Journal of Small Business and Enterprise Development

Dynamic capabilities vs. innovation capability: are they related?

Breznik Lidija, D. Hisrich Robert,
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Journal of Small Business and
Enterprise Development
Vol. 21 No. 3, 2014
pp. 368-384
r Emerald Group Publishing Limited
1462-6004
DOI 10.1108/JSBED-02-2014-0018
The current issue and full text archive of this journal is available at
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Dynamic capabilities vs.
innovation capability:
are they related?
Lidija Breznik
Faculty of Economics, University of Ljubljana, Ljubljana, Slovenia, and
Robert D. Hisrich
Thunderbird School of Global Management, Glendale, Phoenix, Arizona, USA
Abstract
Purpose The purpose of this paper is to provide insights into the relationship between dynamic
capabilities and innovation capabilities. It links dynamic capability with innovation capability and
indicates the ways they can be related.
Design/methodology/approach The relationships between dynamic and innovation capability
were investigated through a systematic literature review.
Findings The review indicates that common characteristics exist between of the both fields, which
demonstrate six relationships. Additionally, findings show some inconsistencies and even contradictions.
Originality/value In this paper, the authors have compared dynamic capabilities, a relatively new
approach in the field of strategic management, with innovation capabilities, a widely recognised
crucial domain for sustained competitiveness. Since both areas address issues that are essential to
todays environment, future research should seek to clarify both concepts, by undertaking some new
research and developing comprehensive and unambiguous framework.
Keywords Dynamic capability, Innovation capability, Dynamic capabilities perspective (DCV),
Strategic management theory
Paper type Conceptual paper
Introduction
It is generally agreed that the central focus and challenge in the field of business
economics is how to attain and sustain competitiveness. Current research indicates
that the average period which firms are able to sustain a competitive advantage has
decreased over time (Wiggins and Ruefli, 2005). One of the areas of business economics
that has helped firms operate successfully in todays dynamic environment is strategic
management. Strategic management research has successfully adopted and integrated
some of the ideas of economic logic into its field. One example of this application is
Porters (1985) Five Force framework. However, this concept focusing primarily on the
external environment (with market structure as exogenous), largely ignores many
aspects of the competitive and dynamic environment (Teece et al., 1997; Teece, 2007),
and disregards the role of the internal environment. The relatively static nature of the
approach has raised questions that led to the development of new theories and views,
such as the resource-based view (RBV) and the dynamic capabilities view (DCV).
The paper provides insights into the relationship between dynamic and innovation
capabilities. First, we present a brief overview of the major research findings contributing
This paper has been supported by the Walker Center for Global Entrepreneurship at
Thunderbird School of Global Management, USA, and by the EU, European Social Fund and the
Republic of Slovenia, Ministry of Higher Education, Science and Technology.
 to the theory of strategic management. Second, we review some of the topics covered Dynamic
in the dynamic capabilities literature. Then, we present the major fundamentals of capabilities vs.
innovation and innovation capabilities, and link these to dynamic capabilities. The paper
concludes with an appeal for further research in this area. innovation
capability
Selected perspectives in strategic management
The foundations of recent management perspectives are mainly based on the views of 369
Schumpeter (1934), Penrose (1959), Rubin (1973), Nelson and Winter (1982). Building on
Chamberlin (1933) and Robinson (1933), Penrose (1959) was one of the first to recognise
the value of a firms resources. She provided insights into a firm as a collection of
productive resources and asserted that a firm is much more than just an administrative
unit. Rubin (1973) further developed Penroses ideas, and recognised that resources by
themselves are not enough. A firm uses resources in its activities and hence an activity
consists of a combination of resources (Rubin, 1973, p. 939). An activity becomes an
inspiration for expanding the firms mosaic and further development.
Nelson and Winter (1982) built on Schumpeterian competition and developed
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an evolutionary perspective of a firms capabilities and behaviour. They coined a new

