Purpose: In the current dynamic environment, technological capabilities and open innovation play vital roles in operational performance of small and medium enterprises (SMEs). Thus, the purpose of this paper is to explore the influence of technological capabilities on open innovation and consequent impact on perceived operational performance of the SMEs in Malaysia by considering the moderating effect of environmental dynamism. Design/methodology/approach: This study is quantitative in nature and used a survey questionnaire to gather responses from 202 SME owners in Malaysia. The data were analyzed with SmartPLS software, as it used structural equation modeling. Findings: The results show that technological capabilities significantly influence open innovation whereas open innovation plays an instrumental role to achieve operational performance of the SMEs. Interestingly, environmental dynamism was found to have a negative moderating role in the relationship between open innovation and perceived operational performance. Practical implications: This paper will assist SME managers in making effective decisions while using technological capabilities and open innovation practices. Managers need to be aware of the vital role of technological capabilities to build external and internal collaboration and incorporate their knowledge that is necessary for open innovation practices. The results also assist managers in a way that in the dynamic and competitive environment SMEs should take further proactive actions to compete in the market to survive. Originality/value: This study provides new insights by dismantling technological capabilities and open innovation to understand further the effects of technological capabilities on open innovation and its consequence on a firm’s operational performance.