Organizational Dynamic Capability and Innovation: An Empirical Examination of Internet Firms

Abstract

This paper extends the dynamic capability perspective into the study of innovation by entrepreneurial firms. Drawing from both the resource‐based view and the dynamic capability perspective, this paper explores theoretically and examines empirically the different roles played by a firm's resource stock (endowment of resources and capabilities) and its integrative capabilities (ability to recognize opportunities as well as to configure and deploy resources) in the process of firm innovation. Our structural equation modeling results, based on a sample of 120 Internet‐based companies, indicate that both the firm's resource stock and integrative capabilities affect its innovation. Additionally, we also found that the relationship between resource stock and innovation is mediated by integrative capabilities. That is, merely possessing well‐endowed resource stock per se is not sufficient for innovation. Thus, it is the firm's ability to mobilize its resources and capabilities and align them dynamically with the changing opportunities in the environment that is of vital importance as the firm constantly innovates to survive and create its own competitive advantage. In the hypercompetitive and fast changing Internet‐based environment, such a need for dynamic capabilities is especially accentuated. Implications and suggestions for future research are provided.