Towards a theory of Capability-Based Transactions: Bounded innovation capabilities, commercialization, cooperation, and complementarity

Abstract

Innovation capabilities are essential to the innovative potential of companies, but in most cases, these capabilities are bounded. However, the boundedness of innovation capabilities and the way companies complement them through transactions is still a gap lacking theoretical depth. This conceptual manuscript aims to develop a theoretical approach, namely, Capability-Based Transactions, which intertwines the nature of innovation capabilities with the specificity of transaction types, resulting in complementarity for bounded capabilities. We propose a clarified definition for bounded capabilities and complementarity. From this, we theorize that commercialization complements a company's bounded non-technological innovation capabilities, while cooperation complements bounded technological innovation capabilities. From a novel perspective, we advance the intertwining of the literature on innovation capabilities and transaction costs. Our theorizing movement highlights that companies' transaction decisions depend on their bounded capabilities. Furthermore, to drive complementarity for non-technological capabilities, we propose a new kind of commercialization that underpins the Capability-Based Transactions approach. We develop a framework from a set of propositions that demonstrates the innovative behaviors shaping the theoretical approach. Finally, we present a managerial flowchart to support the adoption of Capability-Based Transactions by companies.