When customer involvement promotes innovation performance: The moderating roles of coordination mechanisms with customers and external collaboration strategies

• Research Focus: How strategic management optimizes customer involvement. • Methodology: Innovation survey of KIBS firms analyzing coordination and external collaboration strategy as moderators. • Findings: Coordination mechanisms and external collaboration strategy shift customer involvement optimal value. • Mechanisms Coordination fosters feedback loops; collaborations enhance diversity, reducing dependence. • Managerial Implications: Balance involvement with structured coordination and diverse partnerships. This study examines the bright and dark side of customer involvement in new product development activities by analysing how the firm’s coordination mechanisms with customers and its external collaboration strategy affect its innovation performance. While the innovation literature typically considers customers pivotal sources of innovation, we show that the relationship between customer involvement and innovation performance, measured by new-to-the-firm and new-to-the-market products and processes, is not linear and that there is a tension between involvement and dependence. We test our hypotheses using a unique dataset of 339 Italian knowledge intensive business services firms and find that firms that are able to leverage customer knowledge in the context of innovation use coordination mechanisms that strengthen the willingness of customers and organisational members to acquire and share knowledge, and develop external collaboration strategies that improve the variety of accessible knowledge for the firms.