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Absorptive Capacity: A New Perspective on Learning and Innovation

Wesley M. CohenCarnegie Mellon University (at Duke now)

Daniel A. LevinthalUniversity of Pennsylvania

Administrative Science Quarterly, Vol. 35, No. 1, Special Issue: Technology, Organizations, and Innovation. (Mar., 1990), pp.

128-152.

10/2/2013 BADM 545 presented by Yaxian Xie

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Absorptive Capacity (AC) • Definition – the ability of a firm to recognize the value of new,

external information, assimilate it and apply it to commercial ends;

–Firm level –Prior related knowledge matters • Develops as – Byproduct of R&D investment; – Byproduct of manufacturing operations;– Direct investment;

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Cognitive Basis

• Premise– Organization needs prior related knowledge to

assimilate and use new knowledge • Individual level

– ; • Organizational level

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Path Dependence and Absorptive Capacity

• Absorptive Capacity Innovative Performance– Cumulativeness – Expectation formation

• Extreme case of Path Dependence: “Lockout” – Initial investments in AC matters; – Absorptive Capacity influences organizations’

aspiration levels

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Absorptive Capacity and R&D Investment

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Factors affecting learning incentives= Factors affecting AC

Ease of Learnin

g

Characteristics of

Knowledge

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Absorptive Capacity and R&D Investment

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Methods • Data

– Cross-sectional survey data: Technological Opportunity (TO) and Appropriability conditions

– Secondary data: Sales, transfers and R&D expenditures – Sample: 1719 business units representing 318 firms

• Measures – TO:

• relevance or importance of the science base of the industry and extra-industry sources of knowledge

– Appropriability (-spillover) • The effectiveness of six mechanisms used by firms to capture and protect the

competitive advantages of new processes and new products

– Ease of Learning • Dummy variable (1: relevance to basic fields>applied fields)

– Interdependence • Industry competitiveness10/2/2013

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Results (part)

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• TO • Basic fields >

applied fields • Extraindustry

sources: more important

• Appropriability • Learning

environment matters;

• Moderating effect of competitor interdependence

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Implications for Innovative Activities

• Investments in basic research – R&D Absorptive Capacity (critical overlap in

knowledge base)• Adoption and diffusion of innovations

• Cooperative research ventures – More in industries with mature technology – More pressure on short-term objectives

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Conclusions

• R&D investments are responsive to the need to develop AC;

• Characteristics of learning environment matter to R&D

investments

– Absorptive Capacity resource allocation for innovative activity

• Further Question

– When is a firm most likely to underinvest in AC to its own long-run

detriment?

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