Industrial Marketing Management 40 (2011) 12201223

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Industrial Marketing Management

Capabilities, innovation and competitive advantage

Jay Weerawardena a,, Felix T. Mavondo b
a
Strategic Marketing, UQ Business School, The University of Queensland, Australia
b
Marketing, Department of Marketing, Monash University, Australia

a r t i c l e i n f o a b s t r a c t

Article history: This special issue was aimed at advancing the literature examining the role of capabilities in innovation-
Received 27 September 2011 based competitive strategy. Whilst the innovation literature has over the years moved away from its product
Accepted 12 October 2011 innovation pre-occupation to capture the role of other forms of innovation in value creation, the capability
Available online 10 November 2011
view has progressed from its rigid or static view to a dynamic view in an effort to capture market dyna-
mism. Despite the recent theoretical advancements the dynamic capability view still lacks a strong empirical
Keywords:
Dynamic capabilities
base. Contributors to the capability literature over the recent years have adopted multiple research methods
Technical and non-technical innovations to capture capabilities that include cross-sectional designs, case studies and longitudinal studies. Within this
Sustainable competitive advantage backdrop, the articles that were selected for this special issue covers both conceptual and empirical ap-
proaches to examine the relationship between capabilities and technical and non-technical innovations
and performance outcomes. This essay provides a future research agenda to advance this promising research
eld. It highlights the need for clearer conceptualizations and development of measures of dynamic capabil-
ities, environmental conditions that underpin the development of dynamic capabilities within the rm and
research into the much debated relationship between dynamic capabilities and competitive advantage and
organizational performance.
2011 Elsevier Inc. All rights reserved.

1. Introduction
Industrial Marketing Management with its combined practitioner and
academician interest has provided us an opportunity to assemble a suite
of papers on the topic Capabilities, innovation and competitive
advantage.
During the last decade, the capability-based view of competitive
strategy which evolved within the broader Resource Based View of
competitive strategy has emerged as a theoretical framework to ex-
plain heterogeneity in rm performance. In the early 1990s the
need to distinguish capabilities from resources to provide a better ex-
planation of >value creation paved the way for the capability-based
view of competitive strategy. However the limitations of a static or
rigid view of capabilities were soon the center of debate with the
contributors arguing that the marketing opportunities that can be
exploited will be limited by the assortment of capabilities at a rm's
disposal. In addition, questions began to be raised as to the value of
capabilities under rapidly changing environmental conditions. The
dynamic capabilities view of competitive strategy that has gained
prominence over the recent years had roots in this discussion. This
view argues that rms need to recongure the assortment of capabil-
ities to face the challenges presented by the fast changing business
Corresponding author. Tel.: + 61 7 3346 8093; fax: + 61 7 3346 8166.
E-mail addresses: j.weerawardena@business.uq.edu.au (J. Weerawardena),
Felix.Mavondo@monash.edu (F.T. Mavondo).
environment. However, the academic debate within the dynamic ca-
pability view on the conceptualization, measurement and the rela-
tionship between dynamic capabilities and rm performance is
taking time to reach a consensus. We observe that this research
stream in its infancy and however the debate is healthy. On the
other hand, the lack of a common denition and disagreement on
the effects of dynamic capabilities is holding back progress (Barreto,
2010; Helfat & Peteraf, 2009).
This special issue was motivated by the need to advance literature in
this promising eld of research and in particular to strengthen its em-
pirical foundation. Interestingly we nd the rigid view is still popular
among researchers particularly those pursuing empirical estimation
using cross-sectional designs (e.g. Knight & Cavusgil, 2004; Nasution &
Mavondo, 2008; Vorhies & Morgan, 2005) and a substantial number
of researchers using case study method (e.g. Sullivan Mort &
Weerawardena, 2006) to examine capabilities. The use of longitudinal
designs to explore dynamic capabilities has been limited (e.g.
Montealegre, 2002).
We sought papers for this Special Issue on topics ranging from con-
ceptualization and theoretical development to empirical advances,
using both qualitative and quantitative approaches. From 43 papers
we have assembled a suite of papers that ts with the Special Issue
theme. Overall, the papers that have been selected after a rigorous re-
view process have addressed a wide range of issues from capturing ca-
pabilities using qualitative designs, modeling of capabilities in the
innovation-based competitive strategy to test the theoretical relation-
ships using cross-sectional designs.