term routine for all regular and predictable behavioural patterns as services of
resources. The term has become widely used with extended definitions (e.g. Eisenhardt
and Martin (2000); Winter, 2003). Building on the contributions of Penrose (1959) and
Rubin (1973), Wernerfelt (1984) created the research agenda for resource-based studies,
saying that that resources and products are two sides of the same coin (Wernerfelt,
1984, p. 171). He stated that a firm can earn an above-normal return by identifying and
acquiring resources that are critical to markets. Itami and Roehl (1987) identified
intangible assets as a firms resource that can provide a sustainable competitive
advantage. Prahalads and Hamels (1990) research focused not only on resources but
also on the knowledge, skills and technologies that deploy these resources. Their main
premise was that when a firm creates new products, these should be oriented to the
firms strategic resources, mainly capabilities.
Finally, Jay Barney (1991) formalized resource-based literature into a comprehensive
framework. He argued that a firm would attain a competitive advantage and improved
performance in the short term if it possesses resources that are valuable and rare. In line
with Dierickx and Cool (1989), Barney stated that a sustainable competitive advantage
is only possible if resources (and capabilities) are inimitable and non-substitutable;
the resource base must meet the value, rarity, imitability and organisation conditions to
become a potential source of competitive advantage. One of the criticisms of Barneys
(1991) research has been its relatively static nature. For example, Priem and Butler (2001)
argued, Although the RBV began as a dynamic approach, much of the subsequent
literature has been static, and the concept of competitive advantage still remain in a
black box (Priem and Butler, 2001, p. 33). This missing link and the essentially static
nature were pointed out in 1997 by Teece, Pisano and Shuen when they presented the
dynamic capabilities framework in order to explain how combinations of competences
and resources can be developed, deployed, and protected (Teece et al., 1997, p. 510).
They defined a dynamic capability as the firms ability to integrate, build and reconfigure
internal and external competences to address rapidly changing environments (Teece et al.,
1997, p. 516). The main premise of their ideas is the firms ability to alter the resource base
that allows for a continuous adaption to change. Figure 1 summarises the key ideas of
Penrose (1959), Rubin (1973), Nelson and Winter (1982), Wernerfelt (1984), Itami and Roehl
(1987), Prahalad and Hamel (1990), Barney (1991) and Teece et al. (1997).
 JSBED While the intention of the DCV was to extend the RBVs static nature, it still does
21,3 shares some similar assumptions with the RBV, the core competence perspective
(Prahalad and Hamel, 1990) and the knowledge-based view (Grant, 1996). These all
consider the firm to be a bundle of heterogeneous and path-dependent resources
and capabilities that allow a firm to achieve a sustainable competitive advantage
(Ambrosini and Bowman, 2009, p. 31).
370 The DCV has received significant attention in recent years but lacks unified
framework. There is still much to be done and clarified in terms of both the theoretical
and empirical aspects.
Some scholars, for instance, Zahra et al. (2006), Wang and Ahmed (2007), Ambrosini
and Bowman (2009) and Barreto (2010) have presented a detailed synthesis of the
existing literature and directions for future research. Their reviews are a good
starting point for the further development of a more structured, comprehensive and
applicable framework.

DCV
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The publication of Teece et als. (1997) paper on dynamic capabilities triggered

a growing body of articles, more than 1,534 from 1997 to 2007 (Barreto, 2010), and over
1,900 citations by December 2009 (Di Stefano et al., 2010). This paper is recognised as
the first seminal paper on the notion of dynamic capabilities, although we can find
earlier statements in the working papers of Teece and Pisano (1994), and Teece et al.
(1997). The conceptual foundations of the DCV are much older, going back to the work
of Schumpeter (1934) and Penrose (1959). The extensive literature review of Barreto
(2010, p. 257) concluded that there was still some confusion that hinders effective
progress in the field. The DCV, like other approaches such as the RBV, has also been
criticised for being fuzzy and tautological, with little empirical support (Ambrosini
et al., 2009; Newbert, 2007). In sum, according to Teece (2007, p. 1347) the dynamic
capabilities approach goes beyond traditional approaches in that it strives to explain
the new strategic considerations needed to ensure that opportunities, once sensed, can
be seized and how the business can be reconfigured.
Teece et al. (1997, p. 516) defined dynamic capabilities as the ability to integrate,
build, and reconfigure internal and external competences to address rapidly changing
environments. This definition is widely cited, and it has encouraged others to
refine the notion of dynamic capabilities. Many ideas and definitions have emerged.
Eisenhardt and Martin (2000, p. 1107) represented dynamic capabilities in terms of
processes that use, integrate, reconfigure, gain and release resources to match and
create changes in the environment. Teece et al. (1997) characterised dynamic
capabilities as unique and idiosyncratic, but Eisenhardt and Martin (2000) pointed out

