Understanding Absorptive Capacity

Understanding Absorptive Capacity and how it works

“Absorptive capacity” is a term introduced through some academic research by Cohen & Levinthal, back in 1990 to describe an organizations “ability to recognize the value of new, external information (knowledge), assimilate it, and apply it to commercial ends”. Since then there has been significant academic contributions for exploring and validating this, in order to improve innovation performance and competitive advantage, yet it is still not well integrated into our innovation process. Why is that?

What we do need is to do is improve our HR management and network systems to build a more efficient transfer of knowledge throughout the organization so as to acquire and leverage new knowledge . This is part of applying the principles of absorptive capacity as we increasingly use more networks, external partners and collaborate with others we are accessing wider skills, inputs and competencies. We need to invest and learn what this does provide, to aid the innovation process. The theory goes that the more we understand, the more the innovative behavior and capability does goes up in potential and the more we have available a richer innovation choice .

The Model of Absorptive Capacity explores potential and realized knowledge.

The need for a distributed organization innovation knowledge system

In some studies by Van den Bosch et all (2003) they suggested the need for three combined capabilities to manage and absorb the flow of knowledge coming into the organization

1. System capabilities that are used to integrate explicit knowledge
2. Co-ordination capabilities that build upon teams that establish the routines for structuring communications
3. Socialization capabilities that begin to share a ‘certain’ ideology, understand the potential of new paradigms and work towards interpreting tacit information for the good of the community.

When organizations are acquiring new insights, new knowledge that is not as closely related to their existing knowledge base there needs to be a very active set of efforts to manage this new incoming flow. The aim here is to extract all its potential value, to absorb it and disseminate it across the relevant parties within the organization. Having the three capability parts structured clear helps establish different areas of capability focus and embed it more fully as an organizational approach to learning and gaining understanding.

Can you imagine where we  have the need for rapid learning of leading-edge knowledge that is required to be absorbed within the company, these require dedicated structured learning, and these cannot be left to individuals or ad hoc measures. When you are learning anew you are searching for cognitive structure, managing implicit, often un-codified knowledge (tacit) that is difficult to transfer and also increased complexity, where you need to absorb a greater range of ‘components’ and apply new‘ architectural’ knowledge. The difficulties multiply if you do not recognize the needs to structure knowledge as well as organize it so it can be explored in more open unbiased ways that you gain from, in diversity of thought.

The ability to use external knowledge has three sequential processes.

A)     Exploratory Learning– recognizing and understanding the potential value of the new knowledge that lies outside the organization

B)      Transformative learning– dispersing and assimilating the valuable new knowledge

C)      Exploitative learning– using the assimilated knowledge to create something different in knowledge or product and seek to exploit this in commercial ways.

The more open Absorptive Capacity Process leading to understanding and outcomes

The call for managing the effective use of knowledge

One of the central drivers of the competitiveness of organizations is its effective use of knowledge. It is the generation, acquisition, integration and application of (new) knowledge needs managers to manage learning. Knowledge underpins innovation, the more it changes, the more it becomes complex to discover, the more we have of this real need to upgrade how we experience, experiment and absorb learning. This needs structuring.

As we absorb more external knowledge from our collaborators the need is to organise this increasingly. We need to sort information into knowledge that becomes useful and actionable.   Absorptive capacity needs to be looked upon as something that should go beyond good theories into increased application through its application.

Absorptive capacity is an integral part of an organizations innovation capabilities and its healthy development is a real significant dimension of innovation management. I suggest we all need to consider its place within our fitness regime to achieve a growing  more ‘dynamic’ set of fitness capacities.