INTRODUCTION AND RATIONALE:

In view of the contemporary business environment, characterized by a rapid interaction of multiple market forces, organizations are required to consistently explore newer means of creating and sustaining competitive advantage that would in turn be manifested in enhanced financial performance. In light of that, a wide spectrum of research studies have been conducted to ascertain vital determinants of organizational performance. A decent number of such research works argue that innovative work behavior of employees’ positively relates to the performance of an organization (Bowen et al., 2010; Damanpour et al., 2009; Calantone et al., 2002; Gopalakrishnan, 2000).

As a result, organizations need to inculcate innovative mindset among its employees which will, consequently, enhance the ability of a firm to differentiate its market offerings as against its competitors (Marques et al., 2010) besides resulting in enhanced value creation (Prahalad and Ramaswamy, 2012).

In this backdrop, the present study proposes to examine the impact of innovative work behavior (IWB) of employees on the financial performance of an organization. Although, such relationship has also been examined in the past as well (Bowen et al., 2010; Damanpour et al., 2009) but the scholar strongly believes that, logically, the innovativeness of employees should first result in enhanced levels of customer satisfaction as they experience novel approaches in service encounters. Resultantly, improved customer satisfaction, rationally, converges in improved financial performance. It implies that the innovative work behavior – financial performance interaction would be mediated by the customer satisfaction. In view of that, the present study extends the literature on innovative work behavior by not only examining its effect on financial performance in the context of a developing nation (India) but also makes an attempt to analyze such a relationship in the perspective of a mediating effect caused by customer satisfaction. The study begins by elaborating on the concept of IWB (along with its dimensions) and its relationship with customer satisfaction as well as financial performance. This is followed by the methodology adopted to carry out the study. Finally, the results obtained in the research are exhibited and discussed both in the context of their theoretical and managerial implications.

Defining Innovative work behavior:

Farr and Ford (1990) suggest that innovative work behavior of employees refers as to how they can facilitate the intentional initiation and introduction of novel and beneficial ideas, processes, or procedures. This approach expanded the orientation of earlier research works that limited the concept of innovativeness only to the creativity aspect and excluded the implementation dimension of a creative idea. In view of this, various researchers construed that innovative work behavior, as against creativity, is a multi-stage process that involves idea generation, coalition building, and implementation (Scott and Bruce, 1994).

Based on this, de Jong and Hartog (2008) conceptualized IWB as a four stage process comprising of 1) opportunity exploration, 2) idea generation, 3) championing, and 4) application. The initial two activities i.e. opportunity exploration and idea generation represent the creativity oriented work behavior. The final two phases comprising of championing and application are referred to as implementation-oriented work behavior wherein individuals try to garner support of colleagues in favor of a new idea so as to strive for its ultimate application within the work role, group or total organisation. Moreover, this perspective also represented an improvement over the previously discoursed opinions about innovative work behavior that were developed on a one-dimensional framework (Janssen, 2000), two-dimensional framework (Krause, 2004; Dorenbosch et al., 2005), and a three dimensional framework (Reuvers et al., 2008).

Innovative work behavior and financial performance: Linkage:

Sufficient evidence is available in the literature that points towards the positive relationship of Innovativeness with the financial performance of an organization. For instance, Stoffers (2010) reported that innovative work behavior is vital and is supposed to contribute to proper organizational performance. McAdam and Keogh (2004), while investigating the impact of familiarity of an organization with innovation and research on firm performance reported that organizations’ inclination towards innovation positively relates with the performance. This relationships holds vital importance, particularly, in the context of competitive environments wherein organizations constantly strive for creation of competitive advantage.

Moreover, Marques et al. (2010) stated that superior financial performance is a direct outcome of the ability of a firm to differentiate its market offerings in comparison to its competitors. Such differentiation logically follows the innovativeness that the employees of a firm manifest at the work place. This highlights the positive contribution of innovative work behavior in predicting the financial outcomes of an organization that can be captured both in terms of market share and profitability (Koellinger, 2008; Marques and Barata, 2006) or in any other measurable manner. The same opinion is reflected by numerous other researchers who examined innovativeness in varied contexts. For example, Damanpour et al. (2009) evaluated the relationship between adoption of innovation types and organizational performance while Cingoz and Akdogan (2011) used expected future performance as a dependent variable against innovative work behavior as predictor variable. The results of these, and also other relevant research works, reasonably denote that a positive relationship exists between innovative work behavior and financial performance.

