Absorptive Capacity
Absorptive capacity encompasses an organization's proficiency in identifying, acquiring, assimilating, transforming, and effectively deploying external knowledge or information to enhance its performance (Todorova & Durisin, 2007). It underscores an organization's capacity to not only acquire fresh external knowledge but also grasp its significance and seamlessly integrate it into its existing knowledge reservoirs and operational practices. The conceptual groundwork for absorptive capacity was first laid by Cohen and Levinthal (1990), aiming to elucidate why certain firms outshine others in terms of innovation and the effective utilization of knowledge.
Absorptive capacity unfolds through four fundamental dimensions (Todorova & Durisin, 2007; Zahra & George, 2002):
Acquisition: This dimension focuses on the organization's adeptness in accessing and procuring novel knowledge from external sources, encompassing research institutions, customers, competitors, or collaborative partners.
Assimilation: Here, the emphasis is on the process of comprehending and internalizing the acquired knowledge, forging connections between it and the preexisting knowledge structures within the organization.
Transformation: This dimension delves into the organization's capacity to adapt and reconfigure its existing knowledge and routines to accommodate and synergize with the freshly acquired knowledge.
Exploitation: Finally, absorptive capacity culminates in the organization's capability to effectively apply the integrated knowledge to elevate its performance, foster the development of new products or services, or secure a competitive advantage.
These dimensions collectively constitute the dynamic fabric of absorptive capacity, enabling organizations to harness external knowledge as a driving force for innovation and sustained excellence.
Reconceptualization: History of Absorptive Capacity
Cohen and Levinthal (1990) laid the foundation for the concept of absorptive capacity. In its initial iteration, absorptive capacity was delineated into three distinct sub-processes: acquisition, assimilation, and exploitation. At its core, absorptive capacity represented an organization's aptitude for absorbing and effectively leveraging knowledge sourced from external outlets. The assimilation process entailed the wide dissemination and internalization of new knowledge throughout the entire organization, integrating it with existing knowledge to create a competitive edge. This marked the birth of the new conceptual construct as Absorptive Capacity 1.0.
Zahra and George (2002) introduced a pivotal reconceptualization, framing absorptive capacity as a firm's “dynamic capabilities,” rooted in the resource-based view (RBV) theory. In this rendition, two significant modifications were introduced. First, they introduced a new subprocess, transformation, into the model, signifying that absorption necessitates not only the dissemination of new knowledge but also the reconfiguration of a firm's resources and infrastructure to accommodate change. Second, they divided the processes into two categories: potential absorptive capacity (PACAP), encompassing acquisition and assimilation, and realization absorptive capacity (RACAP), comprising transformation and exploitation. This separation distinguishes the ability to identify value from the ability to implement it, treating organizational knowledge as a valuable resource. This marked the advent as Absorptive Capacity 2.0.
Todorova and Durisin (2007) offered a second reconceptualization, contending that the grouping of absorptive capacity into PACAP and RACAP introduced ambiguities and diminished adaptability to external stimuli. They argued that not all knowledge absorption necessitates a reconfiguration of a firm's resources. Additionally, they highlighted that the flow of knowledge from acquisition to exploitation does not follow a linear, sequential pattern, with exchanges occurring between the assimilation and transformation subprocesses. As a remedy, they proposed a model with four distinct subprocesses: acquisition, assimilation, transformation, and exploitation, devoid of groupings. This new framework allowed for various flow paths, such as acquisition-assimilation-exploitation or acquisition-transformation-exploitation, among others. They also introduced two additional phases: pre-acquisition, known as value realization, which precedes the actual acquisition process, and a feedback loop to reflect learning outcomes. This evolution can be termed Absorptive Capacity 3.0.
Continuous enhancement of absorptive capacity empowers organizations to remain responsive to environmental shifts, adapt to emerging technologies, and cultivate a culture of innovation (Cohen & Levinthal, 1990; Kostopoulos et al., 2011; Soo et al., 2017). Figure 1 illustrates the evolutionary journey of absorptive capacity.
Figure 1. Evolution of absorptive capacity
Absorptive Capacity as the Firm’s Property
The original concept of absorptive capacity was conceived to encompass the entire spectrum of organizational learning, spanning from the micro (individual) level and extending upward through organizational tiers, progressing from micro to meso (team, unit, or department), and finally culminating at the macro (organizational) level. At the micro level, the process of PACAP manifests as an individual activity while, at the macro level, it manifests as an organizational capability.
However, a multitude of scholars have contended that absorptive capacity indeed operates at various levels within a firm (Almeida et al., 2010; Andreu & Sieber, 1999; Christiansen et al., 2011; Fenwick, 2008; Hayes & Allinson, 1998; Merok Paulsen & Brynjulf Hjertø, 2014; Tomassini & Zanazzi, 2014). The subprocess of assimilation represents the juncture where the amalgamation of existing knowledge and newly acquired external knowledge takes place. In certain organizations, especially those operating in rapidly evolving industries where immediate responses to incoming external knowledge increments are commonplace, these events trigger the organization to swiftly absorb the new knowledge and promptly apply it to meet customer demands (Senivongse & Bennet, 2022). In such highly agile contexts, the absorptive capacity process is primarily activated at the individual level, reflecting the critical role of individual agility in responding to dynamic external factors.