Dynamic capabilities and organizational performance: The mediating role of innovation

Abstract

How firms' dynamic capabilities lead to their competitive advantage and improved firm performance has been a core issue and full of debates. In this research, we theorize that dynamic capabilities, which could be defined by three distinct dimensions (sensing capability, integration capability, and reconfiguration capability), facilitate different types of innovation that in turn improve firm performance. Based on a sample of 204 Chinese firms, results from partial least squares structural equation modeling analyses generally support our arguments despite some nuanced differences existing among different dimensions of dynamic capabilities. This study contributes to dynamic capabilities literature by reducing the scarcity of empirical research and by uncovering the mechanisms through which dynamic capabilities influence firm performance.