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Absorptive Capacity: A New Perspective on Learning and Innovation

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Wesley M. Cohen
Wesley M. Cohen
Wesley M. Cohen
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Daniel A. Levinthal at University of Pennsylvania
Daniel A. Levinthal
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Abstract

In this paper, we argue that the ability of a firm to recognize the value of new, external information, assimilate it, and apply it to commercial ends is critical to its innovative capabilities. We label this capability a firm's absorptive capacity and suggest that it is largely a function of the firm's level of prior related knowledge. The discussion focuses first on the cognitive basis for an individual's absorptive capacity including, in particular, prior related knowledge and diversity of background. We then characterize the factors that influence absorptive capacity at the organizational level, how an organization's absorptive capacity differs from that of its individual members, and the role of diversity of expertise within an organization. We argue that the development of absorptive capacity, and, in turn, innovative performance are history- or path-dependent and argue how lack of investment in an area of expertise early on may foreclose the future development of a technical capability in that area. We formulate a model of firm investment in research and development (R&D), in which R&D contributes to a firm's absorptive capacity, and test predictions relating a firm's investment in R&D to the knowledge underlying technical change within an industry. Discussion focuses on the implications of absorptive capacity for the analysis of other related innovative activities, including basic research, the adoption and diffusion of innovations, and decisions to participate in cooperative R&D ventures.
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... On the one hand, firm size has been widely seen as being positively related to innovation performance (Scherer, 1965). One of the reasons is larger firms' higher absorptive capacity, that is, the ability to recognise and assimilate knowledge (Cohen and Levinthal, 1990). The external knowledge provided by the park ecosystem (both tenants and off-park organisations) would be more easily accessed and used by large companies that, in this way, would benefit more than companies with smaller absorptive capacity (Claver-Cortés et al., 2018). ...
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... The concept of absorptive capacity was originally delineated by Cohen & Levinthal (1990, p. 128), who defined it as "the ability to recognize the value of new external information, assimilate it and apply it to commercial purposes". For the absorption of new information, Cohen & Levinthal (1990) mention that the organization must have prior knowledge to recognize the new information as relevant and thus assimilate and use new knowledge. The assimilation of external knowledge has also been approached by other authors, such as Lane & Lubatkin (1998) who present the concept of relative absorption capacity and Zahra & George (2002, p. 186), who started from the initial definition of absorption capacity, proposed the dimensions potential absorption capacity and the absorption capacity realized, and defined them as "a set of organizational routines and processes by which the company acquires, assimilates, transforms and exploits knowledge to create value". ...
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