INNOVATION AND DYNAMIC CAPABILITIES OF THE FIRM: DEFINING AN ASSESSMENT MODEL

Innovation and dynamic capabilities have gained considerable attention in both academia and practice. While one of the oldest inquiries in economic and strategy literature involves understanding the features that drive business success and a firm’s perpetuity, the literature still lacks a comprehensive model of innovation and dynamic capabilities. This study presents a model that assesses firms’ innovation and dynamic capabilities perspectives based on four essential capabilities: development, operations, management, and transaction capabilities. Data from a survey of 1,107 Brazilian manufacturing firms were used for empirical testing and discussion of the dynamic capabilities framework. Regression and factor analyses validated the model; we discuss the results, contrasting with the dynamic capabilities’ framework. Operations Capability is the least dynamic of all capabilities, with the least influence on innovation. This reinforces the notion that operations capabilities as “ordinary capabilities,” whereas management, development, and transaction capabilities better explain firms’ dynamics and innovation.


INTRODUCTION
One of the oldest inquiries in economic and strategic management literature involves understanding the features that drive business success and a firm's perpetuity. Strategic management literature has progressed, moving from approaches based on industrial organization analyses (Bain, 1956;Porter, 1985) to those based on distinctive and core competencies (Prahalad & Hamel, 1990;Snow & Hrebiniak, 1980) and resource-based perspectives, among others (Barney, 1991;Penrose, 1959;Wernerfelt, 1984). However, innovation and the role of the firm has gained considerable attention since the neo-Schumpeterian views of economic change (Nelson & Winter, 1982;Rosenberg, 1982) and Teece, Pisano, and Shuen's (1997) introduction of the dynamic capabilities concept. This is primarily because the nature of competitive advantage in fast-paced environments lies not only in the possession of specific, tangible assets (such as operational equipment and facilities), but in the firm's evolutionary ability to continuously redefine its technological and organizational boundaries and seize new market opportunities (Teece, 2007). The firm's capabilities, what Richardson (1972) called "knowledge, experience, and skills", are at the center of this process as well as the dynamic capabilities to "integrate, build and reconfigure internal and external resources/ competences to address and shape rapidly changing business environments" (Teece et al., 1997, p. 516).
While innovation may be the expected result of possessing dynamic capabilities, we still lack a comprehensive model that integrates dynamic capabilities and their effects on the firm's innovation performance. As expressed by Teece (2007), the concept of dynamic capabilities is: "[…] not designed to be comprehensive, but to integrate strategy and innovation literature and provide an umbrella framework to highlight the most critical capabilities management needs to sustain evolutionary and entrepreneurial fitness of the business enterprise" (p. 1322).
Nonetheless, the inability to design a comprehensive model raises important issues for research as to how to identify patterns of competitive innovation behaviors over time. Moreover, this undermines the possibility to build a coherent theory that follows specific testable hypotheses. Although Dynamic Capabilities and Strategic Management (Teece et al., 1997) is the most cited article in the Strategic Management Journal, it still faces strong criticism for still withstanding empirical tests and validation (Ambrosini & Bowman, 2009;Arend & Bromiley, 2009;Barreto, 2010). In fact, Eriksson (2014) notes that the tendency exists for qualitative research being conducted on dynamic capabilities, rather than quantitative, due to the complexity of the process.
This study aims to assess and undertake empirical testing and discussion of the dynamic capabilities framework and its relationship to innovation. We argue that it is necessary to identify and model the capabilities that actually drive firms' innovation performance in order to link dynamic capabilities to innovation. Therefore, dynamic capabilities underline the firm's innovation capabilities.
We do so by presenting the building blocks, assumptions, and validity of the firm's capability-based model, as developed by Zawislak, Alves, Tello-Gamarra, Barbieux, and Reichert (2012).
This perspective posits that the firm functions based on four essential capabilities: development, operations, management, and transaction. These four capabilities broadly exist in any firm, although they vary in content, allowing firms to differ and develop their own paths (Nelson, 1991). Therefore, a general innovation capability model based on these four main capabilities facilitates the operationalization and measurement of their impact on innovation. We assume that these capabilities are dynamic in nature, and vary in their intensity over innovation.
After defining the theoretical model, 1,107 Brazilian manufacturing firms were surveyed. Innovation measurements should consider how these internal capabilities contribute to the firm's innovation performance.

