionally, all of the
values of average variance extracted (AVE), the ratio of construct variance to the total variance among
indicators, were above the recommended threshold of .50 (Barclay et al., 1995), proving the
convergent validity of each construct. The discriminant validity of the measures was assessed by
examining the correlations between measures with potentially overlapping constructs. As shown in
Table 4, the main constructs were more strongly correlated with their own measures than with any of
the other constructs. The values of the square root of the AVE (reported on the diagonal) were all
greater than the construct correlations (the off-diagonal) (Fornell and Larcker, 1981). The validity of all
constructs and their indicators was also supported by the above tests. Therefore, discriminant validity
was conrmed.
82
Table 2
Results of measurement properties.
Construct name
Items
Factor
loading
Cronbach
alpha
Composite
reliability (rc)
AVE
IT infrastructure (ITI)
ITI1
ITI2
0.93
0.93
.87
0.93
0.88
IT business experience (ITBE)
ITBE1
ITBE2
ITBE3
ITBE4
0.75
0.76
0.71
0.69
.71
0.82
0.53
IT relationship resources (ITRR)
ITRR1
ITRR2
ITRR3
ITRR4
0.73
0.81
0.77
0.67
.73
0.83
0.56
IT human resources (ITHR)
ITHR1
ITHR2
ITHR3
0.91
0.94
0.85
.89
0.93
0.82
Service process innovation (SPI)
SPI1
SPI2
SPI3
SPI4
SPI5
0.74
0.71
0.78
0.83
0.85
.88
0.89
0.62
Service delivery (SD)
SD1
SD2
SD3
0.87
0.85
0.88
.85
0.90
0.76
Service customization (SC)
SC1
SC2
SC3
SC4
0.80
0.78
0.60
0.67
.82
0.81
0.52
Firm performance (FP)
FP1
FP2
FP3
FP4
FP5
0.90
0.93
0.91
0.90
0.86
.94
0.95
0.81
First-order versus second-order factor models of IT capability and customer service

We tested the rst-order and second-order factor models of IT capability and customer service
to assess how each factor may account for the observed rm performance. We investigated how
each IT resource affects each aspect of customer service, and the resultant combined effect on rm
performance. As shown in Fig. 2, Model A hypothesizes four independent rst-order factors of IT
capability (ITI, ITBE, ITRR, and ITHR) and two rst-order factors of customer service (SD and SC). In
Fig. 3, Model B hypothesizes IT capability and customer service as two second-order factors where
IT capability is formed by four rst-order factors and customer service is treated as a reective
factor. Consequently, the structural links among IT capability, customer service, and rm
performance (Model B) is positive and signicant. However, in Model A, only ITBE has signicant
impacts on SD and SC. The results for each rst-order factor model are presented in Table 5.
Collectively, these results identify IT capability and customer service as second-order constructs.
These ndings indicate that ITBE can act as an independent variable with a signicant association
with SD and SC, but most importantly, reinforces the notion that service operations need to be
integrated (i.e., customer service) and their effects may be contingent on the combination of the
four IT resources.
83
Table 3
Item-construct correlation.
Items
Constructs
ITI
ITI1
ITI2
ITBE1
ITBE2
ITBE3
ITBE4
ITRR1
ITRR2
ITRR3
ITRR4
ITHR1
ITHR2
ITHR3
SPI1
SPI2
SPI3
SPI4
SPI5
SD1
SD2
SD3
SC1
SC2
SC3
SC4
FP1
FP2
FP3
FP4
FP5
**
**
.937
.939**
.398
.292
.295
.273
.357
.392
.417
.284
.275
.308
.240
.250
.197
.215
.179
.197
.211
.324
.299
.265
.383
.302
.181
.178
.171
.220
.178
.178
ITBE
ITRR
ITHR
SPI
SD
SC
FP
.412
.393
.732**
.748**
.712**
.726**
.470
.430
.484
.372
.336
.348
.258
.418
.364
.329
.315
.382
.266
.384
.324
.346
.419
.337
.252
.325
.381
.361
.301
.325
.445
.454
.508
.428
.371
.404
.766**
.778**
.741**
.713**
.354
.388
.369
.325
.364
.346
.464
.404
.279
.385
.375
.354
.351
.341
.306
.353
.353
.362
.351
.353
.246
.321
.290
.347
.210
.171
.301
.221
.233
.445
.912**
.944**
.864**
.208
.230
.217
.295
.232
.214
.259
.264
.285
.254
.212
.187
.216
.252
.157
.125
.216
.259
.211
.364
.281
.268
.354
.355
.301
.280
.422
.228
.261
.284
.793**
.846**
.859**
.781**
.865**
.304
.376
.395
.369
.427
.472
.509
.377
.447
.399
.426
.377
.318
.320
.369
.348
.166
.274
.364
.296
.230
.355
.277
.249
.286
.374
.367
.348
.380
.339
.777**
.822**
.874**
.668
.500
.455
.563
.572
.582
.595
.570
.572
.320
.328
.443
.288
.244
.245
.364
.286
.231
.347
.237
.255
.294
.432
.487
.478
.439
.432
.577
.488
.623
.716**
.800**
.863**
.869**
.515
.529
.518
.512
.515
.212
.169
.337
.309
.217
.222
.315
.286
.201
.347
.193
.151
.199
.398
.361
.381
.381
.384
.552
.496
.514
.452
.435
.443
.540
.907**
.932**
.914**
.900**
.907**
p< 0.01.
Structural model and hypothesis testing

