Abstract
Management literature suggests that innovation facilitates organizational performance and service quality in businesses and nonprofits. Customers’ evaluation is essential for operations, and organizations must embed practices that address customer needs. However, little literature explores factors affecting customers’ perceived innovativeness. Comparing the differences in innovation between businesses and nonprofits from customers’ perspectives would help understand innovation practices across organizational forms. This study conducted a between-subject 3 (no/technological/organizational innovation) x 2 (for-profits/nonprofits) factorial design to test the effects of innovation on customers’ perceived organizational quality and their willingness to contribute to organizations. We tested a mediation model linking the relationship between innovation, customer’s perceived organizational quality, and their willingness to contribute, with organizational form as a contextual factor. Theoretically, our findings complemented signaling theory regarding signal strength, which suggests that organizational form is a strong quality signal, whereas innovation is a weak signal. Practically, the results challenged the prevailing emphasis on innovation.