Linking the firm's innovation and dynamic capabilities
Dynamic capabilities are a research field that seeks to understand why one firm outperforms another. Teece et al. (1997) propose a framework to capture how any firm entrepreneurially manages its different resources to outperform the competition. The authors' classically define dynamic capabilities as "the ability to integrate, build and reconfigure internal and external resources/ competences to address and shape rapidly changing business environments" (Teece et al., 1997).
According to Winter (2003), dynamic capabilities enable the firm to operate, extend, modify, and create ordinary abilities.
Moreover, they can change the firm's resource base to obtain a sustainable competitive advantage (Ambrosini & Bowman, 2009;Helfat et al., 2007). Innovation in this sense seems to originate as a logical positive outcome from the possession of dynamic capabilities; from this point of view, dynamic capabilities should be perceived as innovation-driven. However, this conceptual link is not explicit, as Barreto (2010)

In search of an innovation and dynamic capabilities' model
We design a comprehensive model of firms' innovation and dynamic capabilities by first defining the firm as technological set of products and processes that operates under a specific business model to transact with and profit from the market. This is, in other words, a pool of knowledge, assets, and capabilities that must be orchestrated to fulfill specific market gaps. In this sense, and underlying any business activity, a certain set of general capabilities exists that must be assembled to address technoeconomic problems.
According to Dosi et al. (2000), dynamic capabilities cannot simply be built by sole investment in research and development (R&D). As the competitive pace quickens, coordination between R&D and the firm's other functions, as well as with suppliers and alliance partners, is increasingly essential to identify and link technological options to market opportunities (Dosi et al., 2000).
This highlights the importance of coordination and transaction capabilities as complements to technological capability . If technological capabilities emphasize R&D and operations, then dynamic capabilities highlight the importance of management and strategy (Dutrénit, 2000). Technology as the application knowledge into products and processes can only be successfully accomplished if firms can make it economically feasible. Therefore, firms should discover a balance between their technological and organizational capabilities to make business possible.