RELATIVELY STATIC ENVIRONMENT DYNAMIC

ENVIRONMENT
Action
Activities patterns
that use routines as
resources services of
Figure 1. Value of resources
Key ideas of building the productive Strategic VRIO
Dynamic
resources resources and resource
right sources of a firms capabilities
capabilities base
success (based on the Resources
Intangible
literature review) relevant to the
resources
market
 that dynamic capabilities might be idiosyncratic merely in their details. Moreover, they Dynamic
explained further that dynamic capabilities also exhibit commonalities across firms, capabilities vs.
referring to them as best practices. Similarly, Teece et al. (1997, p. 517) conceptualised
that dynamic capabilities are heterogeneous across firms because of their unique innovation
positions, specific paths and processes. They are more built than bought. Zollo and capability
Winter (2002, p. 340) further explained dynamic capabilities as a learned and stable
patterns of collective activities through which firm systematically generates and 371
modifies its operating routines in pursuit of improved effectiveness. Later in his
definition, Winter (2003, pp. 991-993) explained dynamic capabilities as the extension,
modification and creation of ordinary capabilities. He pointed out that dynamic
capabilities are complex, structured and multidimensional, and that usually involves
long-term commitments to specialised resources. Zahra et al. (2006, p. 918) defined
dynamic capabilities as abilities to reconfigure a firms resources and routines in the
manner appropriate by its principal decision maker(s). Recently some progress has been
made by joining some of the main contributors ideas in the field of dynamic capabilities,
including Teece, Winter, Helfat and Peteraf, to create a more comprehensive definition.
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They define dynamic capabilities as the capacities of a firm to purposefully create,

extend, and modify its resource base (Helfat et al., 2007, p. 3). This definition is even
broader than the previous ones, and involves some a priori assumptions. Wang and
Ahmed (2007, p. 35) offered a more detailed definition of dynamic capabilities as a firms
behavioural orientation to continuously integrate, reconfigure, renew, and recreate
its resources and capabilities, focusing on upgrading and reconstructing its core
capabilities in line with dynamic, changing environment to obtain and sustain
competitive advantage.
This review of the main definitions allows us, as Ambrosini and Bowman (2009)
argue, to pinpoint the central notion of dynamic capabilities. Accordingly, we can
understand them as organisational processes in the most general sense, with a key role
of continuously changing the firms resource base. Based on the review of definitions,
it is interesting how researchers have selected their notions of dynamic capability.
They have defined or related them as ability, capacity, competence, capability, resource,
resource base, process and routine. In their overview of the development of the resource-
based theory, Barney and Clark (2007) also recognise the use of different typologies. They
argue (Barney and Clark, 2007, p. 249) that different labels, by themselves, would not
change the central propositions of resource based theory. According to this statement,
we can, indeed, apply the same proposition as for the DCV.
Besides variations in definitions of dynamic capabilities, there is even more
diversity in trying to explain their existence, development and outcomes. For instance,
some researchers have suggested that dynamic capabilities are related to a dynamic
environment (e.g. Teece et al., 1997), where as others link them with a more stable
environment (e.g. Zollo and Winter, 2002; Zahra et al., 2006), and others that ignore
the characteristics of a specific environment (e.g. Makadok, 2001). However, most
agree that dynamic capabilities may be most valuable in a dynamic environment.
Further, some see dynamic capabilities as sources of competitive advantage (e.g. Teece
et al., 1997), Zollo and Winter (2002) see the outcome as improved effectiveness, others
suggest that dynamic capabilities do not necessarily lead to firm performance
(e.g. Eisenhardt and Martin, 2000) and Zott (2003) maintain that dynamic capabilities
are not directly linked to firm performance, etc.
Researchers in the field of dynamic capabilities have proposed different typologies
of capabilities. Some explicitly use the term dynamic, while others have decided on a
 JSBED more general characterisation or even apply a new one. Collis (1994, pp. 145-150), for
21,3 instance, first proposed that there might be distinct levels of capabilities. He presented
four categories of capabilities. According to him, it is not simple to distinguish the first
three categories of capabilities since they all concern the ability of firms to perform an
activity more effectively than their competitors. He pointed out that we should focus
on the fourth capability as a higher-order or meta-capability, which is related to the
372 learning-to-learn capability that wins tomorrow and develop the capabilities that
enable the firm to innovate faster and better. Danneels (2002, pp. 1112, 2008, p. 520),
as one of the scholars who have developed Collis ideas, proposed two types of
capabilities. His second-order capability refers to dynamic capability that sits at a
higher level and renews itself by creating first-order capabilities. Winter (2003,
pp. 992-994) further developed the idea of a capability hierarchy. His hierarchy consists
of three levels of capabilities where the third level is the so-called high order capability.
High order capabilities are the outcome of organisational learning, which results
in creating or modifying a firms dynamic capabilities. Zahra et al. (2006, p. 927)
distinguish between substantive capabilities and dynamic capabilities. Dynamic
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capabilities, as they demonstrated, are affected by and operate on substantive

capabilities. However, Zahra et al. (2006) asserted that over time their relationship
becomes more complex and interwoven. Ambrosini et al. (2009) built on previous
definitions and distinguished three levels of dynamic capabilities, and related them to
environmental states. In sum, dynamic capabilities represent at least one level above
operational capabilities. We present an overview of the main typologies in Table I.