0019-8501/$ see front matter 2011 Elsevier Inc. All rights reserved.
doi:10.1016/j.indmarman.2011.10.012
 J. Weerawardena, F.T. Mavondo / Industrial Marketing Management 40 (2011) 12201223
Opening the Special Issue theme is a paper by Helen Perks and
Steve Moxey on Market-facing innovation networks: How lead
rms partition tasks, share resources and develop capabilities. The
paper focuses on market-facing innovation networks that are rooted
in the modular and integrated nature of product development. High
levels of product innovation activity are occurring through key
rms, leading and developing networks. These lead rms are general-
ly small and medium enterprises, traditionally tasked with business
to business distribution and commercialization activities. This study
enhances our understanding of how task partitioning and resource
sharing practices, are related to the nature and scope of capabilities
of lead rms within the context of market-facing innovation net-
works. Through a multiple case study methodology, the ndings
highlight the tension between managing on-going routine distribu-
tion activities and emergent networked product innovation activities.
In the contribution by Heiko Gebauer Exploring the contribution
of management innovation to the evolution of dynamic capabilities
the thrust is on how companies that nd innovative ways to manage
capabilities gain competitive advantages. The ndings from multiple
case studies of capital goods manufacturing companies suggest that
management innovation contributes to the development of dynamic
capabilities. The ndings lent support to the importance of sensing,
seizing, and reconguring as dynamic capabilities. Issues in manage-
ment innovation such as key change agents and utilization (motiva-
tion, invention, implementation, theorizing and labeling)
differentially contribute to sensing, seizing, and reconguring. The
conceptualization of dynamic capabilities from the perspective of
management innovation advances theory-building.
The contribution by Sandeep Salunke, Jay Weerawardena and
Janet McColl-Kennedy Towards a model of dynamic capabilities in
innovation-based competitive strategy: Insights from project-
oriented rms addresses the need for a unied model of service
innovation-based competitive strategy. The model, built on thirteen
in-depth interviews with CEOs of project-oriented service rms suggests
that entrepreneurial service rms pursuing innovation-based competi-
tive strategy build and nurture dynamic capabilities in client focused
learning, relational learning, episodic learning and resource combination.
The project oriented rm context has been chosen to address the need
for industry contexts that nurtures long term relationships between ser-
vice providers and customers to examine the much debated issue in the
literature as to whether positional advantages gained through service
innovation can be sustained.
Suellen Hogan, Geoffrey Soutar, Janet McColl-Kennedy and Jillian
Sweeney in Reconceptualizing professional service rm innovation
capability: Scale development address an important issue of devel-
oping measures through reconceptualization of the innovation capa-
bility construct within a knowledge-intensive service context. The
results of exploratory and conrmatory factor analyses highlight
the multi-dimensional nature of innovation capability within the
professional services context. The scale offers a new way to measure
innovation capability within professional service rms and high-
lights the need to move beyond a manufacturing mind-set. Natural-
ly, as with all scale development effort, there is need for further
testing in different contexts to establish the generalizability of the
measure.
Entrepreneurial orientation, exploitative and explorative capabil-
ities, and performance outcomes in export markets: A resource-based
approach, by Ana Lisboa and Dionysis Skarmeass focuses on the crit-
ical role played by technical and non-technical innovation in organi-
zational renewal in the global marketplace. The paper investigates
the role of market-related exploitative and explorative capabilities,
together with product development ones, in the context of exporting.
The paper explores how entrepreneurial orientation inuences perfor-
mance through exploitative and explorative capabilities. The results in-
dicate that entrepreneurial orientation is a precursor of exploitative and
explorative product development and overseas market-related
1221
capabilities. This study posits exploratory capabilities and overseas
market-related exploitative capabilities as dynamic capabilities that in-
uence new product differentiation and enhance market effectiveness.
Achieving superior innovation-based performance outcomes in
SMEs through innovation resource-capability complementarity by
Phyra Sok and Aron O'Cass focuses on the complementarity between
resources and capabilities and the effect on innovation-based perfor-
