BUILDING INNOVATION-BASED COMPETITIVE ADVANTAGES FOR BUSINESSES IN THE KNOWLEDGE ECONOMY

Abstract

The article explores the role of innovations in enhancing business competitiveness. An emphasis is put on rapidly growing need for innovations in modern economic realia. It is argued that innovations are critical for raising enterprise capitalization, in particular, while business is expanding the effect from innovations is also increasing, thus spurring innovation processes within companies. The mechanism of innovation effects on company financial performance is mediated by the market which shapes competitive advantages. Accordingly, the specified mechanism for developing competitive advantages for businesses based on innovation is crucial for value creation. Given that in the knowledge economy environment the organizational learning has become a key driver for development, it is assumed that the organizational learning capability triggers its capacity to generate innovations which in turn contributes to gaining competitive edge and market success in the future. Accordingly, this study aims to determine the key components in the process of building competitive advantages based on innovation in the contemporary knowledge economy settings. In the frameworks of this study, an in-depth analysis of scholarly publications in the area of competitive advantage theory and innovation has been carried out. To attain the research objectives, the methods of analysis and synthesis were applied. A nexus that underpins the basis for developing a unified synthetic theory of innovation-based competitive advantages is the resource-based view (RBV) along with its derivative, the dynamic capability-based view (DCV). The study findings have identified a range of factors that have strong influence on creating competitive advantages for a company based on innovations in a knowledge economy. Among them are the following: firstly, entrepreneurship as a driving force for innovation, the search for new combinations of resources (combinatorial capacity) and further development of competitive advantages; secondly, organizational learning, which in terms of the dynamic capabilities theory could be interpreted as "learning capabilities" in such priority areas for an innovative business as: 1) learning capability based on comprehension of previous experience and using it to develop innovations; 2) the capability to learn in the process of interaction with key stakeholders (partners, suppliers, consumers, competitors) and implementation of ideas gleaned from such interaction to create innovations. The research results provide evidence that companies with effectively developed internal entrepreneurship practices and innovation policies as the key areas of their competitive strategy should also design and boost a set of dynamic capabilities (learning capabilities) that will contribute to enhancing innovative development and gaining sustainable competitive advantages in the future.