Our structural model (Model C) is shown in Fig. 4. The results for the direct effects model are
presented in Table 5. The path coefcients for the research constructs are expressed in a standardized
form. The path between IT capability and customer service was positive and signicant (b = 0.32,
t = 4.91, p < .001), in support of Hypothesis 1. The effect of IT capability on service process innovation
was positive and signicant (b = 0.47, t = 8.21, p < .001), supporting Hypothesis 2. The effect of service
Table 4
Means, SD, skewness, kurtosis, and correlations (n = 174).
Construct
Mean
SD
Skewness
Kurtosis
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
ITI (1)
ITBE (2)
ITRR (3)
ITHR (4)
SPI (5)
SD (6)
SC (7)
FP (8)
3.82
3.77
3.60
3.34
3.33
3.77
3.79
3.88
.76
.53
.56
.68
.66
.69
.67
.69
.385
.424
.191
.464
.182
.568
.373
.624
.018
1.270
.174
.985
.191
.806
.672
1.545
0.93
.41**
.46**
.29**
.22**
.30**
.31**
.17*
0.72
.57**
.34**
.42**
.38**
.42**
.38**
0.74
.39**
.45**
.37**
.43**
.38**
0.90
.28**
.24**
.31**
.19**
0.78
.53**
.44**
.46**
0.87
.59**
.53**
0.72
.62**
0.90
Notes: Figures in diagonal are values of the square root of the AVE.
*
p< .05.
**
p< .01.
84
IT
infrastructure
0.15
Size
Age
0.13
Service
delivery
0.22*
IT business
experience
0.22*
R2 = 17%
0.10
IT relationship
resources
IT human
resources
Firm
performance
0.17
Service
customization
0.04
0.47***
R2 = 40%
R2 = 23%
0.10
0.02
-0.00
0.24**
-0.01
Capital
Fig. 2. First-order direct effects model of IT capability and customer service (Model A). Notes: *p < .05, **p < .01, and ***p < .001.
IT
infrastructure
Size
Age
0.72***
IT business
experience
0.00
0.02
0.87***
IT
capability
0.80***
IT relationship
resources
0.51***
Customer
service
0.84***
0.63***
R2 = 26% 0.89***
Firm
performance
R2 = 39%
-0.02
0.54***
Service
delivery
IT human
resources
Service
customization
Capital
Fig. 3. Second-order factor model of IT capability and customer service (Model B). Notes: ***p < .001.
IT
infrastructure
Service process
innovation
0.64***
IT business
experience
0.47***
R2 = 22%
Size
0.00
0.39***
Age
0.02
0.88***
0.83***
IT relationship
resources
IT
capability
0.32***
0.85***
Customer
service
0.63***
R2 = 37% 0.88***
Firm
performance
R2 = 39%
-0.03
0.55***
IT human
resources
Service
delivery
Service
customization
Capital
Fig. 4. PLS results of the structural model (Model C). Notes: ***p < .001.
process innovation on customer service was positive and signicant (b = 0.39, t = 5.14, p < .001),
supporting Hypothesis 3. The effect of customer service on rm performance was positive and
signicant (b = 0.63, t = 9.92, p < .001), supporting Hypothesis 4. Although we controlled for each rms
age (b = 0.02, t = 0.38, p > .05), capital (b = 0.03, t = 0.54, p > .05), and size (b = 0.00, t = 0.08, p > .05),
none of these factors had an apparent impact on rm performance. The predictive power of the
85
Table 5
Results of structural model.
Paths
Model Aa
Model B
Model C
IT infrastructure ! service delivery

