Abstract: Innovation capability of design enterprises is critical for innovation and development in the water resources and hydropower industry. A conceptual model is developed to investigate the causal relationships among innovation management, innovation atmosphere, innovation capability, and enterprise performance; and it is tested against empirical evidences from questionnaire survey, expert interview, and a case study. The results demonstrate that innovation management of a design enterprise can directly improve its innovation capability and also have an indirect effect on it via innovation atmosphere. Both effects are of equal importance. It is also showed that the innovation related variables have positive impact on the performance of a design enterprise, further verifying the key role of innovation in performance improvement. In addition to revealing the theoretical mechanism of innovation capability and performance of design enterprises, this study suggests practical management strategies that can provide help and guidance for improving innovation capability.

Key words: water resources and hydropower, innovation capability, design enterprise, innovation management, enterprise performance