Innovation and innovation capability

After the above brief presentation of the DCV, it is now time to turn to the field of
innovation. Let us begin by considering the question of what exactly is innovation
capability? Our explanation starts with an introduction to an innovation whose
importance was first recognised by Schumpeter in the 1930s. Managing innovation is
becoming one of the major focuses of scholars and practitioners (Tidd and Bessant,
2009; Drucker, 2002). The dynamic environment and competitive strengths in the
industry (Porter, 1985), and outside (Goffin and Mitchell, 2010), are forcing firms
to primarily focus on innovation activities. Consequently, the need is revolutionary
rather than evolutionary (Assink, 2006, p. 216). Almost 20 years ago, Stalk et al. (1992,
p. 62) stated that competition is becoming less like a game of chess and more like an
interactive video game. An innovation can be a new or improved idea, method or
approach, it can be a recombination of old ideas, anything that is perceived as new
or improved (Van de Ven, 1986, p. 591). The literature offers numerous perspectives in a
variety of ways. King (2000, p. 304) stated that innovation means different things to
different people. Definitions have been extended from being highly specific to very
broad generalisations. Kimberly (1981) pointed out that if an innovation is not
perceived as useful then it is not an innovation, it is simply a mistake. On the contrary,
Danneels (2008, p. 542) sees a mistake as an opportunity to learn, which is line with
Williams (1998, p. 72) who argued that smart mistakes help firms learn and build new
capabilities. Damanpour (1991, p. 556) believes an innovation means changing a firm,
whether as a response to changes in its internal or external environment, or even as
pre-emptive activities taken to influence the environment. Innovation is a key driver, a
main source of competitiveness and competitive advantage, which is well documented
in the literature (e.g. Shoham and Fiegenbaum, 2002) with a positive impact on firm
performance (e.g. Roberts, 1999), and firm survival (Banbury and Mitchell, 1995).
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Collis (1994) Danneels (2002) Winter (2003) Zahra et al. (2006) Danneels (2008) Ambrosini et al. (2009)

First category First level capability Zero level as Substantive or First level capability Resource base
capability ability certain domain ordinary, operational ordinary capability certain domain
to perform basic involving tangible Capability how we ability to produce a involving tangible
functions firm and intangible earn a living now desired output not and intangible
resources resources for end necessarily to resources for
product finance performance end product
Second category Zero level capability First order dynamic Dynamic capability Second-order Incremental dynamic
capability dynamic ability to learn new capability change operate on capability ability to capabilities stable
improvements to domains identifying, the way how we substantive build new first order environment, resource
the activities evaluating, earn a living now capabilities capability (learn new base incrementally
incorporating domains) adjusted and adapted
the new
Third category Higher-order Renewing dynamic
capability dynamic capability change capabilities dynamic
improvements of first-order dynamic environment, resource
essential recognised capability base refreshed and
resources/activities renewed
Fourth category as Regenerative dynamic
high-order, meta capabilities hyper
capability learning- environment, new
to-learning capabilities, improved
capabilities existing dynamic
capabilities
capability
innovation
Dynamic

capabilities typologies
capabilities vs.

373

Table I.
Comparison of dynamic

review)
(based on the literature
 JSBED Indeed, the value of innovation lies in its contribution to economic value (Goswami and
21,3 Mathew, 2005, p. 372). However, Williams (1992, p. 92) point out that an innovation can
give a company a competitive advantage, but nothing lasts forever. The notion that a
competitive advantage can be achieved by exploiting the firms capabilities is not
new but, as Birchall and Tovstiga (2005, p. 38) state, management did not recognise the
importance of the renewal and regeneration of capabilities in response to a dynamic
374 environment until the last decade. Innovation is a process that allows adapting and
capability-building, and has to be sustainable (Johansson, 2004, p. 273). Drucker (1997)
maintains that a firm needs the application of knowledge to knowledge itself if wants
to sustain an innovation. Innovation is not a change, but innovation creates, Drucker
(1985, p. 31) states. However, despite the general agreement about the relevance
of innovation, the literature reveals a lack of meaningful measurement along with
statistical and conceptual problems.
Innovation capability, as Hii and Neely (2000, p. 5) argue, is the potential to
generate new ideas, identify new market opportunities and implement marketable
innovations by leveraging on existing resources and capabilities. For Lawson
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and Samson (2001, p. 384), an innovation capability is the ability to continuously

transform knowledge and ideas into new products, processes and systems for the
benefit of the firm and its stakeholders. Drucker (1997) maintains that a firm
needs the application of knowledge to knowledge itself if wants to continuously
promote innovation. More generally, innovating means breaking away, changing and
improving established patterns, and that is the main focus for firms to be and
remain flexible (Mintzberg et al., 2003, p. 406) if they want to survive. Birchall and
Tovstiga (2005, p. 4) state that innovation capability is probably the most important
capability a firm can have. Knowledge per se and its production have exploded
in recent decades so as to become the main source of innovation. Moreover, innovation
depends on the evolution of knowledge, Carneiro adds (2000, 87). Along the same
lines, Kogut and Zander (1992, p. 391) also conceptualise innovation capability as the
ability to activate and combine knowledge that reflects in innovation results such
as products, services, processes and systems. Many scholars have presented
innovation capability as a synthesis of capabilities (Parashar and Singh, 2005; Tidd
and Bessant, 2009).

