Influences of the Internal Capabilities of Firms on Their Innovation Performance: A Case Study Investigation in Brazil

Innovation has been identified as the inevitable outcome for the very survival of the firm. This is achieved through certain firm's capabilities. When it comes to innovation, most academic research has focused on technological capabilities as the sole source of innovation. On the other hand, there are others. The purpose of the investigation is to understand the determinants of innovation in firms, in other words, what causes some firms to be innovative and others not. We use four Brazilian cases in different sectors to exemplify and demonstrate that the firm's innovative performance is affected by four different types of internal capabilities: technology development, operations, management and transaction capabilities. The companies belong to four different industries: metalworking, electronics, footwear and beverage. Data was collected through a combination of visits, interviews and secondary data. The results show that, although the technological capability of a firm is an important component in the innovation process, it is insufficient in explaining how a firm turns internal invention into market transactions and consequently innovation. Furthermore, to exist, all firms must have developed a minimum level of each of the capabilities described, but the innovative performance of the firm is based on the predominance of at least one of them.IntroductionScholars recognize the importance of innovation for firm's success and survival. Success within this argument is typically achieved when firms possess or develop their technological capabilities (Lall, 1992, Bell and Pavitt, 1995). However, the idea that firms can rely mainly in its technological capabilities leaves some open questions in this research area such as: why aren't all firms that invest in technological capabilities considered to be innovative? Similarly, why other firms that do not invest so much in their technological capabilities appear to be more innovative than others that do? Moreover, if the firm is a function of innovation, what is the innovation function?The purpose of the paper is to better understand the determinants of innovation in firms. The answer to these questions may be found on different types of internal capabilities of the firm, other than the technological capability overlook. Advances that indicate innovation as a result of a range of complementary capabilities have already been conducted (Teece, 1986; Burgelman, 1994; Christensen, 1995; Guan and Ma, 2003; Yam, et al., 2011). However, further research is necessary to consolidate this theory.Based one transaction costs economics (Coase, 1937; Williamson, 1985) and the NeoSchumpeterian traditions (Penrose, 1959; Richardson, 1972; Nelson and Winter, 1982), we draw a model based in four inter-related capabilities which describe what the firm can do and how it seeks for change and innovation in order to guarantee its continuity over time. It is our assumption that, besides technological capability, one should also take into account operations, management and transaction capabilities to capture the innovative performance of the firm.Any existing firm must be, to some extent, able to: a) identify a market gap and develop the specific knowledge application (technology) to fill it; b) build an operational set of techniques and routines to produce the goods or service that will provide a recognizably valuable solution for this gap; c) guarantee that this operational set will efficiently produce the goods or service; and finally d) deliver it to market and achieve a successful business transaction.Within this framework, innovation can be identified as embedded in different capabilities such as the ability to absorb, adapt and transform a given technology into specific managerial, operational and transactional routines that can lead a firm to achieve Schumpeterian profits.The present ideas, framework and assumptions will be developed over four cases involving Brazilian industrial firms. …