Absorptive Capacity: A Proposed Framework for Strengthening the Business Case for Diversity

By Hopkins, Willie E.; Gross, Michael A. | SAM Advanced Management Journal, Spring 2015 | Go to article overview

Absorptive Capacity: A Proposed Framework for Strengthening the Business Case for Diversity


Hopkins, Willie E., Gross, Michael A., SAM Advanced Management Journal


Cohen and Levinthal (1990) conceptualize "absorptive capacity" as a limit to the quantity of scientific or technological information that a firm can absorb or the rate at which this information can be absorbed. They define it as a firm's ability to recognize the value of new external information, assimilate that information, and apply it to create new products for existing or new markets. Central to their concept of absorptive capacity is investment in research and development (R&D). They rationalize that the more a firm invests in R&D the more it will be able to fully appreciate the value of new information. And the more the value of new information is appreciated, the easier it is to assimilate and apply it to the development of new products.

Also central to their concept is the notion that a firm's absorptive capacity depends on the absorptive capacities of its individual members, which is largely a function of their prior knowledge of the markets in which a firm operates or intends to operate. In other words, for the firm to successfully develop absorptive capacity, its individual members must have prior knowledge of the domains from which potentially useful information may emerge. The rationale is that this knowledge is strongly associated with the firm's ability to value, assimilate, and apply new external information.

Although the concept of absorptive capacity has been studied extensively and both theoretical and empirical evidence points to its relationship to firm performance, the narrow R&D context within which this concept has been examined has resulted in few studies examining its role in the context of other types of business-related topics. Subsequently, other researchers have recommended that future studies extend absorptive capacity research by building on theory developed in prior studies and by extending research into several contexts, not just R&D.

Although more recent studies have examined the role of absorptive capacity within the contexts of acquisition knowledge transfer (Junni and Sarala, 2013), information systems research (Roberts, Galluch, Dinger, and Grover, 2012), education (Deschesnes, Drouin, and Couturier, 2013), and others, diversity is an important and relevant context within which absorptive capacity has yet to be explored. Other than a study conducted by Grace (2012) that focused on the theory of absorptive capacity within the context of team diversity, the absorptive capacity-diversity relationship has not been fully explored in the management literature. Therefore, one of our objectives in this paper is to examine this relationship.

Specifically, our objective is to explore the absorptive capacity process and propose it as a framework for helping to make the business case for diversity. The concept of a business case for diversity might be viewed as comprising that body of literature written by and for those seeking evidence for the value of diversity in the workplace. The fact that this body of literature is still growing indicates that the business case for diversity has not been completely or convincingly made. In addition to contributing to this literature, the model set forth in this paper represents not only a novel and parsimonious approach to making a business case for diversity but also a conceptually robust framework for understanding the components pertinent to the case. Although the proposed model shows relationships between different diversity-related constructs and the components comprising absorptive capacity, the model's overarching message is that the absorptive capacity of a diverse work force influences the purchasing behavior of a diverse consumer market which, in turn, affects the financial performance of the firm. Hence, the business case for diversity.

The conceptual model we developed for this paper enhances our understanding of the conditions under which absorptive capacity is developed within the context of diversity, and also helps advance the general theory of absorptive capacity. …

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