Linking dynamic capabilities and innovation capabilities

Let us begin by asking where is the link between dynamic capability and innovation
capability? Teece et al. (1997, p. 519) clearly stated that their approach is in line with
the Schumpeterian world of innovation-based competition. Evidently, the dynamic
capabilities approach has been built on Schumpeters ideas, so accordingly some
parallels can be drawn. A review of the literature indicates that some notions can
be found in both areas. Innovation capability is a result of learning processes
continuously developed over time. Indeed, learning and transforming knowledge and
ideas into new or improved products, processes and systems for the benefit of the firm
is the main goal related to innovation capabilities (Birchall and Tovstiga, 2005; Lawson
and Samson, 2001). Conversely, learning processes are a dominant source of dynamic
capabilities (Zollo and Winter, 2002), firms do need to deploy the fourth category of
capabilities as learning-to-learn capabilities (Collis, 1994) and learning mechanisms
shape the creation and development of dynamic capabilities (Eisenhardt and Martin,
2000; Zahra et al., 2006). Relying on those statements, we can imply that the first
common characteristic is learning.
 To develop innovation capability through time, we must constantly search, scan, Dynamic
explore and implement new opportunities inside and outside the firm (Hii and Neely, capabilities vs.
2000), and environmental demands (Mintzberg et al., 2003). According to Teece et al.
(1997) and Teece (2007, 2009), the focus of dynamic capabilities is identifying opportunities innovation
by scanning, searching and exploration across technologies and markets to address the capability
rapidly changing environment and to match market changes (Eisenhardt and Martin,
2000). Based on such statements, we may imply the second common characteristic is a 375
strategic orientation.
Dynamic capabilities and innovation capabilities are capabilities, and capabilities
are often firm-specific (Amit and Schoemaker, 1993, p. 35; Birchall and Tovstiga, 2005).
Thus, the nature of both applies that they are firm-specific, heterogeneous and they
differ across firms. We argue that the nature of capabilities is evolutionary since
they develop over time through the complex interaction of a firms resources.
Accordingly, they are firm-specific, although they can exhibit some best practices as an
outcome of environmental scanning and benchmarking. Moreover, we suggest they
should not be viewed simply as a synonym for best practices, as Eisenhardt and
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Martin (2000) have seen dynamic capabilities. As a third common characteristic, we

can suggest their main characteristics.
Ambrosini and Bowman (2009, p. 39) argue that dynamic capabilities require
high levels of commitment from managers, especially the top management team
(Teece, 2007, p. 1346; Zahra et al., 2006). One of managements key roles is to develop
the firms dynamic capabilities (Harreld et al., 2007, p. 24). Generally, management
is responsible for creating, developing and implementing the business strategy, and
innovation strategy is part of it (Tidd and Bessant, 2009). Aragon-Correa and Sharma
(2003) argue that firms with similar characteristics deploy different (dynamic or
innovation) capabilities because of their managers. Accordingly, the fourth common
characteristic is the role of management.
The literature is clear that the central role of dynamic capabilities is changing
internal components of the firm and creating new changes (Teece, 2007). A change
in the resource base, as Helfat et al. (2007, p. 5) state, implies that a firm is doing
something different, but not necessarily better than before. In contrast, innovation is
about change, indeed the key basis for innovation is the need to change (Verloop, 2004,
p. 136). Innovation means changing a firm whether as a response to changes in its
internal or external environments, or even as pre-emptive activities taken to influence
an environment, Damanpour (1991, p. 556) and Maravelakis et al., 2006, p. 283) believe.
Collectively, both concepts cover issues of change and we can therefore suggest the
fifth common characteristic, the firms competitive dynamics (Table II).

Dynamic capabilities Innovation capabilities

Central role of learning Dominant source shape the
creation
Strategic orientation Continuously sense, seize
constantly search, scan, explore for
opportunities
Main characteristics Firm-specific heterogeneous
Role of management Key role, essential
Nature of development Change, configure, improve new,
different
Dominant source shape main goal
Constantly search, scan, explore
new opportunities
Firm-specific heterogeneous
Key responsibility, crucial
Change, configure, improve new,
different
Table II.
Commonalities between
dynamic and innovation
capability (based on the
literature review)
 JSBED These common characteristics demonstrate there are some relationships between
21,3 dynamic and innovation capability that are presented in the different perspectives
below.

