The major purpose of this study is to explore the effect of knowledge sourcing, knowledge management ability, and knowledge type on the firms' innovation performance. Extensive literature review was done to identify key dimensions of the research variables and to build up the research framework. Organizational learning theory was used to propose the research hypotheses. 500 questionnaires were issued and received 95 effective responses. The results indicate that firms' innovation performance is affected by knowledge sourcing and knowledge management ability. In addition, knowledge management ability and knowledge type have significant interaction effects with knowledge sourcing on the firms' innovation performance. Conclusions and suggestions were made for business practitioners and academic researchers.