The innovation capabilities model
As previously discussed, the firm is viewed as a technological set of product and process that operates under a specific business model to transact with and profit from the market.
Therefore, every firm to some extent has the following general capabilities: development, operations, management, and transaction ( Figure 1). These cover the key aspects underlying any firm's existence.   (Bell & Pavitt, 1995;Lall, 1992), which emphasizes firms' need to develop capabilities not only to generate and manage technical change (i.e., development), but also to use technology (i.e., operations).
Development capability (DC) is the ability to sense technological options and decipher novel market solutions by scanning, creating, learning, and interpreting different signals. This knowledge must then be translated to a specific operations capability with processes and routines (Nelson & Winter, 1982).
Further, DC enables the firm to develop and change, but to do so, firms must first absorb and internalize new knowledge to be applied in new processes and products. This requires efficient search routines and the ability to change, create, and recreate operations, which Teece (2007) notes is a dynamic capability.
Technology development results in new products and processes, established in a firm's new technical and operational standards.
However, it is insufficient to merely develop new products, as these products should reach the market with quality and within a competitive price range. This can only be achieved through the operations capability (OC). Every firm has a certain operations level that arises from the selection of competitive priorities to exploit low costs, quality, delivery times, responsiveness, and flexibility (Hayes & Pisano, 1994;Skinner, 1969;Wu, Melnyk, & Flynn, 2010). Moreover, Lall (1992) mentions such activities as quality control, preventative maintenance, and workflow and inventory controls, among others. These often compound into a set of operational "best practices" to guarantee a smooth flow of solutions from development to delivery across a firm's value chain.
However, while important, OC is not often considered a dynamic capability. Teece (2007) argues that the adoption of "best practices" is not likely to be a dynamic capability, and especially if other firms widely adopt them. These may be characterized as "ordinary capabilities" (Winter, 2003). According to Ward, McCreery, Ritzman, and Sharma (1998), operations are concerned with the degree of product standardization, size of the product mix, and the volumes required; as well as production lead-time and the ability to attend to the market's required technological innovation. Once operations are heavily routine-based, their traits may create barriers to imitation, thus becoming potential sources of competitive advantage (Wu et al., 2010). Nevertheless, we separate these from development.
Every firm needs a business driver (management and transaction capabilities) to transport technical solutions to the market following the lead of the technological driver, in which only DC and OC are collectively responsible for offering technical solutions to potential markets. This driver decides what the firm will efficiently conduct in-house, and what it will outsource to the market, from both its supplier and clients. If technology gives the firm a path, business gives it a reason.
The firm must guarantee that the right things will "get done," and therefore, should have the specific ability to coordinate assets and activities; management capability (MC) is responsible for this task. Trott (2008) argues that "the task of all managers is to improve their operations-otherwise they are supervisors and do not justify their job title" (p. 119). If capabilities can be explained by a set of routines embedded in applied knowledge (technology), MC requires a more generalist repertoire to act through choice and decision where technology fails to have a perfect routine. Management's capabilities require a wide range of skills, which should be flexibly applied in problem-solving to cope with various and often unpredictable circumstances (Langlois, 2003). From strategic decision-making to resource allocation, and through system integration, HR management, and accounting and finance issues, MC internally coordinates the firm. Nonetheless, management must be constantly aware of the process of change to dynamically adjust the organization to the firm's needs without falling into excessive control that may stifles change (Pufal, Zawislak, Alves, & Tello-Gamarra, 2014).
Finally, the firm must bring to the market whatever it develops, operates, and manages in order to generate economic value. Thus, once a firm has developed a technological solution, it must do anything for favorable transaction and sales. As every firm uses, manages, and operates a given technology with the explicit goal of obtaining positive economic returns, it should have specific capabilities to actually trade its products.
Outsourcing, customer relationships, negotiations and contracting, marketing and branding, and logistics and delivery, among others, compound the set of specific skills, routines, and systems to trade. Profiting from innovation involves finding the sources of complementary assets and channels necessary to bring technological development to the market (Teece, 1986).
Additionally, there exists a moderating role between R&D and marketing capabilities to firm performance (Kotabe et al. 2002).
Firms exist as they can figure out ways of bringing valuable solutions more efficiently than what can be found in market. In this sense, they must continuously scan for information in the market and search for ways to reduce transactions costs (Coase, 1937;Williamson, 1985). These activities are collectively referred to as the transaction capability (TC).
ISSN 0034-7590 FORUM | Innovation and dynamic capabilities of the firm: Defining an assessment model The way a firm combines and uses these different capabilities allow it to go beyond the simple application of "best practices" or "doing things right", to dynamically scan and decide over new combinations of knowledge and assets to bring novelty to the markets. In order words, innovation capabilities as dynamic capabilities are about "doing the right things" (Teece, 2014).

Innovation capabilities' measures
Each capability (DC, OC, MC, TC) has a standardized coefficient (respectively, β1, β2, β3, and β4). This combination of coefficients will precisely determine the arrangement of capabilities and, for the purpose of determining the role of these dynamic capabilities, the relative importance of each.
Exhibit 1 illustrates this study's definitions and proposed measures to understand how different firms cope with the challenges in perpetuating themselves over time.

METHODOLOGICAL PROCEDURES
This study seeks to test and to explain which firm capabilities are dynamic and relate to innovation. A factor analysis was performed to validate the instrument and construct. The hypothesis, which states that innovation depends on capabilities, was tested through a regression analysis.

