Abstract-The paper is about the investigation of how new knowledge is created when customer knowledge captured during the use-phase and retirement stage, and firm internal knowledge in an integrated product-service development cycle. Customer knowledge is integrated with firm-internal knowledge and converted into new ideas or solutions through knowledge conversion process, as such enhance the customer value proposition in terms of product and service performance. The main contributions to the literature are threefold. First, we provide how customer knowledge captured from other product life cycle and firm-owned knowledge towards affect new knowledge creation in developing an integrated product-service design. Second, we provide evidence new knowledge creation in an integrated product-service design is crucial in enhancing customer value proposition in terms of product and service performance. Third, we offer knowledge creation process in an integrated product-service design as an important determinant for product-service performance. IndexTerms-Product-service, knowledge creation, product-service performance, SECI. I. INTRODUCTIONIn functional economy, functional sales is addressed rather than the physical product [1], which getting much attention, particularly in developed countries [2]. The terms such as Product-Service (PS), product-related services or full-services are interchangeably used to designate the integrated of PS offerings [3] for selling functions. Functionality describes the ability of integrated PS [4] to provide the ability, usability, or purpose of it, rather than the physical artifact.PS firms move from traditional selling artifact manufactured to combination of services and products to enhance customer loyalty by having long-term business relationship with customers [5] and offer sustainable solutions [6]. Subsequently, PS enhance existing customer value [7] generate more profit [8] and reduce environmental effect [9]. Flexibility becomes crucial issue as any specific product can be combined with services to meet customer requirement through distinct operational processes [10], [11]. Customer's experience are explored to improve existing firm core product concept and manufacturing capabilities [12], reduce the needs for service throughout the product usage phase. Hence, PS focus on lengthening the durability of a PS which reduce material/resource usage but at the same time retain the quality [13]. Exploring customer's experience (CK) and exploiting firm internal knowledge (FIK) gathered from each phase of new PS development are crucial to integrate product Manuscript received May 4, 2015; revised August 25, 2015. The authors are with the University Malaysia Pahang, Malaysia (e-mail: anisyus@yahoo.com).functionality and its related services into one solution may have opportunities to succeed [14]. A firm may choose to maintain internal knowledge if the firm is very competitive and at strong position in the industry which that knowledge is sufficient [15]. Explorative and exploitative learnin...