The Impact of Innovation on Profitability of Jordanian Services Companies

This research paper attempts to reveal the level of innovation types in Jordanian services companies. It also investigates the relationship between the overall innovation and profitability in these services companies. Innovation types have been measured through a questionnaire distributed to the members of Securities Depository Center SDC Public Shareholding Companies – Service Sector. Profitability has been measured through the mean of net profits after taxes for the two years 2018 and 2019. The research findings indicate that innovation types in these companies is slightly below the average level. The results of research also indicate that there is a statistically significant positive impact of overall innovation on profitability of Jordanian services companies. The research concludes that investment in innovation is a key pillar for profitability of business companies.

organization. Lee et al. (2017) indicated that exploration and exploitation orientations have positive impacts on product innovation and process innovation respectively, and process innovation encourages both radical and incremental product innovation. They also found that the relationship between a new product and company performance is increased with the introduction of marketing innovation in high-tech companies. Whereas, they revealed that process innovation has positive direct impacts on company performance with organizational innovation in the case of low-tech companies. Crowley (2017) revealed that the factors affecting product innovation and discontinuation are similar for manufacturing and service firms, where innovation was significant for product/service discontinuation and process innovation was found to be important for innovation. Busru & Shanmugasundaram (2017) revealed that research and development expenditure negatively affects the profitability but affects the profitability of subsequent years positively while taking lags. Witell et al. (2017) proposed four critical bricolage capabilities (addressing resource scarcity actively, making do with what is available, improvising when recombining resources, and networking with external partners) that affect the outcomes of service innovation. Hanif & Asgher (2018) indicated that there is a strong impact of multi-dimensional service innovation on service innovation performance, and each dimension of service innovation significantly predicts service innovation performance. Verdu-Jover et al. (2018) proposed that structural flexibility and reflexive learning positively affect the outcomes of product/service innovation by creating an adaptive culture. Mahmoud et al. (2018) unveiled that a service firm's ability to achieve customer satisfaction is dependent on how telecommunication operators harness and deploy their service innovation activities. In addition to that, they showed that customer value creation mediates the relationship between service innovation and customer satisfaction. Rajapathirana & Hui (2018) studied insurance companies in Sri Lanka and found a significant strong relationship between capabilities and efforts of innovation and performance of companies. They indicates that effective management of innovation capabilities help to deliver more effective innovation outcomes and thereby generate better performance. Kahn (2018) highlighted that innovation as a mindset addresses the internalization of innovation by individual members of the organization where innovation, is instilled and ingrained along with the creation of a supportive organizational culture that allows innovation to flourish. Maier (2018) mentioned that innovation has diverse materializations, includes product and technology renewal, and organizational changes, which may have an impact on quality, efficiency, improving the competitiveness and sustainability of the organization.
Oanh (2019) indicated that improving the types of innovation in enterprises affects the innovation performance of enterprises, and provided implications for business strategies based on innovation. Sujud and Hashem (2019) revealed that there is a significant positive impact of bank innovations on profitability and return on assets of Lebanese commercial banks. Xiea, Huob & Zouc (2019) found that green process innovation has a positive impact on green product innovation, and that both green process innovation and green product innovation can improve financial performance.
YuSheng & Ibrahim (2019) indicated that service innovation has direct influence on service delivery and customer satisfaction, and revealed a positive relationship between service delivery, customer satisfaction and bank customer loyalty. Mai, Vu, Bui & Tran (2019) show that innovators achieve higher profit in comparison with non-innovating companies and mentioned that the benefits of innovation for profitability can be seen in higher export probability, better productivity, better access to formal credit, and the ability to secure government support, but only after innovation. Gustafsson et al. (2020) indicated that there is no coherent theoretical framework that captures all the facets of service innovation. Najafi-Tavani et al. (2020) found a significant positive effect of collaborative innovation networks on product or process innovation capability in the presence of absorptive capacity. Udu, Agha, Anele & Onunwor (2020) found that there is no significant relationship between generation of high quality products and profitability. They also found a significant relationship between use of new technologies and profitability and between value addition and higher profitability in manufacturing firms.

