Innovation and performance: The role of environmental dynamism on the success of innovation choices

Innovation has become the cornerstone for achieving competitive advantage and is currently one of the principal topics of debate in the management literature. Innovations can be internally generated or can be adopted from external sources. Innovations also vary in terms of degree of radicalness. In this study, we examine the nature of innovation (in terms of where it is generated and its degree of radicalness) and an external environmental factor (dynamism) to identify the types of innovation that are more likely to succeed in different environments. Organizations expend substantial financial and human resources innovating. While some innovations succeed in enhancing organizational performance, many fail and may affect performance adversely in the short term. A sample of 381 Spanish firms was used to analyze how organizations, in order to be competitive, need to identify the appropriate type of strategies - in terms of innovation generation versus adoption, and extent of radicalness - that are consistent with the environmental conditions that they operate in. First, we find that in dynamic environments, the more radical and internally generated the innovations, the higher the company's perceived and objective performance. Second, we find that in stable environments, the less radical and more internally generated the innovations, higher the company's objective performance. Implications for theory and practice are discussed.