When change is all around: How dynamic network capability and generative NPD learning shape a firm’s capacity for major innovation

Abstract How can firms shape their capacity to engage in major innovation when change is all around? Drawing on dynamic capability theory, we argue that a firm needs to be able to sense, seize, and transform network relationships for new product development (NPD). Referred to here as a “dynamic network capability,” this facilitates generative NPD learning, whereby the firm both (1) unlearns and (2) engages in exploratory new learning. In turn, we argue that generative NPD learning is strongly associated with a firm's capacity for major innovation. Our theorizing is supported by a study of 184 small‐ and medium‐sized, U.S. manufacturing firms. A moderated mediation analysis suggests that when external dynamism is high, generative NPD learning mediates the relationship between dynamic network capability and major innovation capacity. This indicates that the firm's ability to “relearn” is critical. This mediating effect is further strengthened when internal dynamism is also high. Our results provide empirical evidence that the higher‐order concept of a dynamic capability influences the reconfiguration of resources such as NPD knowledge. The findings also signal the combined influence of external (environmental) and internal (organizational) dynamism on this relationship.