Cohen ASQ 1990

Summary

The authors define and describe absorptive capacity both for individuals and for organizations. They provide a model for how absorptive capacity affects learning and vice versa, and propose a model for how the R&D spending in a firm affects innovation both by generating innovation and by enhancing the organization's capacity to assimilate and exploit knowledge and innovation produced by the firm's competitors and by other sources outside the firm. As they posit that "most innovation results from borrowing rather than invention," (p. 128) absorptive capacity is thus a critical attribute for a firm, especially in industries which are underlain by difficult to acquire expertise.

Absorptive capacity is the ability to "recognize the value of new, external information, assimilate it and apply it to commercial ends" (p. 128). Pre-existing knowledge and absorptive capacity are symbiotically related. A person has to have a firm foundation or context in an area in order to recognize new good things (p. 129). This is due to associative learning: we learn new knowledge by linking or associating it with existing knowledge structures in memory. Thus the ability to assimilate new knowledge is a function of the richness of the preexisting knowledge structure (p. 131). Moreover, breadth of knowledge increases the probability that, in a novel knowledge domain, incoming information can be associated with a preexisting knowledge structure. This helps innovation by enabling individuals to make novel associations between the incoming information and disparate areas of knowledge in their expertise (p. 131). Absorptive capacity allows individuals to expand their knowledge base, in turn reinforcing their absorptive capacity for new knowledge.

At an organizational level, organizational absorptive capacity is a function of the absorptive capacities of the individuals within the firm, but it is not a simple sum of individual capacities because of imperfect knowledge flow within the firm. Organizational absorptive capacity is thus actually a function of individual capacities, the effectiveness of communication within the firm and between the firm and the world, the breadth of expertise represented within the firm and the distribution of that expertise (p. 132). Absorptive capacity is dependent on gatekeepers who mediate between the firm and the world, and between different sub-units within the firm (p. 132). When a firm is not sure where knowledge may come from or who may assimilate and act on it effectively, though, gatekeepers may not be effective and the firm should expose as many individuals as possible to the environment: the "receptor" mechanism (p. 132).

An organization's absorptive capacity depends on links between individuals. Shared knowledge and expertise are essential for effective communication, but there is a trade-off between unified groupthink and individualism (pure economic specialization). To optimize organizational absorptive capacity, individuals in a group must be similar enough to be able to communicate effectively, yet different enough to be able to exploit and recognize the value of new knowledge (p. 133).

Absorptive capacity and prior knowledge enable a firm to better estimate the future viability of a new technological advance (p. 136). Assimilation of that advance will allow the firm to be better able to evaluate future advances. A negative side of absorptive capacity caused by this is path dependence: if a firm fails to invest early in enhancing its absorptive capacity in an area, it will be unable to recognize and assimilate viable new knowledge in that area. The lack of that knowledge will adversely affect its absorptive capacity. Both "reactive and proactive modes of firm behavior will remain stable over time" (p. 138).

The authors propose a model in which effort in R&D both produces innovation through invention and enhances the firm's absorptive capacity, thus enabling it to better take advantage of knowledge leaks from competitors and knowledge generated by public sources (such as universities and government laboratories). They validated their model by analyzing cross-sectional survey data on "technological opportunity and appropriability conditions in the American manufacturing sector" (p. 142).

Issues

This article is one of the primary sources for Dalkir's chapter on organizational learning and culture [Dalkir, 177-215]. It is a foundational article in the field -- Google Scholar lists 3814 citations of this article since it was published in 1990. We can see the immediate application of absorptive capacity to the knowledge management cycle, especially when it comes to double loop learning. By acquiring, evaluating, sharing, and applying knowledge, an organization increases its capability to acquire, evalute, share and apply knowledge. This is immediately reminiscent of Nonaka's Knowledge Spiral Model [Dalkir, p 52].

In relation to organizational culture and change, one of the goals of cultural change via knowledge management is for the organization to become a learning organization. In the Cohen and Levinthal view, this means that the goal of knowledge management is to increase and maintain the absorptive capacity of the organization. Knowledge management does this by providing a communication mechanism (a KMS), by creating ways for people in the organization to find others with complementary expertise, and by creating an organizational memory that can serve as a foundation for evaluating and assimilating new knowledge.

Critique

This was a wonderfully clear and nearly intuitively obvious article. The authors do a nice job by starting with defining absorptive capacity in terms of human cognition and the individual. They then use that as a natural base for extending the concept to the organization.

References

[Dalkir] Dalkir, Kimiz, Knowledge Management in Theory and Practice, Elvsevier Butterworth-Heinemann: Amsterdam, 2006.