Perspective 1: innovation capability as a dynamic capability

Based on Helfat et als. (2007) definition of dynamic capabilities, they are the capacities
376 of a firm to purposefully create, extend and modify its resource base. The resource base
consists of tangible and intangible resources and capabilities which the firm owns
and controls. Since dynamic capabilities are themselves capabilities, as Helfat et al.
(2007) further explain, they comprise part of the firms resource base. Based on that
statement, we can conclude that dynamic capabilities modify and extend other
dynamic capabilities or themselves. Helfat et al. (2007) pointed out, as an example
of such dynamic capability, managerial dynamic capability, and innovation dynamic
capability. Obviously, Helfat et al. (2007) see an innovation capability as a
dynamic capability. Our first view implies that innovation capability is one of many
dynamic capabilities in the firm. Besides innovation capability as a dynamic capability,
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scholars distinguish between dynamic managerial capabilities (Helfat et al., 2007),

dynamic technical capabilities (Tripsas, 1997), Kor and Mahoney (2005) explain R&D
and marketing capabilities through the DCV, Song et al. (2005) talk about technological
dynamic capabilities, Lampel and Shamsie (2003) apply industrial dynamic capabilities,
while Karim and Mitchell (2000) argue that the acquisition process is a dynamic
capability because acquisitions allow firms to modify, reconfigure their resources and
exploit opportunities in their environment, etc. Indeed, scholars have defined many
capabilities through the DCV. Birchall and Tovstiga (2005, p. 66) explain that innovation
capability is not a stand-alone factor, but is linked with other dynamic capabilities.
Parashar and Singh (2005, p. 116) also argue that innovation capability is a dynamic
capability. They quote the definition of Teece et al. (1997) that dynamic capabilities
represent a firms ability to successfully respond to environmental triggers. Wang and
Ahmed (2007) state that one component of dynamic capability is absorptive capability
(Zahra and George, 2002). Parashar and Singh (2005, p. 118) represent innovation
capability as a synthesis of three base capabilities, of which one is absorptive capability.
Consequently, the literature suggests that innovation capability could be a dynamic
capability.

Perspective 2: dynamic capability as an outcome of innovation capabilities

Eisenhardt and Martin (2000, p. 1107) argue that product innovations are real dynamic
capabilities, as they permit the renewal and reconfiguration of a firms resources.
Product innovation is in fact one of the outcomes of innovation capabilities (e.g. Francis
and Bessant, 2005; Kogut and Zander, 1992). Accordingly, we can understand dynamic
capability as an outcome of innovation capability.

Perspective 3: innovation capability as a component of dynamic capability

Wang and Ahmed (2007) disaggregate dynamic capability into three components: first,
adaptive capability; second, absorptive capability; and third, innovation capability.
In their view, innovation capability is one of the components of dynamic capability and
therefore it is not one of the dynamic capabilities but a basic and essential component
of each dynamic capability. Helfat et al. (2007) present dynamic managerial capabilities.
If innovation capability is a component of dynamic capability, then it is also a
component of managerial dynamic capability. Consequently, is managerial capability
 also a part of innovation capability, considering the influential role of management Dynamic
commitment? Tidd and Bessant (2009) defined innovation capability as the composition capabilities vs.
of nine basic abilities, such as recognising opportunities, choosing as exploring and
selecting the best response or executing as monitoring, managing and controlling. innovation
Are these abilities not also a component of managerial capabilities? capability
Perspective 4: dynamic capability as a precondition for innovation capability 377
Rothaermel and Hess (2007, p. 917) argue that successfully built dynamic capabilities
are necessary to continuously innovation. Parashar and Singh (2005, p. 117) state that
innovation capability builds upon dynamic capability. Dynamic capabilities facilitate
them ability to adapt to change through innovation (Hill and Rothaermel, 2003).
Teece (2007, p. 1344) is clear that dynamic capabilities enable firms to successfully
innovate. In that light, we assume dynamic capability is a precondition or basis for
innovation capability.

Perspective 5: innovation capability is not a dynamic capability

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Tidd and Bessant (2009, p. 591) state that innovation capability has to be constantly
adjusted and developed, and that dynamic capabilities allow this to happen. Dynamic
capability then operates on innovation capability, which implies that innovation
capability is not a dynamic capability, although it could be a substantive capability.
As we have seen from the previous definitions, dynamic capabilities are affected by
and operate on substantive capabilities. Moreover, learning processes have a direct
impact on substantive capabilities (Zahra et al., 2006, p. 926); hence, innovation
capability is a result of learning processes.

