Soaking It Up: Absorptive Capacity in Interorganizational New Product Development Teams

Prior research has acknowledged the importance of an organization's absorptive capacity—the ability to acquire new knowledge and information, assimilate, transform, and exploit it—for innovation purposes. Because innovations are usually developed by project teams, this suggests that absorptive capacity, as a construct, may also be usefully applied at the team level. Consequently, this study developed a measure for team‐level absorptive capacity, investigated the potential influencing factors, and examined its relationship to team effectiveness in terms of product innovativeness in an interorganizational context. Specifically, building on the theory of homophily and information and decision‐making theories, three factors (social‐category similarity, work‐style similarity, and knowledge complementarity between the recipient and the partner organization teams) were identified as likely antecedents of team absorptive capacity. The hypotheses were tested on data from 98 interorganizational new product development teams and included responses from team members, team leaders, and team‐external managers. With regard to the antecedents of team absorptive capacity in interorganizational settings, the results showed a significant positive association with partners' work‐style similarity and an inverted U‐shaped relationship with partners' knowledge complementarity. Social‐category similarity was not significantly associated with team absorptive capacity. We also examined whether team absorptive capacity was related to interorganizational team effectiveness and found a significant positive relationship between team absorptive capacity and product innovativeness. The study demonstrates that absorptive is indeed related to team effectiveness outcomes in an interorganizational context, which underlines the importance of team‐level absorptive capacity for product innovation management and suggests paying more attention to the lower levels of absorptive capacity.     

Relative absorptive capacity and interorganizational learning

Much of the prior research on interorganizational learning has focused on the role of absorptive capacity, a firm's ability to value, assimilate, and utilize new external knowledge. However, this definition of the construct suggests that a firm has an equal capacity to learn from all other organizations. We reconceptualize the firm-level construct absorptive capacity as a learning dyad-level construct, relative absorptive capacity. One firm's ability to learn from another firm is argued to depend on the similarity of both firms' (1) knowledge bases, (2) organizational structures and compensation policies, and (3) dominant logics. We then test the model using a sample of pharmaceutical–biotechnology R&D alliances. As predicted, the similarity of the partners' basic knowledge, lower management formalization, research centralization, compensation practices, and research communities were positively related to interorganizational learning. The relative absorptive capacity measures are also shown to have greater explanatory power than the established measure of absorptive capacity, R&D spending. © 1998 John Wiley & Sons, Ltd.     

Prospects for developing absorptive capacity through internal information provision

Theories of absorptive capacity propose that knowledge gained from prior experience facilitates the identification, selection, and implementation of related profitable practices. Researchers have investigated how managers may develop absorptive capacity by building internal knowledge stocks, but few have focused on the distribution of this knowledge within the firm and the role managers play in administering information to organizational subunits. In this paper, we explore the degree to which managers can develop absorptive capacity by directly providing information to agents in the organization that might potentially adopt a new practice. We find that the effectiveness of managerial information provision depends on the degree to which potential adopters have information from other sources. We find that information from previous adopters and past events reduces the effect of information provision, while experience with related practices amplifies it. Our research helps clarify when absorptive capacity may provide a sustained competitive advantage. Copyright © 2004 John Wiley & Sons, Ltd.     

The (Unknown) Providers to Other Firms' New Product Development: What's in It for Them?

For every inbound activity by a firm in open innovation, a reciprocal outbound activity by another firm must be generated. The reciprocal outbound activities range from transferring of knowledge and ideas to solutions delivered to other firms' new product development projects. This paper names the firms that produce the reciprocal outbound activity for “providers,” and is the first to empirically investigate such providers of ideas, solutions, and technologies for other firms' open innovation activities. The literature review shows a surprising shortage of research on who the providers are, how they engage with other firms, and not least what potential benefits can be achieved from supporting other firms' innovation activities. The paper uses a quantitative survey on Danish small and medium‐sized enterprises (SMEs) carried out in 2010 to identify the providers, the role they take on, and the main benefits the providers gain. This paper finds that firms that are providers are indeed an under‐researched and important phenomenon for firms' innovation activities. Compared to receivers of knowledge, the providers are younger, have a higher R&D intensity, adopt more open innovation practices, have higher absorptive capacity, and fewer barriers toward knowledge sharing as demonstrated by the NIH and NSH syndromes. Finally, although only tentatively, the paper finds that the provider firms are more product innovative compared to nonproviders. The paper further finds that more projects, more embedded relationships, and mutual rather than one‐way exchange relationships significantly raise the probability that a firm experiences a substantial benefit from providing to other firms' new product development projects. The overall ambition of the paper at this point is to inspire other researchers to pursue the agenda on the provider perspective for future research. To support such research, the paper suggests a broadening of the research perspectives from the receiver of knowledge, in the literature on interorganizational relationships and open innovation, to include the provider, and even suggests some preliminary ideas for such research. Hence, the contribution of this paper lies not only in opening a new research topic but also in identifying some first characteristics of the phenomenon adding a substantial perspective to the literature on open innovation and interorganizational relationships. The paper formulates three indicative recommendations for managers that consider becoming a provider to other firms' NPD.     