The discussion above highlights the linkage between innovative work behavior and financial performance and, thus, the following hypothesis is proposed

H1: Innovative work behavior is positively related to financial performance.

The intermediation of customer satisfaction:

The impact of innovative work behavior on customer satisfaction has attracted limited attention of researchers. Though logic allows sufficient scope to contemplate that innovative work behavior of employees would be positively related to the satisfaction of customers. When innovative products and services are provided to customers, it results in solution to their problems which ultimately climaxes in customer satisfaction (Leelakulthanit and Hongcharu, 2011). Further, when customers experience novel ways of employees in dealing with different aspects of service creation and delivery like service failure prevention and recovery, use of technology etc., they are likely to develop a favorable attitude towards the service provider. That favorable attitude ultimately translates into the overall satisfaction of the customer regarding the service provided by the organization. The same opinion is also reflected by Amabile (1998) who states that innovativeness on part of employees would result in the achievement of encouraging customer outcomes.

Most empirical evidence supports a positive relationship between customer satisfaction and financial performance. Researchers such as Nelson et al. (1992) have corroborated in favor of this positive relationship, besides elaborating that it is valid to all profitability measures – earnings, net revenues, and return on assets. In the same direction, Wiele et al. (2002) stated that customer satisfaction has significant positive influence on various matrices of business performance which includes market share, total sales, stakeholder value, gross margin, and total revenues Further, Anderson et al. (1994), in their attempt to examine the relationships between customer satisfaction and profitability of Swiss company, established that customer satisfaction and ROA (return on assets) are of significant positive correlation. Same results were also found by other researchers like Ittner and larcker (1998) and Banker et al (2000). Similarly, Kristensen et al. (2002) found that customer satisfaction is a strong predictor of business performance such as yearly sales growth, net operating cash flows and market share. In light of this, the following is hypothesized.

H2: Innovative work behavior is positively related to customer satisfaction

H3: Customer satisfaction is positively related to financial performance.

Research methodology:

The present study was aimed to investigate the impact of innovative work behavior of employees on the financial performance. The vital concerns pertaining to the methodology adopted to execute the present study are discussed in the following sections.

Data collection and the sample:

Two prestigious Indian banks, one public sector and one private sector, were chosen for the present study (State Bank of India and Jammu and Kashmir bank). Data was collected from different branches of these banks located in the state of Jammu and Kashmir. The respondents were selected on the basis of the principles of stratified sampling procedure using Jammu, Kashmir and Ladakh as different strata. This approach was used in order to make sure that respondents from rural, semi-urban and urban population are included in the sample. Moreover, service sector has the maximum contribution to the GDP of India i.e. 57% (2012) and also provides employment to 28.1% of the workforce (Economic survey of India, 2013-14). This asks for a special attention towards this sector. Also the fact remains that banking industry reflects a typical service organization, the study has been focused on Indian banks so as to facilitate generalization of results.

The sample for present study included both employees and customers. The questionnaire for employees was designed to measure innovative work behavior at the work place and their perception about the financial performance of their organization. The customer questionnaire captured the perception of customers about their level of satisfaction with their service provider. A total of 687 questionnaires were distributed to the employees of sample organizations, out of which 324 were returned (response rate = 47.16%). Further, as many as 341, out of 736, customer questionnaires were returned indicating a response rate of 46.33%. However, the initial process of data screening revealed that 09 out of 324 employee questionnaires and 14 out of 341 customer questionnaires received are not suitable for analysis for the issues relating to incompleteness and/or inconsistency. The final data analysis and results are, thus, based on a sample of 315 employee questionnaires and 327 customer questionnaires.

Research instrument and scale purification

The instruments used in the present study were mostly drawn from previous research works. A five point Likert scale is used throughout the study to capture the perception of respondents about various dimensions examined in current research. The scale measuring innovative work behavior and customer satisfaction ranged from 1 (strongly disagree) to 5 (strongly agree) while as financial performance scale ranged from 1 (much lower) to 5 (much higher).

