Market performance can be derived as the extent to which firms gain market-related outcomes than their rivals with respect to customer satisfaction, new customer acquisition, loyalty etc. (Oh, Cho, & Kim, 2014). Marketing concepts basically suggested that superior Judgmental performance (Quality, customer satisfaction, employee satisfaction) is the perquisite for superior performance of the market and financial (Subjective performance) of the company. Agrawal, Erramilli, and Dve (2003) study also imply that market and financial performance cannot be realized without the superior performance of judgmental/innovation. Innovation performance can facilitate firms to generate market performance in numerous ways through helping to identify technological possibilities with improving product and service quality and superior value product to the customer can help to gain new customers. Thus customer satisfaction improve the market position of the organization (Hogan & Coote, 2014).

Innovation performance is firstly affiliated with the non-financial aspects of corporate performance, for instance, customer facets, satisfaction and afterward it accelerated the higher financial performance (Gunday et al., 2011). Even though innovation in short time period might cause possible loss (Visnjic, Wiengarten, & Neely, 2016) during the long term that might expedite for positive effect to the production, market and financial performance (Damanpour & Evan, 1984). According to the (Han, Kim, & Srivastava, 1998) relationship between innovation and financial, market performances are not direct but mediated by innovation performance. Wei and Morgan (2004) were identified that innovation performance can lead sustainable competitive advantage through creating superior value to customer immensely which can turn greater market performance and profitability. However, in the literature, there are limited researches which have explained the positive relationship between the innovation performance market performance (Gök & Peker, 2017; Gunday et al., 2011; Stock & Reiferscheid, 2014) and also Cheng and Krumweide (2010) found a positive relationship which is related to the service industry. Following prior findings and rationale, we hypothesized thatH3

Innovation performance has positive impact on the market performance.

Recent evidence of the research revealed that positive relationship between innovation and financial performance (Lilly & Juma, 2014), in most cases given a proof which innovation statistically significant impact on the firm's profitability (Walker, 2004). On the other hand, Karabulut (2015) explained greater the market share, return on investment which resulted in greater the profit margin. Reichheld and Markey (2000) stressed that customer satisfaction and loyalty drive firms for the higher profitability and revenue growth. Therefore we hypothesized that,H4

Market performance has positive impact on the financial performance.

This research was conducted in the insurance industry because of the insurance industry is mature and knowledge base industry. Innovative solutions are absolutely essential for insurance players to remain in the competitive business environment (Deloitte, 2014). Insurance business can be categorized as life and non-life business and insurance products highly involve with intangible risk in long term and short term. Many insurance companies facing challenges due to highly increasing customer expectation toward personalized product and services, advanced technological improvement and macro shift of the economy (Deloitte, 2016) and industry facing disruption productive and innovative competitors from both inside and outside of the industry. Therefore given to the importance of innovation in insurance industry, research was conducted in insurance industry in Sri Lanka. Extant literature has asserted that innovation related to the service sector much more concentrated on organization dimension of innovation (Process, Marketing) with relative to the manufacturing sector (Van der Aa & Elfring, 2002). Therefore measurement of innovation activities should focus on the technological dimensions well as organizational dimensions. It is true that many don’t immediately think of the insurance industry when they think about product innovation. But among other things we are trying to change the stigma.

As we mentioned above conceptual framework of the study was used four dimensions for measure the innovation activities in the insurance companies. These four dimensions are insurance product innovation, process innovation, marketing innovation and organizational innovation. Innovation measures of the each type of innovation are designed based on the theoretical and operational definitions and aspects in the literature explain by OECD Oslo Manual (2005); CIS regarding four type of innovation and (Bilderbeek, Hertog, Marklund, & Miles, 1998) approach of measurement of service innovation activities. In the end, four indicators were generated to measure the innovation activities in insurance companies. Respondent were asked to rate the innovation activities currently available in their firms during the period of 2013–2016 with each scale of (5 point scale, 1 – not implemented, 2 – imitated from national market, 3 – imitated from international market, 4 – improved current product/process/marketing/organizational practice, 5 – original product/process/marketing/organizational practice were developed. In this research, a similar approach of Akman and Yilmaz, 2008 is followed in order to evaluate the innovation capability, adopt three questions contain main characters including organizational culture, characteristics of internal process. Respondents were answered by using each scale (5 point scale, 1 – strongly disagree, 2 – disagree, 3 – neither agree nor disagree, 4 – agree, 5 – strongly agree). Particularly three different type of performance measures were employed to measure the organizational performance. Innovation performances measurements consist with four criteria have been adopted from Cronin and Taylor (1994) and Rothkopf and Wald (2011). In the end, six indicators were generated to measure financial and market performance including return on sales, overall profitability, and return on investment, market share, total sales, and customer satisfaction. The six indicators have been adopted based on the existing literature mainly by research of Narver and Slater (1990) and Matear et al. (2004). Respondents were asked to rate the firm performance by indicating their strength of performance with each scale (5 point scale, 1 – extremely unsuccessful, 2 – unsuccessful, 3 – similar, 4 – successful, 5 – extremely successful).