Analyzing the determinants of firm's absorptive capacity: beyond R&D

This article proposes a new model for analyzing the determinants of absorptive capacity in companies. We suggest that absorptive capacity is determined not only by research and development activities, but also by a set of internal factors, which we group into three basic categories: organizational knowledge, formalization, and social integration mechanisms. In addition, we suggest that these factors may influence all components of the firm's absorptive capacity, and that the influence can be positive or negative depending on the applicability of the knowledge being absorbed. This paper thus advances the understanding of absorptive capacity by exploring a largely ignored aspect in the literature: the role of knowledge attributes. We show how the model can be operationalized and empirically tested and provide preliminary evidence supporting most of the propositions in the analytical model.     

Do Individual Employees' Learning Goal Orientation and Civic Virtue Matter? A Micro‐Foundations Perspective on Firm Absorptive Capacity

Research summary : In this study, we build on the micro‐foundations perspective and investigate how individual characteristics contribute to the development of firm absorptive capacity. In particular, we assess how individual learning goal orientation affects firm potential and realized absorptive capacity. Furthermore, we study how individuals' civic virtue acts as a micro‐level social integration mechanism that moderates the effect from firm realized absorptive capacity to potential absorptive capacity. Using the multilevel structural equation modeling technique and data from 871 core‐knowledge employees nested in 139 high‐technology firms, we find support to our major hypotheses. Together, this study finds support for the micro‐foundations' perspective and generates novel insights on how individual‐level factors could be linked with firm‐level heterogeneity in absorptive capacity. Managerial summary : We study how employees' characteristics contribute to a firm's absorptive capacity, that is, the ability of a firm to identify, assimilate, and exploit knowledge from the environment. Because firms have increasingly tapped into external resources to foster innovation over the past two decades, absorptive capacity is crucial to firm learning and success. Using data from 871 core‐knowledge employees in 139 high‐technology firms, we find that individual employees' learning goal orientation, the tendency to seek improvements in employees' competence and to understand or master new things advances the development of a firm's potential and realized absorptive capacity. More important, individual employees' civic virtue, the discretionary involvement in company issues, serves as a social integration mechanism that reduces the gap between firm potential and realized absorptive capacity. Copyright © 2017 John Wiley & Sons, Ltd.     

How Individuals Engage in the Absorption of New External Knowledge: A Process Model of Absorptive Capacity

This paper offers a process model of how individuals engage in the absorption of new external knowledge. Data collection is centered on the experiences of knowledge workers in recognizing, assimilating, and applying external knowledge. The process model delineates how individuals engage in the absorptive capacity (AC) process through: (1) valuing knowledge potential by assessing the motivation to assimilate knowledge and by evaluating technological feasibility, which together constitute the recognition of value; (2) corroborating knowledge value by ensuring legitimacy and demonstrating a shared understanding of the business value in achieving knowledge assimilation; and (3) championing knowledge integration by lobbying for support and securing resources in order to integrate and apply the knowledge within the organization, ultimately ensuring that knowledge is exploited. The process model clarifies how an individual’s proficiency in external knowledge absorption activities can result in three possible outcomes: knowledge is exploited, knowledge is terminated, or knowledge gets “stuck” in limbo. These findings contribute to the AC literature by underscoring the pivotal role of individual engagements in recognition, assimilation, and application of external knowledge and add new elements and a process perspective to the understanding of the path from potential to realized AC. The paper also provides insights into how individuals and firms can better manage knowledge absorption in practice.     

The temporal effects of relative and firm‐level absorptive capacity on interorganizational learning

We examine how determinants of absorptive capacity influence learning in alliances over time. Using longitudinal patent cross‐citation data, we find an inverted U‐shaped pattern over time that is influenced by firm‐level and relational factors. Technological similarity only modestly increases learning in the initial stages of a relationship, but moderate levels substantially increase knowledge flows later in the alliance. High technological diversity is related to higher initial learning rates, but the effects diminish over time. Somewhat surprisingly, research and development intensity is negatively related to initial learning rates but has a considerable positive effect later in the relationship. We suggest that initial learning rates in alliances may be constrained by the capacity to absorb knowledge, while later‐stage outcomes are constrained by exploitation capacity. Copyright © 2012 John Wiley & Sons, Ltd.     

