Customization, Innovation and the Particularization Trap: Evidence from Knowledge-intensive Firms

We study the link between customization and innovation that remains underexplored and contested in the literature. On the one hand, because customization requires suppliers to gain knowledge of customers and the product features they require, and since this knowledge is generally held to be critical for innovation, a positive association may be anticipated. On the other hand, when customization is closely coupled with a focus on particular clients’ requirements – what we term here “particularization” - it may limit awareness of broader or different requirements and potential applications to other markets. We call this a “particularization trap”. We examine empirically this link in the context of Knowledge-Intensive Business Services (KIBS) firms because they tend to be more prone to produce solutions through close interaction with clients. We develop a measure of a firm’s customization, as displayed through its portfolio of services, and we relate this to innovation. We also consider the boundary conditions of the customization-innovation relation by examining the potentially moderating roles of the firm’s collaboration with clients and its deliberate learning processes. The results reveal a significantly positive association between the customization of a firm’s portfolio of services and its innovation. Nevertheless, this association is weakened when firms collaborate closely with specific clients, unless these firms simultaneously engage in deliberate processes to leverage learning from client-specific offerings. Our study contributes to an improved understanding of the ways in which customization can affect the knowledge mobilized by firms.