Perspective 6: innovation capability as a synonym for dynamic capability

Zott (2003, p. 120) points out that dynamic capabilities manipulate the resources and
capabilities that directly engender rents, a main purpose of innovation capabilities.
Collis (1994) distinguishes four levels of capabilities. The last category or fourth level
is a higher-order or meta-capability which relates to the learning-to-learn capability to
innovate faster and better. The highest level of hierarchy is dynamic capability, which
is related to the learning-to learn capability that enables innovation. As previously
mentioned, learning lies at the heart of innovation capability and thus innovation
capability is a dynamic capability and, if we simplify, it could be a synonym. Wang and
Ahmed (2007) argue that a firms innovative capability is a critical factor in the firms
evolution and survival in todays changing environment. In addition, Teece (2007)
explain that if a firm lacks dynamic capabilities it could make a competitive return.
Lawson and Samson (2001, 380) define innovation capability as a higher-order
integration capability, that is, the ability to mould and manage multiple capabilities.
Winter (2003) states that dynamic capability is a high-order capability that operates to
extend, modify or create ordinary capabilities, which is in line with Helfat et als. (2007)
definition that dynamic capabilities create, modify and extend other capabilities,
including themselves. Hence, if innovation capability and dynamic capability are both
higher-order capabilities and they both mould and manage other capabilities they are
in fact synonyms. The effect of innovation is to transform a firms inner capabilities,
making them more adaptive, able to learn and exploit new ideas, Maravelakis et al.
(2006, p. 283) state. Similarly, dynamic capabilities are oriented to the same objectives.
Moreover, according to the previous overview of common characteristics we noticed
that dynamic and innovation capabilities have much in common. However, the notion
 JSBED of innovation capability is older than the notion of dynamic capability. Perhaps we
21,3 are dealing with old wine in new bottles.
Based on the review of definitions of dynamic capabilities, we highlight the main
points and expressions that could be related to innovations such as new, creating
new, integrating, modifying, rapidly changing, change, etc. and modify the definitions
(insert innovation capability instead of dynamic capability) (Table III). The modified
378 definitions show that the notion of dynamic capability could be replaced with the
notion of innovation capability.

Summary and conclusion

In this paper, we have provided a systematic and critical review and comparison of
dynamic capabilities (a relatively new approach in the field of strategic management)
with innovation capabilities (a widely recognised domain for sustained competitiveness).
We first focused on dynamic capabilities as new sources of competitive advantage.
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Main contributors Definitions

