The ability to innovate is generally accepted as a critical success factor to growth and future performance of firms. Yet, this acceptance obscures a comprehensive perspective on how firms can influence their innovation capacity and resulting performance. This paper proposes a '3P'construct of innovation measurement that simultaneously considers the Posture, Propensity and Performance related to a firm's innovation capabilities. We propose and provide empirical support showing that robust measurement of the performance implications of innovation requires the consideration of input, throughput and output factors simultaneously. Single or more limited indicators do not offer the degree of fine-tuning to a firm's innovation system that managers require. Thus, we propose the development, and future research into contingent variations, of a Composite Innovation Index (CII). We further demonstrate its use in comparing innovators and allowing managers to design a firm's innovation system.

Research summary: Based on the RBV and dynamic capabilities, this study explains the relationship between alliance formation and the private (pre-IPO) entrepreneurial firm's market performance. Findings show that while alliance formation positively and significantly affects the market performance of venture-backed firms in the software industry, forming a comparatively large number of alliances hurts these firms' market valuations.Managerial summary: Entrepreneurial firms are better off entering a select number of strategic alliances and focusing on enhancing the outcomes of those select alliances as well as developing a dynamic alliance management capability. Such firms benefit most from establishing a moderate number of alliances rather than depending on a small number of alliances or becoming overwhelmed with a great number of alliances.

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