To measure innovative work behavior, we use the scale developed by deJong and Hartog (2008). The scale consists of ten items designed to capture employee perception about the four stages of innovative work behavior namely opportunity exploration, idea generation, championing, and application. The first and third stage i.e. opportunity exploration and championing are measured by two items each while as the second and fourth stage i.e. idea generation and application are measured by three items each. For measuring customer satisfaction, the nine item scale developed by Maloles (1997) is used. Financial performance is captured on the basis of three dimensions i.e. 1) net profit, 2) Return on assets, and 3) performance of deposits and lending. The scales were, however, adjusted both contextually and linguistically so as to satisfy the requirements of present study.

The scales used in the present study were tested for validity and reliability. Scale validity was examined using confirmatory factor analysis and for reliability, Cronbach’s alpha was used. The scale purification process revealed that three out of nine items measuring customer satisfaction did not load sufficiently (factor loading < 0.4) on the construct and as such were eliminated from final assessment. The remaining items provided for a unidimensional scale. On the other hand, all ten items measuring innovative work behavior loaded significantly on their respective dimensions (as mentioned above) and, accordingly, no changes were required in the scale. The goodness-of-fit indices also indicate that the model fits the data quite well (χ2 = 49.21, p < .05; GFI = .92; AGFI = .89; RMR = .03; RMSEA = .04). The Cronbach’s alpha values for all the constructs were well above the cut-off limit of 0.7 (Nunally, 1978) and the same, along with the factor loadings of items used in the final estimation of results, are presented in appendix I.

Analysis and results

The relationships amongst the dependent and independent variables, examined in the present study, were estimated using structural equation modelling (by way of AMOS 20). Our analysis comprises of three stages. First, the effect of innovative work behavior on customer satisfaction is estimated. Second, the impact of customer satisfaction on financial performance is examined. Finally, the total effect of innovative work behavior on financial performance is estimated which clarifies the demarcation between the direct impact of IWB on financial performance and the mediating effect, thereof, caused by customer satisfaction. The structural model that formed the basis of present study indicated adequate model fit (χ2 = 41.34, p < .05; GFI = .93; AGFI = .90; RMR = .03; RMSEA = .02) and the same is presented in figure 1.

Source: Data compilation by the scholar for present study

Note: *p < .05; IWB = innovative work behavior; CS = customer satisfaction; FP = financial performance

In view of the above results, it may be safely concluded that ample evidence is found in support of all the three hypotheses proposed in the present study i.e. H1: Innovative work behavior is positively related to financial performance; H2: Innovative work behavior is positively related to customer satisfaction; H3: Customer satisfaction is positively related to financial performance.

The results, as presented in Table 1 and in Figure 1, clearly indicate that innovative wok behavior exerts a significant positive influence on customer satisfaction (β1 = .214; p < .05). Also, a significant positive impact of customer satisfaction is found on financial performance (β1 = .273; p < .05). Further, there exists a positive influence of innovative work behavior on financial performance (β1 = .359; p < .05). This relationship, however, is effectively mediated by customer satisfaction (indirect effect = .218; p < .05), thereby leaving the direct effect at β1 = .141 (p < .05) – see Figure 2 and Table 1.

Furthermore, the estimated R² values indicate that innovative work behavior and customer satisfaction explain 31% and 24% of variation in financial performance respectively. Also, 20% of variation in customer satisfaction is explained by innovative work behavior.

DISCUSSION, CONCLUSIONS AND MANAGERIAL IMPLICATION:

The present study, while investigating the effects of innovative work behavior of employees on financial performance, found evidence in support of their positive relationship. This stands in conformance with previous research findings (Damanpour et al., 2009; Calantone et al., 2002; Gopalakrishnan, 2000). It is further learned from the results that the positive effects of innovative work behavior on financial performance are partially mediated by customer satisfaction. This provides enough reason to believe that organizations can achieve improved customer and, consequently, financial outcomes if they concentrate on inculcating and, subsequently, enhancing the innovative work behavior amongst its employees.

