How Do Firms Nurture Absorptive Capacity?

Article excerpt

Knowledge is considered to be the key resource that leads to competitive advantage within an organization (Barney, 1991; Grant, 1996). But how can this stock of knowledge be accumulated or enhanced? Why do some units perform and innovate better than others? The process/capability stream of the resource-based view acknowledges that it is the assimilation and utilization of resources in the development of new knowledge and competencies that lead to firms' competitive advantage (Lane et al., 2006). This capability is identified as absorptive capacity, which can be defined as 'the capability to acquire and assimilate new knowledge gained from other sources' (Lane and Lubatkin, 1998; Tsai, 2001). However, it has been noted that imitators sometimes benefit more from reducing their absorptive capacity and simply licensing some or most of their knowledge (Pacheo-de-Almeida and Zemsky, 2007).

It may be argued that it is the human capital that assists units to develop absorptive capacity. Human capital is defined as the knowledge, skills, and abilities residing within and utilized by individuals (Subramniam and Youndt, 2005). Collectively, units are likely to accumulate, codify, and store their individual knowledge in manuals, databases, and patents for current and future use (Garud and Nayyar, 1994). They also help establish robust structures, systems, and processes. Organizations assimilate and integrate knowledge by facilitating its communication, sharing, and transfer among individuals and by encouraging interactions in groups and networks (Allen, 1977).

Research Question

The research question that comes to mind is: what nurtures or dampens absorptive capability within organizations? In this research study, it is postulated that organizational resource of culture may either foster or impede the development of absorptive capacity within an organization. Organizational culture is defined as "the shared philosophies, ideologies, values, assumptions, beliefs, expectations, attitudes and norms that knit a community together" (Szilagyi and Wallace, 1990: 639). The five dimensions of cultural values and practices analyzed in this study are: (1) task orientation; (2) risk orientation; (3) cooperation; (4) open communication; and (5) collective rewards. Hence, the primary objective of this exploratory study is to analyze the impact of various dimensions of organizational culture on absorptive capacity. It is hypothesized that the norms of task and risk orientation negatively influence absorptive capacity, as routine work and uncertainty in experimentation prevents units to foster absorptive capacity. Contrarily, cooperation and practices of open communication and collective rewards positively influence absorptive capacity, as collaborative practices allow units to share information and knowledge amongst themselves, which triggers the use of absorptive capacity. The unit of analysis in this study is a business unit.

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The subsequent sections explore the constructs of organizational culture and absorptive capacity, briefly discuss previous literature, articulate the hypotheses, explicate the methods, and discuss the results.

THEORY

The resource-based view (RBV) suggests that firm specific resources and capabilities are critical in determining why some firms are more successful than others (Wernerfelt, 1984; Peteraf, 1993). Development of both resources and capabilities are essential for organizations to attain competitive advantage (Barney, 1991). Organizational culture is considered one such resource and absorptive capacity a complementing capability.

Literature Review

Previous studies have found individual (employee), group, and organizational factors as well as external environment to influence the development of absorptive capacity in general and more specifically their dimensions of realized and/or potential absorptive capacity. For example, individual level factors include employee's absorptive capacity and diversity of background (Cohen and Levinthal, 1990; Matusik and Heely, 2005). …