Building Dynamic Capabilities: Innovation Driven By Individual, Firm, and Network Level Effects

Abstract

Following the dynamic capabilities perspective, we suggest that antecedents to innovation can be found at the individual, firm, and network level. Thus, we challenge two assumptions common in prior research: (1) that significant variance exists at the focal level of analysis, while other levels of analysis are assumed to be homogeneous, and (2) that the focal level of analysis is independent from other levels of analysis. Accordingly, we advance a set of hypotheses to simultaneously assess the direct effects of antecedents at the individual, firm, and network level on innovation output. We then investigate whether a firm’s antecedents to innovation lie across different levels. To accomplish this, we propose two competing interaction hypotheses. We juxtapose the hypothesis that the individual, firm, and network level antecedents to innovation are substitutes versus the proposition that these innovation mechanisms are complements. We test our multi-level theoretical model using an unusually comprehensive and detailed panel dataset that documents the innovation attempts of global pharmaceutical companies within biotechnology over a 22-year time period (1980-2001). We combine these data with direct field observations conducted prior to, during, and after the completion of the study. We find evidence that the antecedents to innovation lie across different levels of analysis and can have compensating or reinforcing effects on firm-level innovative output.