Studies on resource-based view research stressed on the uniqueness of firm resources and capabilities, however the proponents of RBV indicated that capabilities are not sufficient enough to sustain competitive advantage. Sources of competitive advantage solely lies on sets of unique and differentiated products, thus resources on their own alone are not sufficient to lead to competitive advantage. Research on organization capabilities today is quickly shifting their focus on how organizations can be able to develop new capabilities as a critical factor for competitive advantage. Resource based view theory explains how firms are able to gain competitive advantage by using resources available to them through reconfiguration in order to meet the rareness, valuable, inimitability. This can only be implemented by embracing innovation and employing distinctive competences in order to continually renew the capabilities. Therefore, organizations can build and renew their capabilities by reconfiguring their resources in order to attain competitive advantage. These capabilities can be developed in the context of organization resource allocations in a way that they cannot be imitated by competitors. Even though the resource-based view theory has provided valuable insights into sources of competitive advantage, little attention has been paid to the processes of resource creation which can be equated to innovation. In order to gain competitive advantage resources configuration can only be facilitated by innovation and use of distinctive competences which are the backbone for gaining competitive advantage. Existing literature indicates there is lack of integrated theoretical model on how innovation may be operationalized and utilized to renew the organization capabilities and thus creates competitive advantage. This paper proposes a theoretical model linking organization capabilities, innovation and competitive advantage by demonstrating the role of innovation competitive advantage. It is on this background that this theoretical paper seeks to identify the emerging theoretical and empirical gaps in the linkage between organization capabilities, innovation and competitive advantage. Recommendation is that future study should focus on the effect of human capital, innovation and competitive advantage.