Organisations are finding it increasingly more difficult to keep abreast with the pace of change. The continuous rise in the number of business opportunities and the increase in global competition require firms to combine internal and external learning processes to renew and reconfigure existing capabilities and knowledge to enable them to meet environmental demands and to innovate. This study aims to unravel the complex linkage between internal learning capacity and absorptive capacity and at exploring the joint effect of both knowledge generation processes on innovation capacity. This study also proposes innovation capacity as an antecedent of business performance. Using data from 952 industrial Spanish firms and the technique of structural equation modelling, we provide evidence on the joint effect of internal learning capacity and absorptive capacity on innovation capacity. We also show that innovation capacity acts as a catalyst for the effect of learning capacities on business performance.
Keywords: dynamic capacities, knowledge management, business performance, structural equation modelling