IT infrastructure ! service customization
IT business experience ! service delivery
IT business experience ! service customization
IT relationship resources ! service delivery
IT relationship resources ! service customization
IT human resources ! service delivery
IT human resources ! service customization
Service delivery ! rm performance
Service customization ! rm performance
IT capability ! customer service
IT capability ! service process innovation
Service process innovation ! customer service
Customer service ! rm performance
Firm size ! rm performance
Firm capital ! rm performance
Firm age ! rm performance
R2
Service delivery
Service customization
Customer service
Firm performance
Average
GoFc
0.15
0.13
0.22*
0.22*
0.10
0.17
0.04
0.10
0.24**
0.47***
0.00
0.01
0.02
0.51***
0.63***
0.00
0.02
0.02
0.32***
0.47***
0.39***
0.63***
0.00
0.03
0.02
0.17
0.23
0.40
0.26 (0.93b)
0.49
0.26
0.39
0.32 (0.77)
0.49
0.22
0.37
0.39
0.32 (0.74)
0.48
a
Model A: direct paths between rst-order factor model of IT capability, customer service, and rm performance; Model B: direct paths
between second-order factor model of IT capability, customer service, and rm performance; Model C: original model.
b
Average communality.
q
c
GoF average communality averageR2 .
*
p< .05.
**
p< .01.
***
p< .001.
research model was assessed by examining the explained variance for the endogenous constructs
(Chin, 1998).
Regarding R2 values, IT capability explained 22% of the variance in service process innovation. In
addition, IT capability and service process innovation explained 37% of the variance in customer
service, and customer service explained 39% of the variance in rm performance. All of these values
were signicant at p < .01. An important part of model evaluation is the examination of t indexes that
reect the predictive power of estimated inner and outer model relationships. The goodness of t
(GoF) is an index used to validate the PLS model globally. GoF is determined by calculating the
geometric
mean of the average
communality and the average R2. According to the results in Table 5,
p
GoF 0:74 0:32 0:48, which is satisfactory (Tenenhaus et al., 2005).

