Today, innovation is crucial for sustainable competitive advantage. Firms need to be aware of their innovation capability and its progress over the time. Innovation capability is normally evaluated based on the output of innovation process (for example number of patents or number of new products launched to market). But, not all innovation is apt to be registered as a patent or could be the source of new product development. In the recent literature, Innovation capacity is defined as the ability of a firm to innovate which is not evaluated by the outputs of innovation process but founded on knowledge, skills and competencies embedded in this process and other related processes in the firm. Relying on Morel and Boly’s model, we have identified the determinants of innovation capacity at a firm level. A questionnaire has been also developed to evaluate these determinants. The validity and reliability of the instrument has been examined through a survey of 108 companies in industrial automation sector. Using exploratory factor analysis, five determinants of innovation capacity are identified: “Leadership of innovation activities and preparing appropriate environment”, “effective human resource management”, “well structured procedures and processes which facilitate intra and inter organizations’ communication”, “strategic management of knowledge” and “ability of new ideas generation and evaluation”.