Sample and procedures
This study proposes an assessment model of both innovation and dynamic capabilities. We test this model by using a database Brazilian manufacturing firms are generally from low-tech intensity sectors, as Table 1 illustrates; approximately 75% are considered low or medium-low intensive. Approximately 90% of the sample firms are characterized as small, and 89% are family managed, with 83% focused on operations, and thus, on costbased strategies (NITEC, 2015). In this context, these firms react in terms of both new product development and market requirements (Reichert, Camboim, & Zawislak, 2015 DC1. Ability to design its own products DC2. Monitoring of latest tendencies in technology in the sector DC3. Use of formal product management methods (Stage-Gate, PMBOK, innovational funnel, etc.) DC4. Ability to adapt the technology in use to its own needs DC5. Ability to prototype of own products DC6. Development of products in partnerships with science and technology institutions DC7. Ability to launches its own products Lall (1992); Bell and Pavitt (1995); Saphia et al. (2016); Teece et al. (1997); Teece (2007). Teece et al. (1997) comment regarding the observation of rate and direction, which relevant scientific frontiers are pointing to, and how the firm can learn and reconfigure its technological path. The dynamic capability framework emphasizes the ability to sense technological and market opportunities by "scanning, creating, learning, and interpreting" technological and market signals (Teece, 2007).

Operations capability (OC)
The ability to perform to the given productive capacity through the collection of daily routines that are embedded in knowledge, skills, and technical systems at a given time.
OC1. Use of formalizes PPC procedures OC2. Use of statistical control of processes OC3. Use of leading edge technology in the sector OC4. Ability to maintain of adequate stock of materials for processes OC5. Ability to conduct the production process as programmed OC6. Ability to establishment production routines that do not generate rework OC7. Ability to promptly deliver the product OC8. Ability to manage the expansion of the installed capacity whenever necessary OC9. Ability to ensure the process does not lead to products' return Hayes and Pisano (1994); Ward et al. (1998);Skinner (1969); Teece et al. (1997); Teece (2007). Teece et al. (1997) describe factors of production and resources, and routines and processes as elements of the framework; however, in a globalized economy this may not necessarily be conducted inside the same firm that developed the solutions. Operations are heavily routine-based, and are often not considered a dynamic capability. As Teece (2007) argues, the adoption of "best practices" are not likely a dynamic capability, and especially if they are widely adopted by other firms.

Management capability (MC)
The firm's ability to transform the technological outcome into a coherent operational and transactional arrangement.  Teece et al. (1997) perceive management as playing three roles: coordination and integration (static), learning (dynamic), and reconfiguration (organization and managerial processes). Eisenhardt and Martin (2000) view dynamic capabilities as essentially organizational processes. Teece (2007) observes that management is important dynamic capability in the task of identifying, developing, and utilizing a combination of specialized and co-specialized assets, whether built or bought. Teece (2007) calls for entrepreneurial management.

Transaction capability (TC)
The ability to reduce marketing, outsourcing, bargaining, logistics, and delivering costs; in other words, transactional costs.
TC1. Conduction of formal research to monitor the market TC2. Ability to impose its negotiating terms on its suppliers TC3. Ability to impose its prices on the market TC4. Ability to impose its negotiating terms on its customers TC5. Conduction of research to measure its customers' satisfaction TC6. Use of formal criteria to select its suppliers A key aspect to define firms' position involves deciding where to position organizational boundaries. Market structures continuously change; therefore, the task of positioning is dynamic. Reputational assets must be built and strengthened, which contributes to market power (Teece, et. al. 1997;Teece, 2007).

