Exploring the Role of Innovation in the Relationship Between Strategic Response Capabilities and Firm Performance: How to Compete in the New Competitive Landscape?

Line Ettrich

Student thesis: Master thesis


The world in which companies operate today is becoming increasingly volatile, uncertain, complex and ambiguous, subjecting companies to an array of risks that threaten their viability in this new competitive landscape. Here, organizations that cling on to their traditional ways of operating will impede their ability to succeed, while those who embrace and respond to change will leverage their strategic response capabilities (SRC) and thrive against the odds. While the possession of such capabilities has become a prominent explanation for why companies are differentially effective at adapting to change, it is rarely tested empirically and often entails an implicit, yet important component of the firm’s adaptive journey - Innovation. Combined, the literature on SRC and innovation in the context of performance outcomes presents two important and seemingly intertwined adaptive processes that might explain how firms succeed in the new competitive landscape. Therefore, the purpose of this thesis is to explore the explicit linkage between SRC and performance outcomes, with a specific focus on the role played by innovation. The relationship is conceptualized by adopting the real options logic, as a theoretical bridge to combine these two concepts into one coherent framework. Building on these insights, two competing hypotheses are constructed, in which innovation takes a mediating and moderating role in its relationship to SRC and subsequent performance outcomes. The two models are tested based on a comprehensive sample of public US manufacturing firms across two consecutive 5-year time intervals ranging from 2010-2019, using OLS regression analyses. The study indicates that companies possessing effective SRC have the ability to exploit opportunities and deflect risky situations, leading to favorable return and risk outcomes. While the study reveals that innovation does indeed play a role within this relationship, the precise nature thereof remains inconclusive, as only moderate support is found for both investigated models across the two time periods. Additionally, innovation appears to be a much richer and more complex phenomenon than often assumed and can only be captured imperfectly when using accounting proxies such as R&D and organizational slack.

EducationsMSc in Management of Innovation and Business Development, (Graduate Programme) Final Thesis
Publication date2021
Number of pages120
SupervisorsTorben Juul Andersen