Institutional Interactions: Driving Innovation Strategies and Capabilities

Abstract

How do firms develop innovation strategies and capabilities during fundamental institutional transitions? To answer this question, this paper develops a theoretical framework which combines both strategy-based and dynamic capability-based perspectives. A longitudinal multiple case study of China’s telecommunications industry was conducted to verify the framework. This study offers an integrated perspective to investigate the complex and dynamic institutional interactions through which firms develop their own strategies for innovation capabilities. The comparative setting of the study between different company ownership structures – in this case, Stated-Owned Enterprises (SOEs) and private companies – identifies the strategic importance of corporate governance structure and entrepreneurial decisions in shaping innovation strategies and capabilities of firms. The finding of the study also suggest that firms’ sustained competitive advantage in institutional transitions depends more on what we referred to as the dynamic alignment of their innovation capabilities.