Innovation performance (IP)
The new products, processes, equipment, organizational forms, and commercial market approaches that lead to extraordinary profits.
IP1. Growth in net profits over the last three years IP2. Growth in company's market share has over the last three years IP3. Growth in company's revenue over the last three years Schumpeter argues that innovation leads to extraordinary profits (or rents). Teece et al. (1997) asserts that dynamic capabilities seek the generation of Schumpeterian rents that come from innovation. "The goal of dynamic capabilities is to generate abnormal returns" (Teece, 2010, p. 692

Survey protocol
The survey instrument is a questionnaire written and applied in Portuguese, following Churchill's (1979)

Instrument validation, tests, and regression
First, we verified each of the five main constructs' internal consistency, as noted in  All coefficients were above the threshold values of 0.6 (ranging from 0 to 1) as suggested by Hair, Tatham, Anderson, and Black (2005) and Malhotra (2006), and 0.7 as suggested by Kline (1998)

Finding the boundaries within innovation capabilities
We verify and test the existence of the firms' different capabilities and their influence on innovation performance by first testing the presence of clear boundaries between capabilities using a factor analysis for construct validation. First, we performed a KMO test; values less than 0.5 would indicate weak correlations between the variables and result in an unsatisfactory factor analysis (Pestana & Gageiro, 2003). We have also performed Bartlett's test to identify the absence of correlations between the variables, and a communalities analysis, which measures the variance proportion of one variable to the others.
We verified the adequacy by using a factor analysis, and discovered a KMO = 0.905 for sampling adequacy, or a "very good" correlation according to Pestana and Gageiro (2003). The Bartlett's test results were significant (p < 0.001), indicating that the data is fit for a factor analysis. We could then conduct the factor analysis, and to obtain the final model, we first ran a factor analysis without restricting the number of factors. We then excluded variables that presented values less than 0.5, and tested whether the total variance explained increased. Finally, we used a component matrix Varimax rotation (Table 3). The final factors displayed a reduction of the number of variables in each construct, resulting in six variables for the DC construct, five for the MC, five for the OC, and four for the TC. The final instrument revealed a cumulative total variance explained for the four factors at 57.89%, which is considered an acceptable result as it approximates 60% (Malhotra, 2006). All variables exhibited high standardized loadings (i.e., > 0.5). The internal consistency was again confirmed, and Table 4 illustrates the results. It can be noted that the Cronbach's alpha coefficient has slightly decreased, but the total variance explained has increased. The factor analysis confirmed the existence of an innovation capability model based on the firms' four capabilities: DC, OC, MC, and TC. We performed a factor analysis to generate the independent factors to perform a regression analysis using IP.
Generating the independent variables through a factor analysis allows for constructs that are not correlated.

Influence of innovation and dynamic capabilities on the firm's innovation performance
Multiple regression analysis was conducted with the purpose of investigating the impact of the capabilities of the firm on its IP (Table 5).
Using a stepwise regression, the model's level of explanation is represented by the coefficient of the determinant R 2 , which is a measure of adjustment for the regression line, namely, the proportion of the variation in the dependent variable explained by the set of explanatory variables.
The adjusted R 2 for the innovation capability model was 0.232. Social science studies consider this value for the adjusted R 2 as acceptable (Hair et al., 2005;Malhotra, 2006). Other authors have presented innovation capabilities models with R 2 values less than 0.210 (Guan & Ma, 2003;Yam, Guan, Pun, & Tang, 2004 This result also suggests that other factors exist, such as the existing institutional framework, an ongoing environmental context, and the sectoral technological base, which will affect firms' IP. However, ceteris paribus for all firms in a given sector and market, any firm really must develop the four internal capabilities to be innovative.
The MC has the highest impact over the IP and thus the dynamics of the firms in our sample, followed by DC, then TC.
The OC is the capability with the lowest beta value. It may be noteworthy to mention the OC's role in these firms before we explore these other results. As the OC has the lowest impact, we reaffirm some of the main characteristics of Brazilian firms, specifically, based in low-tech, and having an operational drive (Reichert et al., 2015). Most, in other words, operate mature technologies that have already achieved sufficient efficiency, and apparently do not need further innovation. Therefore, it is not the OC that will differentiate one firm from another in this context. While OC is an ordinary capability, the MC, DC, and TC define the firm's dynamic capabilities.