The Theoretical Framework of the Research
Innovation incorporates all activities and means used by companies to change or improve the products they produce, the services they perform and the way they produce products and perform services. Innovation could be radical (disruptive) or incremental (Lee et al., 2017;Marzi et al., 2017;Maier, 2018). Radical innovation means producing new products, performing new services and implementing new processes. Incremental innovation means improving and enhancing the current products, services and processes. Radical and incremental innovation aim to increase efficiency, effectiveness and the overall performance.
This research proposes several types of innovation, namely product innovation, service innovation, process innovation, system innovation, approach innovation and culture innovation. Product innovation indicates producing new products or developing the current products through the utilization of new technological trends and the activation of research and development engines (Marzi et al., 2017;Crowley, 2017;Verdu-Jover et al., 2018;Maier, 2018;Xiea et al., 2019;Najafi-Tavani et al., 2020). Service innovation refers to delivering completely new services or improving the current services through promoting and investing in new ideas and initiatives related to smart services, automation and digitalization (Vekya, 2017;Marzi et al., 2017;Hanif & Asgher, 2018;Verdu-Jover et al., 2018;Mahmoud et al., 2018;Sujud & Hashem, 2019;YuSheng & Ibrahim, 2019;Gustafsson et al., 2020).
It is theoretically expected that the innovations types mentioned above contribute to performance of business companies through attracting potential customers and retaining the current customers and thereby increasing the profitability of these companies. Therefore, this research attempts to reveal the nature of the relationship between the overall innovation and profitability. This research consists of two types of variables. The independent variable is the overall innovation while the dependent variable is profitability. A schematic diagram for the conceptual research model is shown in Figure 2. Ho: there is no statistically significant relationship between the overall innovation and profitability.
Ha: there is a statistically significant relationship between the overall innovation and profitability.

Research Methodology
The overall innovation consists of the six proposed types of innovation, namely: product innovation, service innovation, process innovation, system innovation, approach innovation and culture innovation. Innovation types have been measured through developing a questionnaire consisted of a set of questions. To ensure the validity of the developed questionnaire, it has been tested and then modified based on the feedback received from a number of experts in this regard. The final format of questionnaire has been distributed to the members of Securities Depository Center SDC -Public Shareholding Companies -Service Sector, the number of which is 140 companies. The measurement instrument scale is a 3-point scale: 1 for low level of innovation, 2 for average level of innovation and 3 for high level of innovation.
Profitability has been measured through the mean of net profits after taxes for the years 2018-2019. Net profits after taxes for the years 2018-2019 are published at the SDC website. The response rate was around 76% (106 companies). Therefore, the response rate is satisfactory to generate the results derived from the responding companies to the entire service sector. Reliability tested for the overall innovation using SPSS. The test output shows that the Cronbach's Alpha = 0.922. This means that the reliability of responses on the questionnaire is high.