A multilevel perspective on knowledge transfer: evidence from the Chinese automotive industry

We adopt a multilevel perspective to study the transfer of collective and individual knowledge. By making a clear theoretical distinction between collective and individual attributes in concepts such as knowledge, teaching approach, and absorptive capacity, this study extends the knowledge transfer literature and provides fresh insights into the ways in which collective and individual knowledge are transferred. Based on a survey of the capability transfer activities of 161 engineering units of multinationals in the Chinese automotive industry, we empirically validate the distinction between individual and collective teaching activities and absorptive capacity. More importantly, we find that the largely underexplored collective‐level mechanisms, such as collective teaching and collective absorptive capacity, are more effective in transferring both collective knowledge and individual knowledge in comparison to their individual‐based counterparts. Our findings also have important implications for management of multinationals and international joint ventures, particularly in emerging economies. Copyright © 2009 John Wiley & Sons, Ltd.     

Strategic Suppliers' Technical Contributions to New Product Advantage: Substitution and Configuration Options

Current theory lacks clarity on how different kinds of resources contribute to new product advantage, or how firms can combine different resources to achieve a new product advantage. While several studies have identified different firm‐specific resources that influence new product advantage, comparatively little research has explored the contribution of strategic supplier resources. Combining resource‐based and relational perspectives, this study develops a theoretical model investigating how a strategic supplier's technical capabilities impact focal firm new product advantage and how firms combine different resources to gain this advantage. The model is tested using detailed survey data collected from 153 interorganizational new product development projects in the United Kingdom within which a strategic supplier had been extensively involved. Empirical results support our research hypotheses. First, supplier technical performance is shown to have a significant positive impact on new product advantage. Next, we show that while supplier technical capabilities have a positive influence on supplier technical performance, the a priori nature of the supplier's task moderates the relationship. Finally, our data support our hypotheses related to the positive relationship between relationship‐specific absorptive capacity and new product advantage, and the proposed negative moderation of supplier technical capabilities on this relationship. Based upon these findings, we encourage managers to recognize that strategic suppliers' with greater technical capabilities perform better regardless of the degree of creativity required by their task; but that strategic suppliers with lower technical capabilities may partially compensate (substitute) for their lack of technical capabilities, if they are able to respond to high problem‐solving task requirements. Furthermore, we suggest that the firm's development of relationship‐specific absorptive capacity is much more important when a strategic supplier is less technically capable. A buying firm's relationship‐specific absorptive capacity can, according to our data, substitute for low supplier technical capabilities. On the other hand, where the supplier has strong technical capabilities, investments in relationship‐specific absorptive capacity have no effect on new product advantage. Our findings reinforce recent calls for research on how firms can combine different resources and capabilities to achieve superior performance.     

Network governance: A cross-level study of social mechanisms,knowledge benefits,and strategic outcomes in joint-design alliances

Drawing on multiple-level embedded case study research of eight dyadic joint-design alliances and 14 collaborative ventures within them, this study sheds light on how value, in the form of common and private benefits, is created in interorganizational relationships. To do so, I focus on network governance (i.e., interorganizational coordination based on social networks) and its outcomes. As a result, I advance a cross-level model of how a system of reciprocally influencing network-level (i.e., structural) and dyad-level (i.e., relational) social mechanisms affects the propensity of allied organizations to engage in knowledge-intensive activities that yield considerable knowledge-based benefits and strategic outcomes at the alliance and firm levels. I conclude that simultaneous consideration of structural and relational embeddedness can enrich our understanding of network-based forms of organization and their impact on the outcomes of interorganizational cooperation. Although the system of social mechanisms needs to be understood as an interconnected whole, practicing alliance managers are advised to leverage different social mechanisms depending on the specific knowledge benefits they intend to achieve.     

Addressing dual embeddedness: The roles of absorptive capacity and appropriability mechanisms in subsidiary performance

This study examines how subsidiaries can manage dual embeddedness with both local partners and a multinational enterprise. Specifically, we examine the role of absorptive capacity and appropriability mechanisms on subsidiary performance. We analyse how absorptive capacity and appropriability enable subsidiaries to successfully address knowledge challenges related to internal and external networks. We conducted an empirical analysis on a sample of 165 subsidiaries. Our results suggest that absorptive capacity has a direct, positive effect on subsidiary performance, which is greater in emerging countries. The study also found an indirect effect of absorptive capacity on subsidiary performance, which is mediated through appropriability mechanisms. These findings extend the literature on international networks, dual embeddedness and absorptive capacity.     

