How do collaboration and investments in knowledge management affect process innovation in services?

Purpose: Despite the keen interest in radical and incremental innovation, few studies have tested the varying impact of firm-level factors in service sectors. This paper analyses how collaboration with existing and prospective users, and investments in knowledge management (KM) practices can be adapted to maximise the outputs of radical and incremental process innovation in a Knowledge-Intensive Business Service (KIBS) industry. Methodology: Original survey data from 166 Information Technology Service (ITS) firms and interviews with 13 executives provide the empirical evidence. PLS-SEM is used to analyse the data. Findings: Collaboration with different types of users, and investments in KM practices affect radical versus incremental process innovation differently. Collaboration with existing users influences incremental process innovation directly, but not radical innovation; and prospective user collaboration matters for radical, but not incremental innovation. Furthermore, for radical innovation, investments in KM practices mediate the impact of prospective user collaboration on innovation. Implications: While collaboration with existing users for incremental process innovations does not appear to generate significant managerial challenges, to pursue radical innovations firms must engage in intensive collaboration with prospective users. Higher involvement with prospective users requires higher investment in KM practices to promote efficient intra- and inter-firm knowledge flows. Originality: This study is based on a large-scale survey, together with management interviews. Radical and incremental innovations require engagements with different kinds of users in the service industry, and knowledge management tools.