From Organizational Resources to Incremental Innovation: Resource-Capability Alignment in Chinese Software and IT SMEs

Abstract

In highly dynamic technological environments, small and medium-sized enterprises (SMEs) face increasing pressure to achieve continuous innovation and sustainable growth under resource constraints. While prior research highlights the importance of organizational resources, the mechanisms through which these resources translate into innovation remain unclear. This study examines how different organizational resources drive incremental innovation through differentiated capability pathways. This investigation develops and tests a dual-path model that connects transformational leadership and agile organizational structure with incremental innovation through seizing and reconfiguring capabilities. Guided by the resource-based view and dynamic capabilities theory, survey data from 452 SMEs in China’s software and IT industry were analyzed using PLS-SEM. The results indicate that both transformational leadership and agile organizational structure have significant positive effects on incremental innovation. Furthermore, seizing capability and reconfiguring capability serve as partial mediators, revealing distinct capability pathways through which different organizational resources influence innovation. This study clarifies the mechanism linking organizational resources and innovation by advancing a resource-capability alignment perspective in a specific context. It suggests a specific resource-contingent pattern in dynamic capabilities of Chinese software and IT SMEs, highlighting how differentiated capability pathways shape incremental innovation and contribute to economic growth in software and IT SMEs.