The Resource-Based View (RBV) of the firm emphasizes the creation of competitive advantage based on resources at the firm’s disposal, be they people resources or material resources such as hardware, machines, assembly lines or other capital equipment (Wernerfelt, 1984 and 1995; Mahoney and Pandian, 1992; Amit and Schoemaker, 1993; and Rumelt, 2002). Applying this basic concept to dynamic environments where rapid and unpredictable change occurs frequently or all the time, Teece et al. (1997) coined the words ‘dynamic capability’. This definition refers to a capability that firms may possess by virtue of their people or material resources, which enables them to reconfigure internal and external competencies in order to address the challenges faced in rapidly changing environments.
Eisenhardt and Martin (2000) have made three significant observations with respect to dynamic capabilities. First, they contend that dynamic capabilities are not vague or
tautological, but involve specific organizational processes such as the product development process, that creates value for firms within dynamic environments. Second, they observe that dynamic capabilities have greater equi-finality, homogeneity and substitutability across firms. Third, they find that dynamic capabilities assume different forms depending on market dynamism. In other words, dynamic capabilities could involve traditional conceptualization of routines in the context of stable industry structure, and they could also involve simple, experiential, unstable processes that rely on quickly created new knowledge and iterative execution to produce adaptive and unpredictable outcomes in high-velocity markets with vague or blurring industry structures.
Innovation in general refers to the creation of something new, be it a new idea, a new device or a new design that did not exist hitherto in the same architecture, and causes disruptiveness in the existing technology (Shane and Ulrich, 2004; Govindarajan and Kopalle, 2006; and Stieglitz and Heine, 2007). Buijs (2007) refers to innovation as an ‘inflatable life belt’ (which needs to be kept in good condition for an organization to survive tough times) and a multifaceted process that is full of contradictions. He also refers to innovation leaders as ‘controlled schizophrenics’, who must adapt their behavior and attitudes so as to keep the organizational mood in between overly-optimistic and overly-pessimistic. Product innovation has been defined as the novel product outcome of the successful implementation of research, design, manufacturing and marketing (Kamien and Schwartz, 1975; MacLean and Round, 1978; Betz, 1993; and Garcia and Calantone, 2002). By contrast, a process innovation involves changing the process to create efficiency and cost reductions while contributing a newness to the process at large (Calantone et al., 2006; Damanpour and Wischnevsky, 2006; and Li et al., 2007). Research literature has emphasized the relationship between dynamic capability of the firm and innovation and contends that a firm’s dynamic capability significantly enhances its ability to innovate, especially in the case of radical innovations (Tushman and O’Reilly, 1996; Rodriguez et al., 2006; Mathiassen and Vainio, 2007; and O’Connor et al., 2008).
While research literature has explored the impact of dynamic capability on innovation in general, there is no study that has explored the impact of specific types of dynamic capabilities on specific types of innovations. In addition, while research literature has discussed innovation leaders in a general way, there is no study that ties specific types of innovations and value creation in innovation to innovation leaders. This forms a research gap which this paper attempts to fill. This paper argues, based on extant literature, that while material resource-based dynamic capability can impact product innovation, people resource-based (managerial) dynamic capability will impact process innovation. In addition, this paper presents a research model, and hypothesizes about the strength and nature of linkages between different types of dynamic capabilities, different forms of innovations, value creation and industry leadership. The model presented in this paper is consistent with the RBV of the firm, since it suggests that there are essentially two forms of dynamic capability, which are organizational resources that impact innovation, value creation and industry leadership.
In addition to addressing the research gap as explained above, this conceptual paper makes a significant contribution to literature by separating the dynamic capabilities into two kinds (material resource-based dynamic capabilities and people resource-based dynamic capabilities), and specifically examining the impact of each type on innovation and industry leadership.
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