Innovation Capability As Key to Competitive Advantage: Relation of Product Innovation Capability, Process Innovation Capability, and Firm Performance

Abstract

In the technological products and services market, which operates under rapidly changing market conditions and where competition is intense, firms need to offer well-developed innovative products and services to the market in order to maintain their existence in the long term. However, firms need to have a range of internal capabilities to produce these innovative products and services. The key for firms to keep up with the intense competitive environment and to achieve the firm performance, which is the ultimate goal of each firm, is possible with the presence of product innovation capability and process innovation capability, which are the two sub-dimensions of innovation capability. In our study, the relationships between product innovation capability and process innovation capability, which are the two sub-dimensions of innovation capability, and firm performance were examined. The combination of product and process innovation capability plays a critical role in the success of firms. At this point, the complementary feature that exists between both abilities gains importance. The research was conducted with 220 questionnaires collected from the middle/senior managers of 120 firms operating in the field of technology. The data were analyzed by partial least squares method in SmartPls4 program. The results reveal that product innovation capability and process innovation capability have a positive impact on firms' performance.