Linking innovation and dynamic capabilities
While economic and business literature widely discusses innovation as a main source of firms' long-term competitive advantage, a challenge remains in creating a model that accounts for the innovative firm's main features. The consensus seems to be that innovation is a result of the firm's capabilities to handle and influence constantly changing environment (Teece et al., 1997), which changes its resource base (Helfat et al., 2007). However, the dynamic capabilities framework as a theory often receives criticism for not offering an empirical model that can be tested (Ambrosini & Bowman, 2009;Arend & Bromiley, 2009;Barreto, 2010). Teece (2007) further notes the ambition in the dynamic capabilities framework "[…] is nothing less than to explain the sources of enterprise-level competitive advantage over time, and provide guidance to managers for avoiding the zero profit condition that results when homogeneous firms compete in perfectly competitive markets" (p. 1320).
We have advanced by building and testing a capabilitybased assessment model to verify the predictions theoretically expressed by the dynamic capabilities framework. Moreover, our model indicates how dynamic capabilities actually correlate to higher levels of innovative performance. Prior theory has posed that these capabilities are composed of many activities, and our results present the activities that were most relevant in terms of their impact on firms' innovation performance.
The DC is a result of processes put in place in the firm, which allows it to develop new products and even new technology. These activities include prototyping products, the firm's launching and designing its own products, monitoring the latest technological trends, using such formal project management tools as Stage-Gate or PMBOK, and adapting existing technologies to the firm's own needs. This is a dynamic capability by nature, as it corresponds to the activities that involve sensing new technological and market opportunities and developing solutions for this market (Pisano, 2000;Teece, 2007;Teece et al., 1997). When the activities from these capabilities are regressed against our measures of IP, these place second in terms of its influence on innovation.
When we observe the OC and its influence on firms' IP, the results indicated very little influence. This leads to the conclusion that its main focus is efficiency, as this capability is highly based on routine activities. As Teece (2007) notes, other firms may widely adopt these capabilities as "best practices," and they are unlikely to be considered dynamic capabilities. Helfat and Peteraf (2003) and Winter (2003) classify these as "ordinary capabilities." The OC was also less relevant in a complementary study on innovation capabilities, which focused on low-tech firms (Reichert, Torugsa, Zawislak, & Arundel, 2016).
Our results showed that MC most influences the IP of the firms in our sample. According to Teece et al. (1997), when it focuses on coordination and integration, this capability seems to have a primarily static function of "putting things in order" by keeping its business model current, implementing management tools, or using modern financial techniques, among other functions. However, the MC is regarded as a dynamic capability when involved in the task of "finding methods and procedures to peer through the fog of uncertainty and gain insight" (Teece, 2007(Teece, , p. 1326. Moreover, management's ability to identify, develop, and utilize a combination of built or bought specialized and co-specialized assets is an important dynamic capability, but it is not always present in enterprise settings (Teece, 2007(Teece, , p. 1338. Teece (2007) calls for entrepreneurial management to face the challenge of overcoming the efficiency paradox through coordination and dynamics. The MC in our results to some extent counterintuitively presented the highest influence over innovation performance, which corroborates the premises found in the dynamic capabilities framework.
Finally, the ability to organize and decide firms' boundaries enters our model under the firm's TC. Theses have implied the market power in a giving firm, and its ability to impose its conditions on the market, such as prices and negotiation conditions to both clients and suppliers. The innovative firm is one with this type of market power, and gains Schumpeterian rents by creating and sustaining a unique position. This is also a dynamic capability; Teece et al. (1997) stresses that in globalized markets, the ability to orchestrate internal and external co-specialized assets and build valuable intangible ones, such as reputational assets, is another key firm feature to create and sustain competitive advantage.
Our study shows that development, management and transaction capabilities are the dynamic capabilities for innovation, and one should expect to find a higher impact than operations capabilities. Development, management and transaction capabilities encompass the capabilities needed to "do the right things" rather than the simple pursuit of "doing things right" (Teece, 2014). These efforts will depend much more on an existing set of products and how they are orchestrated into the market, than on operations itself, as regular operations based on predictable routines tend to reach for stability rather than dynamics and change.

