The functioning of dynamic capabilities: explaining the role of organizational innovativeness and culture

Purpose - Using the knowledge-based view of the firm, dynamic capability literature and known dimensions of organizational innovativeness (OI), this article develops two testable models that attempt to explain: (1) how innovativeness functions as a source of capability dynamization and (2) how organizational culture (OC) critically determines this function of innovativeness. Design/methodology/approach - The study uses a cross-sectional design and maximum variation sampling to identify organizations from the population of formal Indian business firms with the aim of controlling the effects of moderating variables such as their size, age, nature of business and ownership. Measurement instruments are borrowed from the literature. The cleaned dataset (n = 453 cases from 13 organizations) is randomly split into two-halves, which are used separately for extracting and confirming underlying factors. Rigorous procedure for assessing scale psychometric properties has been followed. The hypotheses are tested using structural equation modelling (SEM). Findings - Except for a couple of paths that turned out insignificant, the data by and large support the study hypotheses. While market innovativeness failed to emerge as a factor, the capability dynamizing dimensions of innovativeness significantly predict its outcome dimensions of product and process innovativeness. Barring the effect of “trust”, they also fully mediate the effect of the rest of the culture factors on these outcome dimensions. Importantly, they are substantively determined by the culture factors, suggesting that the capability dynamizing dimensions are embedded in culture. Originality/value - The primary contribution of this study is that besides accounting for how firm innovativeness can possibly explain the dynamism in dynamic capabilities, the results indicate a critical influence of culture in determining the potency of the dynamizing mechanisms. This has important implications for theory and practice.