Absorptive capacity: A new perspective on learning and innovation
This paper introduces the concept or theory of absorptive capacity (AC) which the authors define as 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. The authors suggest that this is largely a function of the organization's prior knowledge and experience. To the degree that AC is important to firms, investment in R&D can lead to increased AC and, in many environments, to higher performance.
Citing March and Simon, the authors being by explaining that most innovation results from borrowing and that prior knowledge puts organizations in a better situation to acquire new innovation. As a result, firms engaged in R&D more actively may be in a better situation to use new knowledge in their own innovative endeavors. In this, the authors suggest a sort of self-reinforcing patter whereby absorptive capacity can be built by increased R&D investment.
The initial framing of the concept is from a more cognitive perspective that looks at the cognitive structures that underlying organizational learning. The authors build up from psychological literature on learning and then from individuals within organizations to organizations as whole. They describe the role that communications systems, and touch on the role that networks, in AC. In this literature on communication, they also touch on the concept of "inward-looking" and "outward-looking" AC although this does not play a huge role in their exploration.
The authors explain that AC is extremely path dependent and highly cumulative in a way that was hinted at in the beginning. In that AC facilitates learning and certain results, it can have a highly self-reinforcing effects. If one does not build AC, one will not absorb new knowledge and will not readjust one's aspiration level. In so far as these aspirations are set based on experience, AC allows an organization to see new opportunities.
AC and R&D are, in this sense, strongly connected. R&D can be seen as not only allows firms to generate knowledge but to put them in a position where they can better absorb outside knowledge, better recognize new opportunities, and more quickly react to threats. They also explain that spillovers, rather than a deterrent, may be seen as an incentive to R&D seen from the perspective of AC.
The authors offer a test of AC by running a set of regressions on R&D incentive (which is R&D spending divided by sales) against technological opportunities in a variety of fields as measured by a survey. The results basically confirmed that organizational learning is difficult but increase in the relevance of activity will spur R&D activity and that there is a positive relationship to spillovers.
Theoretical and practical relevance:
Cohen and Levinthal has been cited thousands of times and provides a fundamental text in the literature of organization learning, in the use and role of R&D, and in the fields of strategy, and technological innovation. The article is particularly important in its ability to turn the literature on appropriability, R&D, and spillovers, almost completely on its head.