The mediating role of customer service and service process innovation
To assess the extent of mediation in the model, we followed Andrews et al. (2004), who indicated
that four specic criteria must be met: (1) the independent variable should signicantly inuence the
mediator; (2) the mediator should signicantly inuence the dependent variable; (3) the independent
variable should signicantly inuence the dependent variable; and (4) after the mediator variable is
controlled for, the impact of the independent variable on the dependent variable should no longer be
signicant (for full mediation) or should be reduced (for partial mediation). The independent variables
are IT capability and service process innovation, and the proposed mediating variable is customer
service. The dependent variable is rm performance.
86
Table 6
Results of PLS for mediation effects.
Paths
Model 1
(IV for MV)
Model 2
(MV for DV)
Model 3
(IV for DV)
Model 4
(control for MV)
IT capability ! rm performance
Service process innovation ! rm performance
IT capability ! customer service
Service process innovation ! customer service
Customer service ! rm performance
R2
Customer service
Firm performance
0.33***
0.39***
0.63***
0.25**
0.34***
0.11
0.14
0.50***
0.38
0.39
0.27
0.42
Notes:
IV, independent variable; MV, mediating variable; DV, dependent variable.
Model 3 (IV for DV) does not include the mediator of customer service; Model 4 (control for MV) includes the mediator of
customer service.
**
p< .01.
***
p< .001.
We tested the four conditions using PLS analysis. As Table 6 shows, Model 1 and Model 2 met the
rst and second condition. That is, IT capability and service process innovation affected customer
service, and customer service affected rm performance. Model 3 met the third condition; the
independent variables of IT capability and service process innovation affected rm performance. The
model did not include the mediator of customer service and t the data reasonably well. The fourth
condition (Model 4) holds if the effect of IT capability and service process innovation on rm
performance become insignicant or less signicant after the mediator of customer service is
included. The Model 4 results show that including the mediator of customer service indeed decreased
the impact of IT capability and service process innovation from Model 3 to Model 4. In particular, the
impact of IT capability (b = 0.11, t = 1.45, p > .05) and service process innovation (b = 0.14, t = 1.65,
p > .05) on rm performance was insignicant, indicating full mediation. Correspondingly, customer
service mediated the relationship between IT capability and rm performance, as well as between
service process innovation and rm performance; thus, Hypotheses 5 and 6 are supported.
Discussion and conclusions
Our ndings suggest that customer service fully mediates the inuence of IT capability and service
process innovation on rm performance. The results extend earlier empirical ndings that link IT
capability with customer service practices (Karimi et al., 2001) and that link new service design (i.e.,
innovation) with customer service practices (Tax and Stuart, 1997). Furthermore, the results suggest
that IT capability has a positive inuence on customer service and service process innovation; service
process innovation has a positive inuence on customer service. These ndings have signicant
implications for the management of IT and innovation practices, as they need to be focused and
leveraged to create performance gains by using technological resources and process innovation to
enable customer service practices.
IT capability for customer service and service process innovation. Our results provide evidence that IT
capability targeted at service operations (e.g., customer service) and service innovation practices (e.g.,
service process innovation) enables the transformation of fragmented and cross-functional operant
resources. An inspection of the weights associated with the four formative indicators (i.e., IT
infrastructure, IT business experience, IT relationship resources, IT human resources) suggests that
they are critical elements of IT capability in this context. However, IT business experience is relatively
more inuential than the others, suggesting the importance of not only employing IT staff who are
knowledgeable about business strategy and business procedure, but also having IT applications and
strategies that can be aligned with business strategy as facilitators of customer service and service
process innovation practices. Further, the R2 values of customer service (37%) and service process
innovation (22%) indicate that IT capability was well chosen to interpret the causal relationship with
87
customer service, as well as with service process innovation. Thus, continuous investment in ITrelated resources is a desirable approach for conducting customer service and service process
innovation, and rms should follow-up by reinvestigating other issues in technological infrastructure
resources, business experience, relationship resources, and human resources.
Service process innovation for customer service. The present study shows that service process
innovation has an impact on customer service. Specically, when rms transform service process
innovation into customer services, these services are often perceived as very convenient or novel by
customers, and tend to improve the rms competitive position. A rm can introduce more innovative
service processes than competitors by ensuring that customer needs and wants are satised and
manifested in the service operations routines, particularly when service process innovation is coupled
with another capability such as customer problem solving, customer information acquisition and
utilization, and/or the coordination of actions among the sales force.
Customer service for rm performance. The strong effect of customer service on rm performance, as
indicated by the path coefcient, suggests that customer service improves rm performance. We
dened customer service as the customized and integrated combination of goods and services for
meeting a customers needs. This study is one of the rst to present direct empirical evidence that
customer service is necessary to derive rm-level performance-enhancing benets from service
delivery and service customization. This customer-oriented view of organizing service operations
supports prior work on service marketing and relationship marketing, which has focused largely on
technological resources and capabilities, innovation practice, and business strategy. The results
further demonstrate that customer service has a positive and signicant effect on rm performance
(R2 = 39%), indicating that customer service is a good indicator of how well a rm is obtaining/retaining
its performance.
Mediating role of customer service. In addition, a rms IT capability and service process innovation
have a substantial impact on customer service. Our results suggest that customer service fully
mediates the inuences of both of these factors on rm performance, indicating that customer service
is needed for a rm to improve performance through IT capability and service process innovation.
Organizational capabilities and innovation practices are deeply embedded in the integration practices
of service operations such as service delivery as well as customization practices such as service
customization. Customer service associated with these service operations is achieved through a series
of initiatives that may include CRM practices, relationship marketing, and customer interaction
routines in addition to the deep embedding of IT capability and service process innovation as customer
service enablers. The implementation of customer service that leverages technological resources
integration and service innovation practices requires knowledgeable IT staff, service process redesign,
a customer-oriented business strategy, and IT. Developing these capabilities and implementing
innovation practices require signicant time and strategy, making it difcult for competition to
rapidly imitate.
Research contributions
The role of IT capability in affecting rm performance (Bharadwaj, 2000; Bhatt and Grover, 2005;
Rai et al., 2006; Ross et al., 1996; Sambamurthy et al., 2003) and the value of employing service process
innovation in creating new benets (Alam, 2006; Blazevic and Lievens, 2004; Blazevic et al., 2003;
Lievens et al., 1999) have been described in the IT and service innovation literatures, respectively.
However, there is little understanding of how an IT factor (IT capability) and an organizational factor
(service process innovation) inuence rm performance through customer service practices. By
empirically validating the theoretical work of Brynjolfsson et al. (2000), this study makes four
signicant contributions to the literature on IT capability, service innovation, and e-CRM.
First, the overarching contribution is the theoretical development of the ideas of IT capability and
service process innovation in the context of customer service practices. Our ndings clarify the
missing link by suggesting that the effects of IT capability and service process innovation on rm
performance can be realized mainly through customer service (i.e., full mediation). According to the
RBV, having a valuable resource that is unique and difcult to imitate can lead to a competitive
advantage. In this study, we suggest that IT capability and service process innovation are two valuable
88
capabilities/resources. Our ndings reveal that (new) customer knowledge/information embedded in

