In recent decades, policy effect on regional competitiveness is an on-going concern for policy makers and academics. We employed a capacity-capability-performance perspective to analyse the system dynamics of knowledge-based innovation process affecting regional competitiveness. This study identifies policy interventions that effectively contribute to the sustainable growth of Busan, a metropolitan city in Korea, as an example of the application of our perspective. The results indicate the importance of human resources rather than R&D expenditure. Further, shortening the lead time for knowledge commercialisation is a more effective strategy than for knowledge development, whereas a success rate adjustment is more effective when it is applied to knowledge development rather than knowledge commercialisation.