If you take a resource-based view of organizations you will realize that they have both tangible and intangible resources and capabilities. A tangible resource could be Google’s or Amazon’s AWS server farms, an intangible one the patents they own, the algorithms they use, and the unique culture they maintain to keep top talent. A capability is the power or ability to do something, e.g. knowing how to rapidly test, pre-sell, and scale a new feature or product; or how to better onboard and train new hires for agility; or how to design and operate a radical organization structure like cell structure or micro enterprise design. In general business parlance resources are often considered as capabilities, too. One of the most valuable capabilities is the ability to capitalize on your resources, and your other strengths, in a way that is hard for competitors to copy. The better a company is at utilizing its hard-to-copy capabilities, the higher its likelihood will be of bringing competitive products and services to market, which is an indicator of its competitiveness (except maybe for monopolist or zombie organizations).
Innovation capabilities are therefore the set of established practices that influence the ability to continuously find, incubate, scale, and commercialize new business ideas and opportunities. This implies skills and knowledge, which is why we sometimes call this preparedness ‘innovation muscles’ that can be trained and kept alive in a learning organization. What’s more, innovation capabilities also describe a complex system of interdependent elements with interfaces to the core organization (sometimes institutionalized in the form of innovation vehicles), which need to be in place for innovation to happen. Attempts to pin down what these elements are varies widely between the (academic) authors trying to define innovation capabilities in more detail. Among others, and in no particular order, frequently mentioned options include: organizational structure and systems; managerial systems; ((un)learning) culture; leadership, governance and decision-making mechanisms; appropriate innovation metric systems; knowledge base and skills; strategy, values and norms; innovation risk management; external linkages and networks; etc .
In conclusion you might say that innovation capabilities are the opposite of culture hacks, as the latter won’t be needed if the former are in place. The best way to develop innovation capabilities is therefore to first anticipate or expose innovation barriers, and then collect and map them to the innovation processes and support systems (in the making). Then leadership can get creative on how to remove or overcome them. Your innovators will thank you.