With regards the stages of innovative work behavior, managers would be required to focus more on the implementation part of innovativeness. The reason being that the creativity aspect of innovative work behavior (i.e. opportunity exploration and idea generation) scored relatively better (mean score = 3.07) than the implementation aspect (i.e. championing and application) which recorded a mean score of 2.68. This may lead us to contemplate that employees, during their course of job, do recognize opportunities that ask for improvement and even generate ideas for the same. They, however, are reluctant in mobilizing support for its implementation in the work role, or whole organization. This scenario asks for proper managerial intervention focused on the creation of a more conducive environment and organizational culture wherein innovative ideas will attract reasonable support and ultimately find their way towards implementation. Such an approach, besides enriching the financial domain, will also positively contribute towards the improvement in customer outcomes which in turn may expand the long-term survival and growth prospects of business organizations.

Moreover, various measures could be suggested that may help managers in improving innovative work behavior amongst employees. For instance, autonomy provided to employees about the manner in which they perform their job results in higher levels of innovativeness on their part. Also, control over one’s own job also appears to result in providing an enriched experience on the job, which may in turn motivate employees to innovate (Ramamoorthy et al., 2005). As a result, managerial approach to job design assumes a critical position in inducing innovative work behavior amongst employees and, thus, needs to be taken very seriously at the higher levels of organizational hierarchy. In view of this, it may be reasonably concluded that necessary steps should be initiated in business organizations that will lead to enhanced job satisfaction, improved work engagement, better organizational culture etc. These factors tend to enrich employee attitudes and consequently leads to motivated innovative work behaviors which eventually results in better organizational performance. Any organizational action suspected to create a cognitive dissonance among the employees must be prevented at the very beginning.

LIMITATIONS AND DIRECTIONS FOR FUTURE RESEARCH:

First, while examining the relationship between innovative work behavior and financial performance, the present study focused only on three dimensions of financial performance (net profit, return on assets, and deposits’ and lending performance). All these three indicators reflect only internal financial performance. Therefore, the relationship of innovative work behavior with other indicators of financial performance is an earnest research requirement. This should include both market-based financial performance measures (like Tobin’s Q i.e. market value / book value) as well as economic financial indicators e.g. economic value added (i.e. net operating profit after taxes minus capital * cost of capital). Second, the data for present study came only from the state of Jammu and Kashmir and that too from only the banking sector which, therefore, may raise concerns about the generalization of results. It is, as such, required that similar research may be replicated in other geographical areas covering different sectors of an economy. Finally, the effect of only one mediating variable is examined in the innovative work behavior – financial performance relationship. The simplicity of the model may serve as a source of limitation.

Therefore, we suggest the incorporation of more mediating variables like service quality perception, service failure prevention and recovery etc. Further, we also propose incorporating moderating variables such as task type (contact or non-contact employees).

Appendix I. Final purified scale items after deleting items with factor loading < .40

	*Construct/ item*	*Factor loading*	*Alpha* *(α)*
*Innovative work behavior*	*Opportunity exploration*		.71
	I pay attention to issues that are not part of my daily work	.73
	I wonder how things can be improved	.69
	*Idea generation*		.73
	I search out new working methods, techniques or instruments	.58
	I generate original solutions for problems	.61
	I find new approaches to execute tasks	.66
	*Championing*		.82
	I make important organizational members enthusiastic for innovative ideas	.71
	I attempt to convince people to support an innovative idea	.74
	*Application*		.79
	I systematically introduce innovative ideas into work practices	.59
	I contribute to the implementation of new ideas	.64
	I put effort in the development of new things	.61
*Customer satisfaction*			.85
I am very satisfied with this bank		.76
My complaints/problems are always addressed in a fair manner		.74
This bank is very reliable		.62
I like the people at this bank		.84
This bank gives me the service I expect		.59
This bank provides excellent service		.63
*Financial performance*			.92
Net profit		-*
Return on assets		-*
Performance of deposits and lending		-*

Source: Data compilation by the scholar for present study; *not included in factor analysis.

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Received on 08.12.2015 Modified on 29.12.2015

Int. J. Ad. Social Sciences 3(4): Oct. - Dec., 2015; Page 159-165

*Path*	*Effect*			*Remarks*
*Path*	*Direct*	*Indirect*	*Total*	*Remarks*
Innovative work behavior → customer satisfaction	-	-	0.214*(R² = .20)	-
Innovative work behavior → financial performance (Mediator:* customer satisfaction)*	0.141*	0.218*	0.359*(R² = .31)	Partial mediation
Customer satisfaction → financial performance	-	-	0.273*(R² = .24)	-