Is Innovation Uniformly Good for Performance? The Mediating Role of Competitive Capability

There are many types of innovation used by companies along different dimensions. Here our focus is on innovation designed to improve the competitive capabilities of efficiency and responsiveness. We ask whether such innovation is uniformly good and find that it is not. We examine the mediating role of competitive capability to the innovation-performance relationship in both dimensions, and investigate how these associations differ with product characteristics. Our theoretical hypotheses are tested using firm-level data obtained from Statistics New Zealand. We find that innovation could be positively or negatively associated with firm performance, depending on the capability channel through which innovation affects performance. Specifically, innovation presents an overall negative association with performance in the efficiency dimension, and a positive association in the responsiveness dimension. While the mediation effects are generally supported, the hypothesized moderation effects are partially supported, which provides corroboration for the emerging notion of ambidexterity and combinative capability in strategic management. Overall, this work helps to understand how innovation can affect firm performance through its strategic focus and competitive capabilities in efficiency versus responsiveness, and enhances understanding of the role of innovation, efficiency, and responsiveness in improving firm performance