Empirical data were obtained through the survey in 2016 within a period of 5 months. Survey questioner were distributed to the CEO, General Managers, Department Heads most of whom were senior managers who knows well about the present and past organizational practice related innovation aspects in the organization both life and general insurance business in different functions areas such as marketing, finance, human resource, sales, underwriting and claims in different class of insurance including life, motor, fire, marine, and miscellaneous. Individual questions designed to assess the innovation capability, innovation efforts, innovativeness, market condition and corporate performance. A total 393 managers were responded out of 550 questioners. We defined size of the organization based on the numbers of employees .73% employees who were working a firm with more than 300 employees or above and 6% respondents came from firm with 200 employees or less. After having the screen testing 379 questioners were considered as the valid for analyzing process. The final response rate was accounted for 68.9%. The respondents completed the questioners were from 48% top management and 52% were from middle management. After finishing the data collection process, questioners were evaluated by SPSS 16.0 statistical software package to measure the validity of the constructs.

The findings of the research supported to claim that innovation capability in insurance companies have a positive and strong impact on innovation efforts. Thus hypothesis H1a, H1b, H1c, and H1d are supported. Especially innovation capability has a strong and significant impact on the product, marketing, and organizational innovation activities. These findings are very important because innovation capability is one of the most influential factors for developing the innovation activities within the firm. Knowledge sharing, motivation, and creative thinking would lead to defining clear and effective innovation strategy. An organization with a culture that nurtures innovation and organization supported by right people, the process will provide the path to create a broad diverse set of ideas, especially converting them into the profitable business concepts. As well as effective scale of new business ideas supporting them with appropriate level and type of resources requires both creations of superior ideas and successfully commercialized them. Therefore innovation capability that provides insight for firm's innovation potential areas and assets, which leads to identifying strongest or weakest point, where firm should develop. For this reason, innovation capability is most required components for developing effective innovation outcomes within the firm to enable the application of resources and continuous transform of knowledge and skills into product, process, and system for the benefits of firms and stakeholders. Innovation capacity of the firm is subsequently responsible for generating highly creative innovation outcomes.

Another important result of this study is innovation activities have a positive and significant impact on innovation performance of the firms. The results revealed that product, process, and marketing less or more positively associated with firm performance. Therefore hypotheses H2b, H2c, H2d are supported. But the impact on organizational innovation on innovation performance is not found to be significant. Product and marketing innovation appeared to be the critical driver for innovation performance in insurance companies which also indicated that strong link with the innovation capability. This suggested that improving the innovation capacity of the firms which drives the better innovation performance. At the same time, the strong relationship between marketing innovation and innovation performance as proposed in the study suggested that through creating innovation supported organization culture which provides information on potential customers, customer expectations and needs to generate better marketing innovation activities enhance the innovation performance. For this reason, managers need to invest more in innovation capabilities support generating new efforts of innovation activities enhance the firm performance. On the other hand companies with successful process innovation efforts which facilitate develop better product and marketing activities within firm. Process innovation is all about reducing cycle time that results to reduce the work involved and the process becomes more – able. Proper new business recording system, addressing customer needs with tailor made decision with advanced technological infrastructure which drives effective performance. Focusing on process innovation activities through innovation culture that encourages employee to stretch and develop their capabilities. For that reason, insurers need to establish process, promote the cultivation of ideas toward the effective innovation solution. The evidence demonstrated our argument that managing innovation capabilities of insurance companies which leads more or less likely to produce performance results.

Another interesting finding of this research is relationship between innovation performances; financial performance and market performance. The results revealed that these relationships are positive and significant. Therefore H3 and H4 hypothesis are accepted. However certain amount of time lag needs to observe the exact performance of the firm in terms of innovation efforts. A time lag effect on innovation and financial performance explained in the literature (Teece, 1988). Overall findings of the study that can be summarized as follows; to achieve innovation performance insurance company first need to develop organizational culture that can motivate innovation behavior, internal coordination with employee to encourage the innovation driven mindset that pulls off ideas, concepts into successful product/service, process, business model or system. This provides sight for insurance companies to develop innovation capability and motivate and empower individuals within an organization to encourage innovative mindset. It is possible that organization to leverage technology and knowledge to deliver the better innovation outcomes and performance. Finally, the evidence from study suggested that if a firm has strong innovation capability innovation outcomes and performance might be very high. The findings of this study prescribe this is to be the most effective way for building innovation success.

