With a theoretical background in cognitive and behavioural learning theory, absorptive
capacity was introduced and defined by Cohen and Levinthal (1989, 1990) as recognition,
assimilation and application of new information, which is commercially utilised (Cohen &
Levinthal, 1990). Cohen and Levinthal further proposed that the level of prior related
knowledge as well the type of knowledge source, are antecedents to absorptive capacity. They
further put research and development (R & D) at the centre of firms' innovative processes by linking it to both learning and innovation. Further, ‘regimes of appropriability’ (spill overs and learning conditions) are specified to mediate between the prior knowledge levels and
sources, and absorptive capacity. Finally, because levels of absorptive capacity are associated with levels of knowledge acquisition, assimilation and new knowledge creation, firms’ innovation performance will be affected. Innovation is thus defined as the outcome.
Innovative activities are thus predicted by learning and transforming processes associated
with absorptive capacity. The full model is illustrated in figure 1:
Figure 1: Cohen and Levinthal (1989, 1990)
Recognize
the Value Apply
Regimes of appropriability Innovation Innovative Performance Knowledge source Prior knowledge
Cohen & Levinthal Absorptive Capacity
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It was proposed that a learning organisation normally will be an organisation in development
(Cohen & Levinthal, 1989, 1990). With reference to studies in cognitive and behavioural
sciences at the individual level Cohen & Levinthal (1990) stated that the individual needs
prior related knowledge to assimilate and use new knowledge (Cohen & Levinthal, 1990;
Ellis, 1965). Furthermore, earlier psychological research suggested that memory development
is self-reinforcing, and that “the more objects, patterns and concepts being stored in memory,
the more readily is new information, and the better is the individual in using them in new settings” (Bower & Hilgard 1981, p.424). Based on this research Cohen & Levinthal therefore proposed that the concept “creative capacity” from the psychology literature (Simon, 1985) is
very similar to the concept absorptive capacity (Cohen & Levinthal, 1990). The theoretical
underpinning of absorptive capacity thus ranges from the psychological emphasis on
cognition and learning to the economic perspective on innovation and competition as
described by research on dynamic capabilities perspectives.
Zahra and George (2000, 2002) contributed with a further theoretical and conceptual
development of absorptive capacity. They proposed that the research in the area had culminated and gone into a certain track, with a need for a “much-needed dialogue on the definition and dimensions of absorptive capacity” (Zahra & George, 2002, p. 186).
Absorptive capacity was defined as one of several dynamic capabilities, and they underlined
strongly the dynamic aspect of the absorptive capacity by specifying two dimensions of the
concept. Zahra and George thus defined a difference between potential and realised absorptive
capacity, with an efficiency factor according for the difference between these two. The
dynamic dimension was defined as the degree to which firms transform potential capacity to
realised capacity (Zahra & George, 2002). Zahra and George further proposed: “A firm’s
transformative capacity reduces the gap between potential and realised absorptive capacity,
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capacity thus defines to which degree the firm succeeds in creating realised absorptive capacity by transforming external knowledge to an internal one. Zahra & George’s model is illustrated in figure 2:
Figure 2: Zahra and George (2002)
Potential Acquisition Assimilation Realized Transformation Exploitation Regimes of appropriability Competitive advantage Flexibility Innovation Performance Knowledge source and complementarity Prior knowledge Activation triggers Social Integration Mechanism
Zahra & George
Absorptive Capacity
The antecedent "knowledge complementarity" describes the degree to which the former
knowledge fits in with the actual needs in the organisation. The knowledge built up inside the firm is described as “past experience, learning by doing”. The external information is described as “acquisitions and inter-organisational relations”. These two sources create the foundations for further development of knowledge inside the firm. "Activation triggers" and
"social integration mechanism" are contingencies in the model, while "regimes of
appropriability" act as a moderator. The output in this model is defined as "competitive
advantages", parted into "flexibility, innovation and performance".
The redefining and extension of the absorptive capacity concept contributed to an increased
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agenda with respect to absorptive capacity (Zahra & George, 2002). Even if Cohen and
Levinthal (1989) defined absorptive capacity as a process, their operation of research and
development (RD) spending as the predictor of innovative activity, still represents a static
approach. Zahra and George moved the research a step forward by their consistent focus on
absorptive capacity as a dynamic process. A second contribution was the introduction of the two contingencies ‘"activation triggers" and ‘"social integration mechanism" in their model. The "activation triggers’" were described as all events, external and internal contributors that make the firm discover the need for new knowledge. ‘"Social integration mechanism" focuses on the human, social and cultural aspect of absorptive capacity. Zahra and George proposed that “social integration mechanism” enhances the absorptive capacity by the transformation and exploitation of knowledge, while the triggers are related to acquisition and assimilation.