Realized absorptive capacity and entrepreneurial universities’ organizational change: the role of process innovation practices

Although essential to all institutions, organizational change is a complex and high risk activity. In this paper, we examine how organizations develop and implement capabilities to facilitate organizational change. Drawing on the dynamic capability perspective and a ‘resourcing’ synergy view, we investigate how realized absorptive capacity in terms of transformation and exploitation capability directly affects organizational change, and how process innovation practices act as an effective mechanism that link transformation and exploitation capability with organizational change. To distinguish our analysis, we focus on both an emerging organizational form and an emerging economy context. Specifically, on the basis of a questionnaire survey of 316 academics from entrepreneurial universities in Malaysia, we find that both transformation and exploitation capability are facilitators of organizational change. However, the relationship of transformation capability with organizational change is fully mediated by process innovation practices, while the relationship between exploitation capability and organizational change is partially mediated by process innovation practices. Our research therefore contributes to the dynamic capability perspective of organizational change and absorptive capacity by highlighting the importance of integrating organizational transformation and exploitation capability with process innovation practices in different ways to facilitate organizational change. Our findings and accompanying discussion on how process innovation practices can generate moves towards universities that are more entrepreneurial will also be of interest to university managers and policy makers.     

Performance implications of outsourcing for technological innovations: managing the efficiency and adaptability trade‐off

We explore how increasing efficiency compromises adaptability when a firm outsources during the emergent stages of a technological innovation. Since efficiency ‐related problems differ in complexity and structure from those associated with adaptability, their optimal governance differs. While the former benefits from outsourcing, the latter is better off managed within organizational boundaries. In addition, a firm's ability to engage in complex problem solving buffers the efficiency‐adaptability trade‐off that occurs with increasing levels of outsourcing. In this study, we find support for our theses. Although outsourcing yields efficiency gains up to a certain point, it hurts adaptability. However, a firm's absorptive capacity mitigates this trade‐off. Our data on outsourcing for Internet banking is both archival and based on two surveys conducted with 100 U.S. banks. Copyright © 2011 John Wiley & Sons, Ltd.     

Knowledge management practices and absorptive capacity in small and medium‐sized enterprises: is there really a linkage?

Small and medium‐sized enterprises (SMEs) are more vulnerable to globalization and rapid technological change due to their scarcity of resources. SMEs' absorptive capacity allows them to access knowledge and plays a key role in their ability to explore and exploit opportunities in their environment. Therefore, this study aims to identify and categorize knowledge management practices which SMEs can adopt to develop absorptive capacity. From a population of 4,534 Portuguese SMEs, 260 usable completed questionnaires were returned. We concluded that Portuguese SMEs are engaged in knowledge management practices, through collaboration with business partners, favoring learning processes based on experience, knowledge transfer to employees and knowledge absorption by employees, reflecting the importance given by SMEs to the tacit nature of knowledge which helps them in efficiency improvements, strategic adaptation, and the launch of new products and services. Our study contributes to advancing theory in the fields of knowledge management and absorptive capacity. We combine and extend previous research which allows us to reconcile the sometimes contradictory findings concerning knowledge management practices which SMEs can adopt to reinforce absorptive capacity. Some theoretical and practical implications are also presented.     

Knowledge diversity and coordination: The effect of intrafirm inventor task networks on absorption speed

Research Summary: We combine the absorptive capacity and social network theory approaches to predict how intrafirm “whole” network characteristics affect the firm's speed of absorption of external knowledge to produce inventions. We start from the widely accepted view that distant, externally‐developed knowledge is difficult to absorb into the focal firm's own knowledge production. We suggest that high levels of intrafirm inventor task network diversity and task network density are essential for a diversity of knowledge inputs and coordinated actions regarding knowledge transfer, which in turn, reduces problems related to the absorption of knowledge—especially in the case of knowledge that is distant from the focal firm. The results of an event history study of 113 pharmaceutical firms that engaged in technology in‐licensing from 1986 to 2003 provide general support for our hypotheses. Managerial Summary: Firms keen to keep up with an uncertain and ever‐changing industry environment, can benefit from the speedy introduction of inventions. We examine how firms absorb licensed‐in technologies to nurture the rapid development of own related inventions. We show that a firm's absorption speed depends on the characteristics of the internal collaboration networks among the firm's inventor employees. More specifically, technologically diverse and well‐connected inventor networks improve the firm's ability to absorb external technologies quickly. This applies especially to externally acquired technologies that are unfamiliar to the firm. Depending on the distance of the acquired technology from the focal firm combined with speed‐inducing inventor network characteristics, our estimates suggest that firms can reduce the time needed for absorption by several months.     

