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

TLDR

The study argues that innovation antecedents arise at individual, firm, and network levels, contesting the common assumptions of focal‑level dominance and independence across levels. The authors develop a multilevel model testing whether individual, firm, and network antecedents act as substitutes or complements, and evaluate it with a 22‑year panel of global pharmaceutical firms in biotechnology. Results show that antecedents at multiple levels influence innovation, with compensating or reinforcing effects on firm‑level output.

Abstract

Following the dynamic capabilities perspective, we suggest that antecedents to innovation can be found at the individual, firm, and network levels. Thus, we challenge two assumptions common in prior research: (1) that significant variance exists at the focal level of analysis, whereas 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 levels 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 multilevel theoretical model using an unusually comprehensive and detailed panel data set that documents the innovation attempts of global pharmaceutical companies within biotechnology over a 22-year time period (1980–2001). 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.