Research Findings
Descriptive statistics for innovation are shown in Table 1. As shown in Table 1, mean of the overall innovation = 1.6714 with standard deviation = 0.56506. Means of all types of innovation are close to average level except mean of culture innovation, which is more close to low level than average level. Outputs of one-sample t test are shown in Table 2. Using test value = 2 and as shown in Table 2, all sig. (2-tailed) values ˂ .05, which means they are significant. This indicates that the overall innovation is below the average level but above low level. This supports the rejection of the first null hypothesis and the acceptance of the first alternate hypothesis in relation to the overall innovation.  As shown in Table 3, mean of net profits for 63% of industrial companies was positive and for 37% of services companies was negative. Mean of net profits of 57% of companies is 5 million JD and less. Mean of net profits of 16% of the companies is higher than 5 million. Higher than -1000 --500 8 8% Higher than -500 -zero 29 27% Higher than zero -1000 28 26% Higher than 1000 -5000 23 21% Higher than 5000 -10000 8 8% Higher than 10000 8 8% Total 106 100% As shown in Table 4, the outputs of dimension reduction (factor analysis) support the extraction of one component (the overall innovation) that includes all innovation types (product, service, process, system, approach and culture). Therefore, the relationship between the overall innovation and profitability has been tested using simple regression. As shown in Table 5, Correlation R = .515, R Squire = .265 and Adjusted R Squire = .258. This indicates that the relationship between the overall innovation and net profit is positive. It also indicates that coefficient of determination R² = .265, which means around 26% of change in mean of net profits can be explained by the change in the overall innovation (explained variance).  As shown in Table 6, the significance of the F-test value = .000, which reveals that there is a statistically significant positive relationship between the overall innovation and net profit. This indicates the positive impact of the overall innovation on profitability of Jordanian services companies, which supports the rejection of the second null hypothesis and the acceptance of the second alternate hypothesis.

Results Discussion and Conclusion
Based on the findings of this research, all types of innovation contribute to profitability and performance in general. The research findings concerning the relationship between innovation and profitability are supported in literature (Bartolacci et al., 2016;Vekya, 2017;Marzi et al., 2017;Lee et al., 2017;Hanif & Asgher, 2018;Rajapathirana & Hui, 2018;Sujud & Hashem, 2019;Xiea et al., 2019;Mai et al., 2019;Udu et al., 2020). Integrated innovation or in other words overall innovation covers the following aspects: product, service, process, system, approach and culture. Innovation supports future shaping and enables the achievement and protection of market share. Profitability can be realized through optimizing resources and objectives (Maier, 2018;Mai et al., 2019). Therefore, innovation attempts, efforts and activities should target efficiency and effectiveness. Targeting efficiency to ensure the rational utilization of resources and targeting effectiveness to maximize performance results).
Innovation requires upgrading the way of thinking and planning followed by good implementation supported by monitoring and evaluation system that facilitates the learning and improvement in a continual basis (Kahn, 2018;Verdu-Jover et al., 2018;Najafi-Tavani et al., 2020). Globalization and electronic marketing are the key challenges facing business companies as competition move cross the boarders of countries. Customer is always looking for new value in his/her commercial dealings and transactions. What satisfies the customer today is not necessarily satisfies him/her tomorrow.
The research concludes that innovation is the true guarantee of business continuity. It is also the right mechanism or tool to create, maintain and sustain the competitive advantages through adding value to customers (Baggio & Valeri, 2020;Valeri & Baggio, 2020a;Valeri & Baggio, 2020b). Resilience and Agility are necessary to predict and understand any changes in external and internal business environment factors and to be proactive in dealing with them and translate them into potential opportunities to benefit from in renewing the growth phase of business cycle. To be innovative in anything you do or behave is the best enabler for a steady sustained progress of business companies.
Innovation is the right pillar for companies to penetrate markets, grow and lead business. Leading and sustainable positions can be reached by companies through promoting innovative products, services, processes and the like initiatives. Therefore, companies should invest in radical innovation as much as its investments in incremental innovation. This research also proved that innovation is not limited to its known types related to products and services, but rather shapes all aspects of work in companies.
Enhancing innovative capabilities is the key driver of innovation activities and outcomes Elmo, Arcese, Valeri, Poponi & Pacchera, 2020). Companies are recommended to pay more concentration on system innovation, approach innovation and culture innovation. For instance, modernizing business mindset and activating its machinery, and reengineering the way of running and managing business in addition to enriching work culture. These types of innovation contribute to the success of companies as like as traditional types. Future studies are recommended to be focused on the practices and impacts of approach innovation as a management approach and on culture innovation supported by related concepts, principles and values. It is also suggested for future research to examine the role of innovation in improving the institutional and operational performance including financial and nonfinancial performance.