FINAL REMARKS
Our findings offer an empirical assessment model that tests firms' dynamic capabilities and, therefore, better explains the sources of enterprise-level competitive advantage over time, to meet Teece's (2007) expectations. This is accomplished through a firm innovation capability model, as proposed by Zawislak et al. (2012) and Zawislak, Alves, Tello-Gamarra, Barbieux, and Reichert (2013 This model discovers important convergences that empirically support the theoretical assertions of the dynamic capabilities framework proposed by Teece et al. (1997). As dynamic capabilities are invisible and difficult to measure, this research provides some evidence of their existence. Moreover, it is a first step toward a comprehensive model of firms' innovation and dynamic capabilities. If we seek a more general explanation of the innovative firm's successes and failures, we must be able to discover the patterns of innovative activity throughout its innovation capabilities.
Our results demonstrated that the model's four capabilities do impact firms' innovative performance at different levels. OC appears to be the least dynamic of all with non-significant influence over innovation. This reinforces the notion that operations capabilities are actually "ordinary capabilities" (Teece, 2007;Winter, 2003). These are a sort of minimum competitiveness capabilities which are routine-based and less dynamic. One may perceive OC as a means to operationalize industry standards for any given firm. Nevertheless, the firm must rely on the other three capabilities in order to bring about economic value from a given operation.
The MC presented the highest impact on firms' IP, which pairs with the higher emphasis given to entrepreneurial and managerial activities in the dynamic capabilities framework. Some firms may follow MC as the leading, main driver for innovation when they perform efficiently through the MC's integration and coordination innovations.
Amid these capabilities, DC and TC provide a final touch on the firms' innovation profiles. Some firms, and generally hightech ones, may focus more on R&D and product development; therefore, they mainly innovate through their DC. Other firms, and normally those more attached to final markets, innovate through different combinations of transactional relations and innovate through their TC.
While our model attempts to find some patterns of capability behavior, this does not mean that all firms will perform these capabilities in the same manner or intensity. As noted by Nelson (1991) firms are inexorably different because of the internal knowledge that underlies its own set of routines and capabilities.
However, by defining a broader scope of the relevant clusters of knowledge and capabilities need under what we called development, operations, management and transaction capabilities, one could attempt an "innovation and dynamic capabilities recipe" to predict and prescribe possible paths of innovation of given firms.
If, on the one hand, companies should search for and keep minimum levels of technical and operational structure and capability to perform the best practices possible, on the other, best practices will not cause substantial change and performance, as they exist to be followed. Innovation and dynamic capabilities are "higher order" capabilities (Wang & Ahmed, 2007;Winter, 2003) responsible for creating the new standards and reshaping the competitive environment for others to follow. This can offer some explanation as to the competitiveness in firms and countries.
Innovation primarily depends on the other three dynamic capabilities: the development, management, and transaction capabilities. These capabilities must constantly be nurtured and enhanced as the processes of "sensing, seizing and transforming" (Teece, 2007) occurs primarily through and across them in different levels. Our model helps to highlight and frame what are the dynamic capabilities needed to turn the internal and external novelty efforts into innovation.

LIMITATIONS AND FUTURE RESEARCH
This study has some limitations. While we proposed an assessment model based on four general capabilities we considered to be found in any firm, and were able test it relative to a Schumpeterian innovation-based economic performance, our results explain only 23.2% of the full phenomena, based on the R 2 obtained in our regressions. Thus, many other elements exist that influence firms' ability to be dynamic and to innovate. Some of these other factors, such as institutions, technological bases, and the market, are external to the firm, to a large extent.
Nevertheless, we isolated the capabilities and routines to understand the fundamental features of innovation and dynamic capabilities. As we observed several sectors, future studies could explore whether the configuration of capabilities and their relative importance for innovation may change across sectors. Finally, this model was conducted using Brazilian firms, which have peculiar industrial and dynamic features. Its replication in other industrial and organizational contexts may reveal different results and new insights.