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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Absorptive capacity: a new perspective on learning and innovation

The dynamic capabilities framework analyzes the sources and methods of wealth creation and capture by private enterprise firms operating in environments of rapid technological change. The competitive advantage of firms is seen as resting on distinctive processes (ways of coordinating and combining), shaped by the firm's (specific) asset positions (such as the firm's portfolio of difftcult-to- trade knowledge assets and complementary assets), and the evolution path(s) it has aflopted or inherited. The importance of path dependencies is amplified where conditions of increasing retums exist. Whether and how a firm's competitive advantage is eroded depends on the stability of market demand, and the ease of replicability (expanding intemally) and imitatability (replication by competitors). If correct, the framework suggests that private wealth creation in regimes of rapid technological change depends in large measure on honing intemal technological, organizational, and managerial processes inside the firm. In short, identifying new opportunities and organizing effectively and efficiently to embrace them are generally more fundamental to private wealth creation than is strategizing, if by strategizing one means engaging in business conduct that keeps competitors off balance, raises rival's costs, and excludes new entrants. © 1997 by John Wiley & Sons, Ltd.

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Dynamic capabilities and strategic management

This paper draws on the social and behavioral sciences in an endeavor to specify the nature and microfoundations of the capabilities necessary to sustain superior enterprise performance in an open economy with rapid innovation and globally dispersed sources of invention, innovation, and manufacturing capability. Dynamic capabilities enable business enterprises to create, deploy, and protect the intangible assets that support superior long- run business performance. The microfoundations of dynamic capabilities—the distinct skills, processes, procedures, organizational structures, decision rules, and disciplines—which undergird enterprise-level sensing, seizing, and reconfiguring capacities are difficult to develop and deploy. Enterprises with strong dynamic capabilities are intensely entrepreneurial. They not only adapt to business ecosystems, but also shape them through innovation and through collaboration with other enterprises, entities, and institutions. The framework advanced can help scholars understand the foundations of long-run enterprise success while helping managers delineate relevant strategic considerations and the priorities they must adopt to enhance enterprise performance and escape the zero profit tendency associated with operating in markets open to global competition. Copyright  2007 John Wiley & Sons, Ltd.

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Explicating dynamic capabilities: the nature and microfoundations of (sustainable) enterprise performance

Researchers have used the absorptive capacity construct to explain various organizational phenomena. In this article we review the literature to identify key dimensions of absorptive capacity and offer a reconceptualization of this construct. Building upon the dynamic capabilities view of the firm, we distinguish between a firm's potential and realized capacity. We then advance a model outlining the conditions when the firm's potential and realized capacities can differentially influence the creation and sustenance of its competitive advantage.

https://ink.library.smu.edu.sg/cgi/viewcontent.cgi?article=5629&context=lkcsb_research

Absorptive Capacity: A Review, Reconceptualization, and Extension

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Architectural Innovation: The Reconfiguration of Existing Product Technologies and The Failure of Established Firms

Fabio Arcangeli, Paul David, Frank Engelman, Christopher Freeman, Massimo Moggi, Richard Nelson, Luigi Orsenigo, Nathan Rosenberg, Michele Salvati, G. N. von Tunzelman, two anonymous referees, and the participants at the meeting of the Committee on Distribution, Growth, and Technical Progress of the Italian National Research Council (CNR), Rome, November 16, 1985, have helped with various redraftings. A particularly grateful acknowledgment is for the insightful and patient help of Moses Abramovitz. This work has been undertaken at the Science Policy Research Unit (SPRU), University of Sussex, as part of the research program of the Designated Research Centre, sponsored by the Economic and Social Research Council (ESRC). Earlier support to the research that led to this paper by the Italian National Research Council (CNR) is also gratefully acknowledged. The statistical research has been undertaken with the assistance of Stephano Brioschi, Ilaria Fornari, and Giovannu Prennushi.

https://www.jstor.org/stable/info/2726526

Sources, Procedures, and Microeconomic Effects of Innovation

Explores how technological innovation has shaped and been shaped by science, industry, and economics in the twentieth century. Technological change and specific technologies have impacted productivity, the learning process, technology transfer and technology policies. Starting with a summary of historical literature on technical progress, the book goes on to discuss and promote Karl Marx's influential method of studying technology as the result of interrelated social processes -- especially emphasizing the mutual interaction between technology and the economy. Analysis of current empirical studies shows the need for an enlarged framework for understanding the relation between the economy and technical change. Technological interdependence in the American economy is analyzed, and later expanded to encompass international business. High-tech industries are discussed as particularly reliant upon scientific research. The commercial aircraft industry from 1925-75 is also examined, as an exemplary instance in which technological innovation and government support and regulation allowed for economic success. The book concludes that scientific progress is heavily influenced by technological considerations that are, in turn, shaped by industry and economics. Thus, decisions made in the private and public sectors should affect both supply and demand, favoring the creative, mutually advantageous connection between science and technology. (CJC)

Inside the Black Box: Technology and Economics

Models that depict innovation as a smooth, well-behaved linear process badly misspecify the nature and direction of the causal factors at work. Innovation is complex, uncertain, somewhat disorderly, and subject to changes of many sorts. Innovation is also difficult to measure and demands close coordination of adequate technical knowledge and excellent market judgment in order to satisfy economic, technological, and other types of constraints—all simultaneously. The process of innovation must be viewed as a series of changes in a complete system not only of hardware, but also of market environment, production facilities and knowledge, and the social contexts of the innovation organization.

An Overview of Innovation

Part I. Some origins of American technology: 1. Technological change in the machine tool industry, 1840-1910 2. America's rise to woodworking leadership 3. Anglo-American wage differences in the 1820's Part II. The generation of new technologies: 4. Problems in the economist's conceptualization of technological innovation 5. Neglected dimensions in the analysis of economic change 6. The direction of technological change: inducement mechanisms and focusing devices 7. Karl Marx on the economic role of science Part III. Diffusion and adaptation of technology: 8. Capital goods, technology, and economic growth 9. Economic development and the transfer of technology: some historical perspectives 10. Selection and adaptation in the transfer of technology: steam and iron in America 1800-1870 11. Factors affecting the diffusion of technology Part IV. Natural resources, environment and the growth of knowledge: 12. Technology and the environment: an economic exploration 13. Technological innovation and natural resources: the niggardliness of nature reconsidered 14. Innovative responses to materials shortages 15. Science, invention, and economic growth.

Perspectives on technology

Models that depict innovation as a smooth, well-behaved linear process badly misspecify the nature and direction of the causal factors at work Innovation is complex, uncertain, somewhat disorderly, and subject to changes of many sorts Innovation is also difficult to measure and demands close coordination of adequate technical knowledge and excellent market judgment in order to satisfy economic, technological, and other types of constraints—all simultaneously The process of innovation must be viewed as a series of changes in a complete system not only of hardware, but also of market environment, production facilities and knowledge, and the social contexts of the innovation organization

Nathan Rosenberg

Papers

Sources, Procedures, and Microeconomic Effects of Innovation

Inside the Black Box: Technology and Economics

An Overview of Innovation

Perspectives on technology

An Overview of Innovation