service processes will, through the use of IT applications, enhance a rms ability to transform operant
resources into organizational service innovation practices. This will in turn lead to improvements in
service operations efciency, effectiveness, and convenience, which will help rms maintain a
sustainable competitive advantage. This study also integrates the domains of IT management, service
innovation management, and CRM research into one model and reconciles what had previously been
presumed to be independent. IT capability, service process innovation, and customer service have
rarely been studied together. In this study, we show that at least IT capability and service process
innovation manifest their inuence on rm performance through the implementation of customer
service practices.
Second, our ndings offer robust insights into the effects of IT capability on service process
innovation. We add to the growing volume of research on IT capability impact that advocates the
necessity of incorporating IT resources-related service innovation into examinations of the impact of
IT capability. Specically, service process innovation is important because it helps rms continually
transform their capabilities and resources and focus on service process (re)design to shape their
customer service strategies and tactics.
Third, recognizing the inherent multidimensionality of the concept of customer service, we
conceptualized and tested the construct in a precise manner by discriminating between service
delivery and service customization. We showed that such decomposition helps enrich the
understanding of customer service. Although anecdotal evidence and theoretical articles have
already postulated the association between customer service practices and organizational
performance, the importance of the empirical validation of this association should not be
underestimated.
Finally, by examining hypotheses from the Taiwan IT industry, this study lls an important gap in
the empirical literature. The ndings suggest that value in customer solutions, rather than IT/
innovation resources, determines a rms performance, providing support for hypotheses that have
until now been accepted almost entirely on the basis of logic and intuition. Thus, the present ndings
help strengthen the RBV as a rigorous theory of technology, innovation, and service management. In
addition, by framing the independent variables in terms of IT factor and organizational factor, the
present study more than much of the previous research in this area more accurately captures the
synergy by which IT capability and innovation practice have long been argued to contribute to rm
performance.
Implications for research
Our results have three noteworthy implications for research. First, RBV suggests that tangible/
intangible resources can be important, but only valuable, rare, costly to imitate, and non-substitutable
resources are the sources of competitive advantage for rms implementing corporate marketing
strategies (e.g., Menon et al., 1999). In this study, we argue that IT capability and service innovation are
the sources of the competitive advantage. We further extend the theory of RBV and demonstrated a
strong support for customer service as a key mediator to transform the rare and valuable resources
into high rm performance. The provision of a pathway (the mediating process) to bridge resources
into performance can enrich the static nature of RVB.
Second, the theoretical underpinning of RBV is a strong foundation for further understanding the
relationship between IT capability and service process innovation. A study of RBV to address a
multidisciplinary and multi-scale concern for rms is needed to further understand how IT capability
and service innovation can cooperate. We believe that the consideration of IT capability provides a
number of additional insights into why business organizations are motivated to develop specic
service innovation programs to aid in building competitive advantage by enhancing their IT
capabilities. The association of these two factors (i.e., IT and organizational factors) can provide ample
explanatory opportunity. In this study we have shown how this theoretical model is valuable for
furthering joint understanding of IT capability and service innovation practices.
Finally, this study makes an important methodological contribution to ITCRM research. We
developed a new instrument for capturing ITservice innovation synergies arising from IT rms. This
89
instrument could be used to test the generalizability of the research model proposed in this study. Key
informants need to be involved in IT implementation/service innovation projects or e-CRM programs.
The instrument can include measures for IT resources, new service development practices, rm
customer orientation, possible outcomes of service innovation efforts, and the extent to which IT/
innovation resources were committed and focused. The new instrument is applicable to information
services because it was developed and validated using a representative sample of IT rms. It is also
appropriate for use with nancial services given the need for (1) a range of products and services to
meet the diverse and changing requirements of customers (Menor et al., 2002) and (2) more frequent
customer contact in a technology-driven environment (Lievens and Moenaert, 2000).
Implications for practice
Given the critical role of IT capability and service process innovation in customer service, it is
important to understand the implications of our ndings in practice. First, this study suggests that it
is appropriate for rms to develop their IT capability by coordinating IT infrastructure, IT business
experience, IT relationship resources, and IT human resources. It is critical for IT managers to
implement all four dimensions of IT capability simultaneously. Second, our study has provided
evidence that IT capability inuences rm performance via intermediate activities, i.e., customer
service. An understanding of the key customer service features affecting rm performance will put
rms in a better position to develop appropriate strategies for IT resources deployment and,
consequently, achieve superior performance. IT rms need to continue to emphasize customer
service to retain customers. They should pull more IT resources into service operations, and foster
closer relationships with customers to identify market opportunities and design new services
accordingly.
Third, rms must implement service process innovation (e.g., new post-service processes, new
information inquiry processes, new marketing campaign processes, new purchasing processes) in a
such way that can provide better quality services/products, shorten service delivery time and
improve its efciency, develop and promote new services/products, and manage customer
knowledge and information that would create greater customer value or attain superior
performance. In addition, rms should change or redesign service processes so that data about
customer preferences can be collected easily and quickly. That is, to implement process innovation
practices that support customized products/services requires a exible service process modularity to
understand the specic needs of customers (Tu et al., 2004). It is important for rms to redesign and
improve service processes to facilitate customer-oriented service practices. Therefore, it would seem
that rms that are better able to fulll customer demand while delivering customized products/
services will exhibit better rm performance (i.e., customer satisfaction, customer loyalty) than
those that do not.
Finally, this study suggests the important role of customer service in the relationship between IT
capability/service process innovation and rm performance. Awareness of this relationship could
help rms target appropriate points to facilitate customer service by taking a leading role in
managing customer-oriented practices (e.g., service communication/coordination (Larsson and
Bowen, 1989) and customer treatment). Firms should develop direct feedback and service training
programs for contact employees to build the required skills and abilities for service encounters. To
enhance contact employees involvement and participation in service delivery processes and service
customization practices, rms should nurture enabling service tools, systems, and technologies that
allow contact employees to share and exchange customer problems, and how those issues were
resolved, to create new customer solutions. Further, rms should build service rewards systems for
contact employees, who may feel that their effort should be rewarded, because they deal with most
customer problems. Thus, managers should try to understand the characteristics of service
operations, and then, based on contact employees task domain, choose and design appropriate
methods according to customer needs and wants to facilitate better service delivery and
customization. However, this alone may not guarantee high rm performance; high-performance
rms are found across the entire spectrum of customer service practices (i.e., service delivery and
service customization).
90
Limitations and future research

