Unleashing the power of innovation: How innovation capacity and product and process objectives drive competitive performance

Abstract

Research on innovation typically emphasizes resources and capabilities while overlooking the core role of innovation capacity. We investigate how firms’ innovation capacity translates into innovation and competitive performance, and whether product and process objectives shape these links. Using survey data from 238 indigenous Turkish firms and multinational subsidiaries and estimating a structural-equation model, we find that (1) innovation capacity strongly and positively predicts innovation performance; (2) innovation performance, in turn, enhances competitive performance; and (3) innovation performance partially mediates the effect of innovation capacity on competitive performance. To identify boundary conditions, we test whether strategic objectives condition these relationships. Product objectives, i.e., expanding product range, entering new markets, and increasing market share, significantly strengthen the link between innovation capacity and innovation performance, whereas process objectives aimed at efficiency gains do not materially alter that relationship. Robustness checks, including confirmatory factor analysis, slope and Johnson–Neyman probes of moderation, and bias-corrected bootstrapping of indirect effects, support these conclusions. This study foregrounds innovation capacity by modeling both mediation and moderation and clarifies when and how firms convert innovation investments into market-relevant outcomes in an emerging-economy context. Managerially, the results advise building and deliberately steering innovation capacity, aligning it with explicit product-oriented goals, and tracking innovation outputs as the conduit to superior competitive performance. Conceptually, the findings integrate dynamic capabilities and goal-setting perspectives, highlight objective-driven boundary conditions, and invite further longitudinal work on capacity–performance time lags and cross-national generalizability.