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Abstract
The main aim of this paper is to investigate the effect of co-production practices with customers on service innovation. Specifically, we sought to determine whether dynamic capabilities (the specific abilities a company has to shape, reshape, configure, and reconfigure idiosyncratic assets to respond to changing technologies and markets) could mediate the effect of co-production on service innovation. In this paper, we examine the factors that could influence co-production practices and determine whether organizational commitment moderates the effect of co-production practice on an organization's dynamic capabilities. Using a survey approach of Taiwanese firms, we showed that dynamic capability fully mediates the effects of co-production practice on service innovation and that market orientation and customer matching have a significant influence on co-production practices. In addition, this study has empirically demonstrated that service firms would be well advised to engage in developing service innovation through enhancing their own dynamic capabilities.