There are three primary limitations to our work. First, the phenomenon of customer service as a
mediator can only partially be captured in a cross-sectional study. Notwithstanding the preliminary
insights that can be gleaned from our results, this remains a weakness of the study and the ndings
must be validated in future longitudinal studies. Second, due to the difculty of collecting objective
external data regarding prot, market share, and other factors, we used the key respondent approach
in our survey. We directed our questionnaire at IT managers because they were best positioned to
answer questions related to technology management and innovation practices and their effects on
rm performance. Thus, the results may be subject to single-informant bias. A reasonable argument
can be made that IT managers knowledge about technology management and innovation practices
may be a summary that reects a positive bias. Future research that uses top managers or other middle
managers, such as marketing or sales managers, as informants would help clarify whether the results
reported herein are sensitive to our methodology. In other words, it is possible to have different types
of respondents answer different parts of the questionnaire (e.g., have customer service executives
respond to customer service constructs, and top executives respond to rm performance questions).
Nonetheless, tests of common method variance in the present study did not indicate a serious
problem. Still, future research should collect objective data from all appropriate external and internal
sources. Finally, the present study was conducted among Taiwanese IT rms only. Future studies
should examine other industries as well as IT rms in other countries to increase the generalizability
of the model.
In summary, IT capability and service process innovation are critical for facilitating customer
service, which in turn is necessary to improve rm performance. Furthermore, IT capability is
important to service process innovation. We identied infrastructure resources, business experience,
relationship resources, and human resources as critical IT-based resources that are relevant to IT
capability, as well as service delivery and customization as important service operations for customer
service. This study highlights the crucial importance of the mediating role of customer service when
examining the relationship between IT capability and rm performance, as well as between service
process innovation and rm performance. The insights provided by this study have important
implications for IT managers and others in todays dynamic and competitive environment.
Appendix A
Survey measurement scales
Strongly disagree = 1
Disagree = 2
Neither agree nor disagree = 3
Agree = 4
Strongly agree = 5
Please indicate, on a scale of 15, the degree to which you agree or disagree with the following
statements.
IT capability questionnaires
IT infrastructure (ITI)
For the past few years, . . .
ITI1. Our company has investigated a generous budget for establishing IT hardware.
ITI2. Our company has investigated a generous budget for purchasing and developing IT software.
IT business experience (ITBE)
ITBE1. Our IT applications have been implemented to deploy business strategies.
ITBE2. Our IT projects have been developed in compliance with business strategies.
ITBE3. Our IT staffs have been knowledgeable of business operations.
ITBE4. Our IT staffs have been knowledgeable of business strategies.
IT relationship resources (ITRR)
ITRR1. Our IT function has interacted with departmental operations.
91
ITRR2. Our IT function has integrated with other business functions.

