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An executive summary for managers and executive readers can be found at the end of this article.
Introduction
To enhance breakthrough innovation, proponents of the resource-based view and the dynamic capability view suggest that firms should invest heavily in developing dynamic innovation capabilities ([29] Davenport et al. , 2006; [81] Song et al. , 2005; [83] Teece, 2007). Meanwhile, [18], [20] Chesbrough (2006, 2010) and [43] Gassmann et al. (2010) suggest that firms can use open innovation to produce radically new products.
However, the innovation literature is divided over whether dynamic innovation capabilities lead to breakthrough innovation (e.g. [5] Antikainen and Väätäjä, 2010; [78] Rosenkopf and Nerkar, 2001). For example, studies rooted in the absorptive capacity perspective suggest that dynamic innovation capabilities may foster greater breakthrough innovation ([78] Rosenkopf and Nerkar, 2001). When a firm builds its dynamic innovation capabilities, its absorptive capacity increases, and as a result it is encouraged to explore new information and eventually develop breakthrough innovation ([60] Lavie and Rosenkopf, 2006). However, studies rooted in organizational inertia theory ([49] Hannan and Freeman, 1984) suggest that dynamic innovation capabilities may discourage breakthrough innovation (e.g. [13] Benner and Tushman, 2003; [61] Levinthal and March, 1993). When firms accumulate more experience and become more efficient at using their existing knowledge, the self-reinforcing nature of learning produces more incremental innovation rather than breakthrough innovation ([13] Benner and Tushman, 2003). Thus, the relationship between dynamic innovation capabilities and breakthrough innovation remains unclear.
There are equally conflicting views regarding open innovation (e.g. [63] Lichtenthaler, 2011). Not all firms adopt open innovation activities because some firms prefer to have more control over the source breakthrough innovation and their relationships with innovation partners ([16] Cheng and Huizingh, 2010; [34] Di Benedetto, 2010; [63] Lichtenthaler, 2011). In addition, despite research on the effects of open innovation on innovation performance (e.g. [43] Gassmann et al. , 2010; [42] Gassmann and Zeschky, 2008), not all firms are successful adopting open innovation activities. For example, the direct cost of acquiring technology from third parties is often greater than the indirect value generated by having this technology. As a result, the net effect on firm performance is negative ([39] Faems et al. , 2009).
Our purpose therefore is to investigate the effect of dynamic...