Teece and Pisano (1994) Dynamic capabilities innovation capabilities are a subset of the
competences and capabilities allowing firms creating new products and
processes to respond to changing market environment
Teece et al. (1997) Dynamic capabilities innovation capabilities are the ability to integrate,
build and reconfigure internal and external competences to address
rapidly changing environment
Eisenhardt and Martin Dynamic capabilities innovation capabilities are processes that use
(2000) resources and integrate, reconfigure, gain and release resources to match
and create market change
Dynamic capabilities innovation capabilities are organisational and
strategic routines by which firm achieve new resource configurations as
markets emerge, collide, split, evolve and die
Zollo and Winter (2002) Dynamic capabilities innovation capabilities are learned and stable
pattern of collective activity through which systematically generates and
modifies its operating routines
Winter (2003) Dynamic capabilities innovation capabilities are those capabilities that
operate to extend, modify or create ordinary capabilities
Zahra et al. (2006) Dynamic capabilities innovation capabilities are abilities to reconfigure a
firms resources and routines in the manner appropriate by its principal
decision maker(s)
Helfat et al. (2007) Dynamic capabilities innovation capabilities are the capacity to
purposefully create, extend or modify its resource base
Wang and Ahmed (2007) Dynamic capabilities innovation capabilities are behavioural orientation
of the firm level to continuously integrate, reconfigure, renew and recreate
its resources and capabilities, focusing on upgrading and reconstructing
its core capabilities in line with dynamic, changing environment to obtain
and sustain a competitive advantage
Teece (2007) Dynamic capabilities innovation capabilities are the capacity that
(a) sense and shape opportunities and threats, (b) seize opportunities and
(c) maintain competitiveness through enhancing, combining, protecting
Table III. and reconfiguring intangible and tangible assets
Modification of the main Teece (2009) Dynamic capabilities innovation capabilities are the capability to (a) sense
definition of dynamic opportunities, (b) seize opportunities and (c) manage threats through
capabilities (based on combination, recombination and reconfiguring of assets inside and
the literature review) outside of the firms boundaries
 Many perspectives have been offered to address problems in developing a sustained Dynamic
competitive advantage. Since many of them have weaknesses in todays dynamic capabilities vs.
environment, new perspectives have emerged. The latest approach extending these
previous views is the DCV which has as its main premise the capacity to renew resources innovation
and capabilities to achieve congruence with a changing business environment. To better capability
understand the embedded nature of dynamic capabilities, the foundations of the selected
perspectives of DCV were presented along with some of the main ideas and typologies 379
of dynamic capabilities. Our review highlights the fact that DCV has received significant
attention in recent years but there is still much to be done and clarified in terms of both its
theoretical and empirical aspects.
Following the discussion of dynamic capabilities, the paper focused on innovation
capability. Since innovation is becoming a way of life, deploying innovation capability
is one of the most challenging aspects of management. Not surprisingly, the literature
on innovation is very broad, mainly inspired by the work of Joseph Schumpeter, and
yet it is rich with a variety of numerous perspectives. Our purpose was not to provide
the reader with a detailed overview but rather to focus on the main ideas and the
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relevance of innovation capability deployment. Since the DCV was built on Schumpeters
ideas, some parallels between dynamic capabilities and innovation capabilities could
be drawn. Our literature review revealed some interesting relationships between the
notion of innovation capability and the notion of dynamic capability. We analyzed these
relationships and introduced them through six perspectives. From the first perspective,
we suggest that innovation capability can be seen as one of many dynamic capabilities in
the firm. Our second perspective deals with the possibility of dynamic capability being
an outcome of innovation capability. From the third perspective, innovation capability
can be seen as one of many components of dynamic capability. The fourth perspective
highlights a dynamic capability as a precondition or basis for innovation capability.
The fifth perspective implies that innovation capability cannot be seen as a dynamic
capability since dynamic capability operates on innovation capability, indicating a
distinction between the two. And finally, the sixth perspective points out that there is no
difference between innovation and dynamic capability at all; they could even be seen as
synonyms. The paper presented the main definitions of dynamic capabilities and
highlighted the main points and expressions that can be related to innovation such as
new, creating, integrating, modifying, rapidly changing and change; these definitions
were then modified. The modified definitions show that the notion of dynamic capability
can be replaced with the notion of innovation capability. Specifically, we found that
the meaning does not change when considering innovation capabilities or dynamic
capabilities.
Our review of both fields indicates that while commonalities exist, there are also
some inconsistencies and even contradictions. Since the field of innovation is mainly
inspired by the work of Joseph Schumpeter, and further, that the DCV has been built
on Schumpeters ideas, the commonalities are to be expected. However, a range of
common characteristics that leads to the use of both notions interchangeably should be
developed. Since both areas address issues that are essential in todays environment,
future research should seek to clarify both concepts by undertaking some new research
that employs a new comprehensive, unambiguous framework that enables testing and
implementation. We suggest that scholars in both fields critically review our findings
and rethink how both fields (innovation capability and dynamic capability) can be
transformed to diminish any ambiguity. We believe that the main reason for inconsistency
arises from the fact that strategic management and innovation management scholars feel
 JSBED that both have developed different mainstreams and have not yet considered how they
21,3 can join their efforts. The notion of innovation capability is much older than the notion of
dynamic capability. In that light, the notion of having old wine in new bottles is quite
appropriate. The DCV can be seen as a new firm-based performance perspective
with quite an ambitious research agenda. However, without a clear foundation, the DCV
will just be a label. From a practitioners perspective, an integrated framework is needed
380 that will serve both fields rather than having a set of independent views disregarding
their many commonalities or discrepancies.

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About the authors

Dr Lidija Breznik received her PhD Degree from the University of Ljubljana, Faculty of
Economics. Her research focuses on strategic, innovation and information management. She has
gained valuable competencies through leading people and projects, working within different
business areas, and having international experiences. Being a practitioner enables her to look
beyond the boundaries trying to make a contribution to closing the gap between the theory and
practice.
Robert D. Hisrich is the Garvin Professor of Global Entrepreneurship and the Director of the
Global Entrepreneurship Center at the Thunderbird School of Global Management. He is also the
President of H&B Associates, a marketing and management consulting firm he founded.
Professor Hisrich received his BA from the DePauw University, his MBA and PhD Degrees from
the University of Cincinnati, and Honorary Doctorate Degrees from the Chuvash State University
 JSBED (Russia) and the University of Miskolc (Hungary). Prior to joining Thunderbird, Dr Hisrich held
the A. Malachi Mixon, III Chaired Professor of Entrepreneurial Studies at the Weatherhead
21,3 School of Management, Case Western Reserve University. Dr Hisrich was a Fulbright Professor
at the International Management Center in Budapest, Hungary in 1989. In 1990-1991 he was
again named a Fulbright Professor in Budapest at the Foundation for Small Enterprise Economic
Development, where he also held the Alexander Hamilton Chair in Entrepreneurship. He has
384 authored or co-authored 30 books and over 300 articles on entrepreneurship, international
business management and venture capital. Professor Robert D. Hisrich is the corresponding
author and can be contacted at: robert.hisrich@thunderbird.edu
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