ITRR3. Our IT function has cooperated with departmental operations.
ITRR4. Our IT has supported employee empowerment adequately.
IT human resources (ITHR)
ITHR1. Our employees have built relevant bridges between old and new IT systems.
ITHR2. Our employees have delivered data across locations and applications.
ITHR3. Our employees have been aware of opportunities to apply new technologies as they become available.
Customer service questionnaires
Service delivery (SD)
SD1. Our company has delivered services/products to customers on time.
SD2. Our company has shortened transaction processes to reduce customer waiting time.
SD3. Our company has provided quality delivery to satisfy customer needs.
Service customization (SC)
SC1. Our companys services have matched different customer needs.
SC2. Our company has used customer profile information for customization.
SC3. Our company has had a highly flexible and integrated capability to fulfill various customer needs.
SC4. Our company has provided tailor-made services for different types of customers.
Service process innovation questionnaires
For the past few years, our company has often offered new practices in . . .
SPI1. Post-service processes.
SPI2. Customer information retrieval and inquiry processes.
SPI3. Marketing campaign processes.
SPI4. Purchasing processes.
SPI5. Service development processes.
Firm performance questionnaires
For the past few years, our company has been able to . . .
FP1. Increase market share.
FP2. Increase customer satisfaction.
FP3. Increase profit.
FP4. Enhance business brand and image.
FP5. Enhance customer loyalty.
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Contents lists available at SciVerse ScienceDirect

Journal of Engineering and

Performance effects of IT capability, service process

Here, we refer to operant resources (e.g., customer knowledge and information).

Years since established

Less than 3 years

Firm capital (1 US dollar 6 32.5 NT dollars)

Less than USD 3.1 millions

% of IT (software, hardware, and staff) spending

% of new products/services revenue to annual revenue

Less than 100

Electronic devices and

IT business experience (ITBE)

IT relationship resources (ITRR)

IT human resources (ITHR)

Service process innovation (SPI)

Service delivery (SD)

Service customization (SC)

Firm performance (FP)

First-order versus second-order factor models of IT capability and customer service

Structural model and hypothesis testing

IT infrastructure ! service delivery

GoF 0:74 0:32 0:48, which is satisfactory (Tenenhaus et al., 2005).

capabilities/resources. Our ndings reveal that (new) customer knowledge/information embedded in

Limitations and future research

Neither agree nor disagree = 3

ITRR2. Our IT function has integrated with other business functions.

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