mance. The paper nds that innovation resource-capability comple-
mentarity drives innovation-based performance. The ndings also
suggest that rms that possess superior learning capability are willing
to question their operational processes and routines and make adjust-
ments following the feedback obtained from customers and channels;
thereby enhancing their abilities to develop more new products and
increase their speed in delivering products to the customers.
Csar Camisn and Ana Villar-Lpez in Non-technical innovation:
organizational memory and learning capabilities as antecedent fac-
tors with effects on sustained competitive advantage discuss the
role of organizational memory and learning capabilities as anteced-
ents to non-technical innovation i.e. organizational and marketing in-
novation and their effect on sustained competitive advantage. They
nd that both organizational memory and learning capabilities un-
derpin the development of organizational innovation and marketing
innovation which in turn signicantly inuences the achievement of
sustained competitive advantage.
Marketing capabilities and innovation-based strategies for environ-
mental sustainability: An exploratory investigation of B2B Firms by
Babu John Mariadoss, Patriya Tansuhaj and Nacef Mouri, investigates
an interesting emerging area across many disciplines: sustainability as
a source of competitive advantage and enhanced nancial performance
and the role of specic marketing capabilities. The paper examines these
relationships using case studies in the context of B2B rms. The paper
identies key marketing capabilities that tie together innovation-based
sustainability strategies, sustainable consumption behavior and rm
performance.
Aron O'Cass and Liem Viet Ngo in Winning through innovation and
marketing: lessons from Australia and Vietnam examines two func-
tional capabilities i.e. innovation and marketing in two economies at dif-
ferent stages of development. By taking into consideration
entrepreneurial orientation (EO) and market orientation (MO) they
nd that innovation capability and marketing capability mediate the ef-
fects of MO on marketplace performance and that the interaction of in-
novation and marketing capabilities signicantly inuence rms'
marketplace performance more than they do individually.
Whilst we believe that the Special Issue has been able contribute
to advance this promising stream of research we observe that a sub-
stantial number of issues remain to be addressed. This may not be
limited to but may include the following aspects which require further
investigation.
2. Conceptualization and measurement of dynamic capabilities
The capacity an enterprise has to create, adjust, hone and if neces-
sary, replace its business model is foundational to dynamic capabili-
ties and researchers have alternately dened dynamic capabilities as
a capacity to build, integrate and recongure (Teece, Pisano, &
Shuen, 1997); integrate, recongure, gain and release, and match en-
vironmental change (Eisenhardt & Martin, 2000), generate and mod-
ify (Zollo & Winter, 2002) and create, extend and modify (Helfat et al.,
2007) organizational routines/resources. In a later advancement
Teece (2007) disaggregated dynamic capabilities into the capacity
to (a) sense and shape opportunities and threats, (b) seize opportuni-
ties, and (c) to maintain competitiveness through enhancing, com-
bining, protecting, and when necessary reconguring the business
enterprise's intangible and tangible assets. Whilst we observe that
these suggested processes have escaped empirical scrutiny they
may provide a basis for estimation of dynamic capabilities.
1222 J. Weerawardena, F.T. Mavondo / Industrial Marketing Management 40 (2011) 12201223
3. Environmental conditions and dynamic capabilities
Researchers within the eld of dynamic capabilities are divided
among those who conne dynamic capabilities to highly dynamic en-
vironments and those who accept that dynamic capabilities may be
required in all environments although they may be more relevant in
highly dynamic environments. Eisenhardt and Martin (2000) argue
that dynamic capabilities are important not only in high-velocity
markets but also in moderately dynamic markets, that is, those
where change occurs frequently, but along predictable and linear
paths. (p. 1110). In contrast, Zahra, Sapienza, and Davidsson
(2006) and Zollo and Winter (2002) point out that the volatility of
the environment should not be part of dynamic capabilities. This sug-
gests a need to design studies perhaps with objective measures of the
environment to investigate under what conditions dynamic capabilities
are or are not important.
4. Dynamic capabilities and competitive advantage relationship
A direct relationship between dynamic capabilities and a rm's value
creation and competitive advantage remains tenuous. Whilst there has