Lane et al (2006) developed both an extended definition, as well as a process model
specifying the antecedents and outcomes of absorptive capacity. Their process based definition stated a firm’s absorptive capacity to be the ability of utilising external knowledge through the processes of exploratory, transformative and exploitative learning (Lane et al,
2006), by which they introduce three dimensions, exploratory learning refers to recognising
and understanding external knowledge which is similar to the concept potential absorptive
capacity as defined by Zahra and George (2002). Exploitative learning is related to applying
acquired knowledge for creating new knowledge, and it is associated with the concept of
realised absorptive capacity (Zahra & George, 2002). Transformative learning is the
assimilation of external knowledge to new valuable knowledge in the firm, linking the two
processes by maintaining and developing knowledge over time. These three processes form a
dynamic description of absorptive capacity, synthesising the theories from Cohen and
Levinthal (1990) and Zahra and George (2002) (Lane et al, 2006). Lane et al’s model is
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Figure 3: Lane et al (2006)
The dependent variable is firm performance, which is influenced by knowledge and commercial outputs. Antecedents are “characteristics of internal and external knowledge”, “environmental conditions” and “characteristics of learning relationships”. These antecedents are collecting the depth and breadth of understanding, the incentives for developing
absorptive capacity and the ease of understanding. There is a notable difference in the
specification of the independent variable in Lane et al (2006) compared with previous
research. This research moved another step forward by specifying "the characteristics" of
knowledge in contrast to applying the amount or use of knowledge and skills as earlier proposed. Moderators are “characteristics of firm members’ mental models”, “characteristics of firm’s structures and “firm strategies”, which is describing the focus of recognition and understanding. There are several internal relationships in the model.
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A fourth contribution to the concept of absorptive capacity came from Todorova and Durisin
in 2007. Todorova and Durisin (2007) criticised Zahra and George (2002) for omitting some
of the dynamic aspects of absorptive capacity, even though the concept itself was defined as a
dynamic capability. According to Todorova and Durisin (2007) the dynamic factors will work
in different phases, via different explanatory variables and at different periods of time during
a process or a project. In contrast to Zahra and George (2002), Todorova and Durisin redefined ‘"recognicing the value’" to be the first component as in Cohen and Levinthal’s (1990) conceptualisation. This model is illustrated in figure 4:
Figure 4: Todorova and Durisin (2007)
Absorptive Capacity • Knowledge source • Prior knowledge Recognize the value Absorbtive capacity Regimes of appropriability Competitive advantage • Flexibility • Innovation • Performance • Power relationships • Activiation triggers Social integration mechanisms
Todorova & Durisin
Todorova and Durisin (2007) further criticised the definition of ‘social integration mechanism’ by Zahra and George. They proposed that the effect can be positive or negative depending on the context and not just presenting a positive effect as Zahra and George
argued. Drawing on research from innovation and learning, “power relationship” (Pfeffer,
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Willmott, 2003; Dosi, Levinthal & Marengo, 2003). This concept explains why only some of
the available new knowledge is used by the organisation, and why some organisations are
better able to exploit external knowledge than others. Todorova and Durisin (2007) further argued that “thinking in cycles typical of evolutionary approaches to management studies” – was related to the dynamism of absorptive capacity – later referred as “feedback loops”
(Volberda et al, 2010).
Zahra et al (2009) presented a framework which described the connection between absorptive
capacity, board task performance, accountability, corporate entrepreneurship and dynamic
capabilities. The starting point of the analysis was threshold companies, e.g. new companies
which have finished their first period in the market, often representing a need for renewal and
innovations for further development and value creation to take place. The role of the board is
partly investigated in this article since the authors proposed absorptive capacity and
constructive board activities as two complementary ways of bringing the companies over the
threshold. They thus proposed that a good board performance and absorptive capacity in an
organisation are substitutable. If the board members have no priority of creating innovations,
further development or new business ideas in the company, the absorptive capacity itself can,
to a certain degree, compensate for this lack of engagement in boards and vice versa (Zahra et
al, 2009).
In their article Zahra et al (2009) further argued for the importance of knowledgeable
development inside the organisation. In addition to traditional responsibility, board members have to secure the value of the company’s shares, and the authors focused on the general responsibility of every board member. They thus pointed out the necessity of making board
members present new knowledge via information from their networks or by their own
entrepreneurship. These issues are underlined to be important parts of the board activities. The
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accountability (reinforced by board directors) and low vs. high absorptive capacity for
threshold companies' corporate entrepreneurship (Zahra et al, 2009).
The latest conceptualisation of the absorptive capacity concept was published in 2010.
Volberda et al (2010) derived a reconceptualization based on a review of 2013 articles. By a
bibliometric analysis which showed the major discrepancies in the organisation field, they
developed an integrative model. This model identifies the multilevel antecedents, process
dimensions and outcomes as well as the contextual factors that affect absorptive capacity
(Volberda et al, 2010). They further stated that research on knowledge recognition and to
certain degree assimilation, are dominating the field, while studies on knowledge exploitation are underrepresented. In their opinion “discussing absorptive capacity merely as a capacity without discussing the actual processes that link it to outcome variables” should not be
regarded as an integrative process (Volberda et al, 2010, p.939). The full integrative
framework is illustrated in figure 5.
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The conceptual definitions and developments described in this chapter will be utilised when
reporting and discussing the results in chapter IV and V.
This section has reviewed the conceptual development of absorptive capacity during a period
of about twenty years. The concept has further been widely applied in an organisational, inter-
organisational and country context. Depending on the actual context the theoretical
underpinning of the concept has been differently developed. I will review these levels in the
next section.