Where to search for process innovations? The mediating role of absorptive capacity and its impact on process innovation

While the potential of open innovation to develop product-related improvements through the use of external knowledge sources is undeniable, our understanding of how firms become process innovators remains limited. Distinguishing between product and process innovation is important, as insights gleaned from investigating product innovation may not relate directly to the study of process innovation. This study provides new insight into open innovation and absorptive capacity by proposing the mediating role of absorptive capacity – potential and realized – on the relationship between knowledge search from external sources and process-related innovation activities. We test our model using a sample of 171 auto component suppliers in Iran, and find evidence that the learning effects of external scanning increase when a firm learns how to better manage external searches in terms of external absorptive capacity routines. Our results indicate that, while knowledge search from value chain partners is related to process innovation, knowledge search from universities and other research organizations is not, and that potential absorptive capacity mediates the relationship between external knowledge search and process innovation. These findings shed further light on the relationship between a firm’s openness and its process innovation.     

Presumptive adaptation and the effectiveness of knowledge transfer

Adaptation almost invariably accompanies the cross‐border transfer of firm‐specific practices. The existing literature contains two conflicting approaches to adaptation. The first, more traditional approach, following institutional, motivational, and pragmatic efficiency considerations, presumes that a modified practice can be fine tuned, stabilized, and institutionalized without consulting a working example and that practices should thus be adapted as quickly as possible to create fit with the local environment. The second approach argues, instead, for the need to maintain the diagnostic value of the original practice by adapting cautiously and gradually. In this paper, we report an in‐depth field investigation of the relationship between presumptive adaptation, adaptation that removes the diagnostic value of the original practice, and transfer effectiveness. The setting is the transfer of franchising knowledge across borders. We investigate how adherence to recommended practices affects the rate of network growth in the host country. We find that presumptive adaptation stalls network growth while a conservative approach to adaptation, which basically entails close adherence to the original practice, results in remarkably rapid network growth. We conclude that presumptive adaptation of knowledge assets could be detrimental to performance. Copyright © 2006 John Wiley & Sons, Ltd.     

Network structure and innovation: The leveraging of a dual network as a distinctive relational capability

This paper employs comparative longitudinal case study research to investigate why and how strong dyadic interfirm ties and two alternative network architectures (a ‘strong ties network’ and a ‘dual network’) impact the innovative capability of the lead firm in an alliance network. I answer these intrinsically cross‐level research questions by examining how three design‐intensive furnishings manufacturers managed their networks of joint‐design alliances with consulting industrial design firms over more than 30 years. Initially, in order to explore the sample lead firms' alliance behavior, I advance an operationalization of interorganizational tie strength. Next, I unveil the strengths of strong ties and the weaknesses of a strong ties network. Finally, I show that the ability to integrate a large periphery of heterogeneous weak ties and a core of strong ties is a distinctive lead firm's relational capability, one that provides fertile ground for leading firms in knowledge‐intensive alliance networks to gain competitive advantages whose sustainability is primarily based on the dynamic innovative capability resulting from leveraging a dual network architecture. Copyright © 2007 John Wiley & Sons, Ltd.     

Knowledge management and coopetition: How do cooperating competitors balance the needs to share and protect their knowledge?

Coopetitors need to manage interorganizational knowledge flows to balance cooperative knowledge sharing and competitive knowledge protection. The question of how to balance these has received little research attention, with most studies analyzing knowledge sharing or protection separately. To address this gap, we develop a theoretical framework on coopetitive knowledge sharing and knowledge protection practices. This framework is based on a literature review of coopetitive interorganizational knowledge management. To complement and refine this initial framework, we build on insights from a qualitative study that gathered data from 11 semistructured interviews with key informants of Latin American firms. We show that a balance between knowledge sharing and knowledge protection in coopetition is facilitated when coopetitive interorganizational knowledge management helps coopetitors share general and project-specific knowledge while they withhold core knowledge about their firms and clients. To achieve this balance, firms combine formal and informal knowledge protection practices. As theoretical implications, we provide a fine-grained and synoptic understanding of the characteristics of knowledge management among coopetitors. As managerial implications, we call managers' attention to the need to find a balance between knowledge sharing and protection that will help clearly define what kind of knowledge is shared or protected when firms cooperate with rivals.