Given the current dynamism of university libraries as knowledge hubs through innovations and adaptations, this qualitative study incorporated the practices of developing innovation capabilities (IC) in libraries, particularly for Indonesian state-owned higher education institutions using grounded theory. In expanding the current body of literature on IC, this research highlighted non-profit stances and proposed a framework for the present context. As the first empirical work to map IC processes from university libraries, this study presented an in-depth view of their progress and a novel variable, relationship-based leadership (RL), for further examination. Notably, potential research topics were formulated for future works.