Dynamic Capability under Industry Competitiveness: Interaction Effect of Innovation and Marketing Capabilities

Abstract

Purpose of this study is to examine the way enterprises utilize resources for better development and integration of organizational capabilities. We seek to understand how integration of marketing and innovation capabilities enables firms to compete in dynamic markets and enhance performance. Another objective of this study is to examine how small, medium, and large enterprises build competitive advantage and provide suggestions on development of organizational capabilities under industry competitiveness. Proposed conceptual model was tested on selected sample of 689 companies, which was divided on sub-samples of small, medium, and large enterprises. Our findings demonstrated that development of organizational capabilities does not necessarily beneficial to performance, while competition does not necessarily detrimental to performance, as was suggested by previous studies. It was found that impact on performance would vary depending on firm’s resource base and level of industry competition. Theoretically, this study fills the gap by examining complementarity of innovation and marketing capabilities, which was only investigated by limited studies. In addition, this study contributes to literature by testing industry competitiveness as a moderator on different sub-samples of firms. Our study also has several practical implications. Despite of limited resources, small enterprises should concentrate resources, capabilities, and managerial efforts to create right integration of marketing and innovation, because dynamic capability proved to be crucial in order to withstand competition. Otherwise, without right resource management and alignment, innovation and marketing would dilute focus of company and waste resources. Standing alone each capability did not prove to have significant impact on performance. For medium enterprises, support of marketing capability is required to raise profitability under industry competitiveness; otherwise innovation would not lead to actual profits. Therefore managers should involve market-based knowledge resources while building dynamic capability and focus innovative efforts on market needs. For large enterprises, managers should focus strategy on building long-term advantage, because competition is not a serious threat. Using advantage of stable resource base, large enterprises could focus on process innovation, which requires long term resource investments. Conclusions of this study should be considered in the context of research limitations. Our measure of industry competitiveness reflects only certain factors of competition. Future study could include more complete set of competition indicators. Also this study tested impact of dynamic capabilities on performance represented by profitability, thus future studies could examine these relationships with other determinants of firm performance.