been a substantial debate on this issue there is emerging consensus that
dynamic capabilities may not directly lead to competitive advantage but
provide a foundation for competitive advantage through new resource
combination through the deployment of dynamic capabilities (Cepeda
& Vera, 2007; Eisenhardt & Martin, 2000). In an effort to avoid a possible
tautology associated with dynamic capabilities several authors propose
the need to differentiate dynamic capabilities from operational capabil-
ities (Zahra et al., 2006; Zollo & Winter, 2002). As such, the value of dy-
namic capabilities lies in the set, and its conguration, of operational
capabilities that they create (Eisenhardt & Martin, 2000; Helfat &
Peteraf, 2003; Zollo & Winter, 2002). Whilst this distinction has gained
wider acceptance (Cepeda & Vera, 2007; Helfat & Peteraf, 2003; Zahra &
George, 2002; Zahra et al., 2006) in the recent literature, research exam-
ining how dynamic capabilities interplay with operational capabilities
in a rm's primary value creation strategy is limited. In particular how
does this relationship enable rms to undertake different types of inno-
vation? In a B-to-B context, how do dynamic capabilities contribute to
build and nurture collaborative relationships with high-yield cus-
tomers? We believe this debate provides a fertile ground for empirical
investigation.
5. Research design issues
Perhaps one area where researchers can enrich the eld and ad-
vance knowledge is by undertaking longitudinal studies. This has a
major advantage in overcoming some of the weaknesses resulting
from cross sectional studies. This is potentially reward approach as
it addresses issues of cause and effect, overcomes common method
bias and can provide reliable ndings.
6. Capabilities, innovation types and competitive advantage
There is a general consensus in the literature that all types of innova-
tions can contribute to a rm's competitive advantage and a typology of
technical and non-technical innovation (Damanpour, 1991; Damanpour,
Szabat, & Evan, 1989; Han, Kim, & Srivastava, 1998) has gained wider ac-
ceptance in the literature. However, the innovation literature has pri-
marily focused on technical innovations, primarily in products. This is
particularly evident in the marketing literature and a growing number
of marketing academics suggests the need to examine synergistic effect
of both technical and non-technical innovation on rm performance
and competitive advantage (Han et al., 1998; Varadarajan &
Jayachandran, 1999). Whilst several contributors to this Special Issue
have addressed this issue this research direction may be a promising re-
search path to advance existing knowledge.
7. Capabilities and sources of sustainability of competitive
advantage
The competitors' inability to duplicate capabilities (Bharadwaj,
Varadarajan, & Fahy, 1993; Hayes, Gary, & Upton, 1996; Reed &
DeFillippi, 1990) or the capability differential on which competitive
strategy is founded (Coyne, 1986; Hall, 1993) is suggested as the key
source of sustainability of competitive advantages. We nd this area
has received less academic attention and provides a valuable direction
for further investigation.
It is to be hoped that this Special Issue stimulates further research.
We believe the foregoing themes may provide some directions for future
research. Overall, we observe that the theoretical domain of capabilities,
innovation and competitive advantage remains rich, and ripe, for further
and deeper investigation.
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 J. Weerawardena, F.T. Mavondo / Industrial Marketing Management 40 (2011) 12201223 1223

Jay Weerawardena is Associate Professor of Strategic Marketing, UQ Business School, The
University of Queensland. His primary research areas include dynamic capabilities and or-
ganizational innovation-based competitive strategy, organizational learning, entrepre-
neurship, social entrepreneurship and nonprot competitive strategy, new service
development and born global rm internationalization. Dr. Weerawardena has published
in several international journals including Journal of World Business, International Mar-
keting Review, Journal of Business Research, Journal of Strategic Marketing, European
Journal of Marketing and Industrial Marketing Management.
Felix Mavondo is Professor of Marketing, Monash University. His research interests are
RBV in Marketing, Relationship Marketing and Tourism Research. He has published in
these areas and supervised as sole or main supervisor for than 30 successful PhD in
these areas. Dr. Mavondo's teaching interests include research methods, data analysis
and strategic marketing. He has published in Journal of International Business Studies,
European Marketing Journal, International Marketing Review, Industrial Marketing
Management, Journal of Business Research, and Journal of Marketing Management
among many others.