Absorptive Capacity

The concept of absorptive capacity was first introduced by Cohen and Levitnhal (1990, 128) in their study called “A New Perspective on Learning and Innovation” and defined as ‘the ability of a firm to recognize the value of new, external information, assimilate it, and apply it to commercial ends’ and this process ‘is critical to the firms innovative capabilities’.

Cohen and Levitnhal (1990, 128) further argue that ‘the ability to evaluate and utilize outside knowledge is largely a function of the level of prior related knowledge’. Besides, according to them; absorptive capacity certainly begins with individuals. They also emphasize the exploitation dimension of the absorptive capacity by stating ’absorptive capacity refers not only to the acquisition or assimilation of information by an organization but also to the organization's ability to exploit it’ (Cohen and Levitnhal 1990, 131).

Zahra and George (2002, 186) redefine absorptive capacity (ACAP) and offer a third definition as ‘a set of organizational routines and processes by which firms acquire, assimilate, transform, and exploit knowledge to produce a dynamic organizational capability’, while Jones (2006, 357) further defines it as ‘a dynamic capability based on the creation and utilization of knowledge that contributes to improved competitive advantage’. Zahra and George (2002, 186) subsequently reconceptualize the notion of ACAP through dividing into two subsets namely “potential and realized absorptive capacity.

Potential capacity comprises knowledge acquisition and assimilation capabilities, and realized capacity centers on knowledge transformation and exploitation (Zahra and George 2002, 185).

Zahra and George (2002) stress upon the four dimensions of ACAP comprehended by their definition – acquiring, assimilating, transforming, and exploiting the knowledge, they state that these four dimensions ‘play different but complementary roles in explaining how ACAP can influence the organizational outcomes’. In their study, they relate each of the four dimensions that compose ACAP to its respective components, roles, and importance (See Table Below).

Absorptive capacity begins with individuals, it is the organizational ability to acquire and apply new knowledge that is of primary interest (Cohen and Levinthal, 1990). Zahra and George (2002) reconceptualise absorptive capacity (ACAP) as a dynamic capability based on the creation and utilization of knowledge that contributes to improved competitive advantage. Dynamic capabilities place more emphasis on the ability of firms to respond to an unstable business environment.

References:

Cohen, M. W. and Levinthal, D.A. (1990) ‘Absorptive Capacity: A New Perspective on Learning and Innovation’, Administrative Science Quarterly, Vol. 35, No. 1, pp. 128-153.

Jones, O (2006) ‘Developing Absorptive Capacity in Mature Organizations: The Change Agent’s Role’, Management Learning, Vol. 37, No. 3, pp. 355-376.

Zahra, S.A. and George, G. (2002) ‘Absorptive Capacity: A Review, Reconceptualization, and Extension’, Academy of Management Review, Vol. 27, No. 2, pp. 185-204.