This study was undertaken to investigate and understand the effect of innovation capability, innovation and innovation performance in the Sri Lankan insurance industry. The findings of the study supported that company with higher innovation capabilities has influenced positively and very strongly. In this way, it assists the improvement of innovation capability is core to the insurance companies to define successful innovations. But the lack of capabilities and skills is one of the top barriers to innovation in insurance industry particularly small and medium size organization (KPM). The insurance industry needs to pivot from a traditionally risk-averse culture to one that encourages experimentation while mitigating financial risk. To achieve this, insurers will need to tap into new sources of innovation, accessing fresh ideas from employees, customers, investors and partners, which, in turn, will require progressive leadership at the top of the organization.

In this study, we define innovation capability as an ability to understand and identify the future customer needs, expectations and potential customers promptly and responding appropriately, application of organizational internal including employees and external knowledge by developing an innovation support organizational culture to create new ideas and transform them into successful innovations. Considering the future customer needs and expectation is very critical to firms to be successful and it helps firms to notice opportunities in future generate new ideas and transform them into new ideas (Chandy & Tellis, 1998). The innovation ability of the whole insurance companies mainly depends on the employee's creativity, results of the study shows the creative employees and closely linked with the innovation support organization culture. The enterprise culture construction of innovative insurance is an important way to improve the innovation ability of insurance companies. The establishment of cultural innovation of insurance companies first needs to reach a consensus on leadership, on this basis, to take a scientific approach to design, and to consolidate. In the new business environment, the traditional organization structure of insurance enterprise pyramid due to inhibition of innovation and change. Insurance reform trend of the organization is the process; in the enterprise, design emphasizes the integrity and unity of the processes of the organization. Thus it influences innovation support organization culture which helps to improve the inter-functional coordination among the Department, it plays an important role to establish an organizational climate that encourages innovation through discovering innovation opportunities from the external environment to convert them into successful innovation. Therefore innovation capability is the one of most required factor for the managers to foster. This accommodates the catalysts that encourage and accredit individuals of organization to innovate. This will help organization to drive superior products, services, and business model. It given an indication like that, innovation capability drives stimulus for such activities.

The insurance industry is generally different from the other industries. Insurance is any type all about managing risk. Therefore insurance industry is highly involved with intangible risk. Today insurance industry becomes highly competitive. The gap between Insurances Company to another is usually not given a great picture. Therefore at present insurance more like commodity and areas which low-cost structure, greater efficiency, and better customer service would help firms to surpass the competitors. According to study claimed that product and market innovation has a greater impact on firm performance. Thus insurance company needs the variety of investment products try to lure in customers and focus on marketing related activities. At the present market scenario of the insurance industry, companies tend to focus on the consolidation rather than investing money in the market and advertising campaign. So industry needs to pay more attention especially Sri Lankan insurance industry due to the low penetration level, aware people of regarding insurance and insurance related product which may help to enhance the potential customers and sales. Especially property and casualty insurance it is harder to achieve more consistent and higher growth rate, to hard the market, increase the premium volume and investment income due to the risk outside their control. Instead of making changes in system, procedures, the company should think about transformational steps to boost their completion among the rivals and industry as a whole. Insurers need to lift all their boats considering how to transform the way they do business in more effectively to face the grim market competitions well as the differentiate their brands as a part of the leading edge (Deloitte, 2014).

Moreover, product innovation indicates as a critical instrument for innovation performance, due to this reasons company top management need to put attention regarding improving innovation capability because it is the most effective factor for innovation success (Meeus & Oerlemans, 2000) and introduce innovation in each type (product, process, organizational and marketing). On the other hand, innovation performance performs as the most important role in the model and this positive impact transfer to the market and financial performance. Finally, our results are painted a clear picture that innovation is the key strategic dimension for the firms to drive long-term growth and profitability as well absolutely necessary for the survival of the organization. This takes greater relevance for managers in a competitive context which given an importance to develop and execute innovation along with the firm's business strategy and to have a clear understanding about innovations imperative where deliberately explain themselves to implement through the strategic practice.

Similar to the other empirical research this study also has limitations which should be acknowledged. It will help for future studies and can make improvement of this area. First, this study measures the innovation capability as one dimension. But it should be considered as multi-dimensional concept. This is the limitation of this study. Future research needs to address different aspects which affect for the innovation capability such as customer orientation, market orientation, and technology orientation. These factors are increasingly developing factors for innovation capability. Therefore these factors should be investigated in future studies.

The second limitation of this research is qualitative data. We used qualitative data to measure the firm performance due to the firm restriction for giving original data. Therefore we have to limit with subjective data. However subjective data is widely used in the organizational research (Azaranga, Gonzalez, & Reavill, 1998; Dess & Robinson, 1984). The other limitation is answers of the respondent will be a bias which would affect results of the empirical study. Finally, we selected insurance industry to conduct the empirical research while other sectors are not included in this study. Some valuable findings of this research revealed that these can apply other service sector industries especially Banking Industry. The future research needs to be applied to different developing countries with different service sector industries to explore the impact on innovation with different economic growth and market level.