ABSTRACT
The absorptive capacity (AC) of a firm is ‘the ability of a firm to recognize the value of new, external information, assimilate it, and apply it to commercial ends’ (Cohen and Levinthal 1990: 128). Lane et al. (2002) perceive AC as one of the most important constructs in organisational research of the past decades. They counted 189 papers that cite Cohen and Levinthal (1990) and conclude that there are three major shortcomings of this literature: ‘. . . limited attempts to revise the definition of AC, little attention to the actual process underlying absorptive capacity, and few attempts to measure it outside the R&D context’. In this chapter we address these shortcomings. First, we use a refined definition of AC (Zahra and George 2002). In this definition AC is divided into two elements, potential absorptive capacity (PACAP) and realised absorptive capacity (RACAP), the difference being related to organisational capabilities (or the lack thereof) that transform potential into realised innovation projects. Second, the process of individual learning and individual knowledge underlying organisational AC is modelled in terms of variables contributing to the AC of the firm. The way we deal with the third criticism is related to the second: we are interested in SMEs, which did not receive much attention in AC research until recently (Liao et al. 2003). They often lack R&D investment. We therefore introduce alternative indicators to supplement R&D expenditure in measuring AC. These indicators relate to the search behaviour or knowledge-gathering behaviour of the firm.
