absorptive capacity: a review, reconceptualization, and

* Academy of Managemenl fleviewZDOZ. Vol. 17. No. 2, 185-203.

ABSORPTIVE CAPACITY: A REVIEW,RECONCEPTUALIZATION, AND EXTENSION

SHAKER A. ZAHRAGeorgia State University

GERARD GEORGEUniversity of Wisconsin-Madison

Researchers have used the absorptive capacity construct to explain various organi-zational phenomena. In this article we review the literature to identify key dimensionsof absorptive capacity and offer a reconceptualization of this construct. Building uponthe dynamic capabilities view o( the firm, we distinguish between a firm's potentialand realized capacity. We then advance a model outlining the conditions when thefirm's potential and realized capacities can difierentially influence the creation andsustenance of its competitive advantage.

In recent years researchers have used absorp-tive capacity (ACAP) in their analyses of di-verse, significant, and complex organizationalphenomena. The importance of ACAP has beennoted across the fields of strategic management(Lane & Lubatkin. 1998; Nahapiet & Ghoshal,1998), technology management (Schilling, 1998),international business (Kedia & Bhagat, 1988),and organizational economics (Glass & Saggi,1998). Despite growing use of the construct, thestudy of ACAP remains difficult because of theambiguity and diversity of its definitions, com-ponents, antecedents, and outcomes. These is-sues highlight a need for greater clarity aboutthe domain and operationalization of this con-struct (Joglekar, Bohl, & Hamburg, 1997; Matusik& Heeley, 2001).

In this article we propose a reconceptualiza-tion oi ACAP as a dynamic capability pertainingto knowledge creation and utilization that en-hances a firm's ability to gain and sustain acompetitive advantage. Research on the dy-namic capabilities of the firm (Eisenhardt &Martin, 2000; Raff, 2000) offers new insights into

An earlier, abridged version of this paper was publishedin the Best Paper Proceedings oi the annual meeting of theAcademy of Management (2000). in Toronto. We express ourgratitude to Bert Cannella and three anonymous AMR re-viewers for their developmental feedback. We thank PamBarr, Steve Floyd, Mike Hitt, Mike Lubatkin, and Patricia H.Zahra for their comments, which strengthened the manu-script. Gerard George acknowledges the support of theWeinert Center for Entrepreneurship at the University ofWisconsin-Madison.

the study of ACAP. Researchers argue that dy-namic capabilities are embedded in organiza-tional processes and are directed toward en-abling organizational change and evolution(Zott, 2001). These capabilities enable the firm toreconfigure its resource base and adapt tochanging market conditions in order to achievea competitive advantage.

Here we suggest that ACAP exists as two sub-sets of potential and realized absorptive capac-ities. Potential capacity comprises knowledgeacquisition and assimilation capabilities, andrealized capacity centers on knowledge trans-formation and exploitation. Reviewing prior re-search, we observe that most empirical studiesshow significant relationships between ACAPand innovative output and other outcomes thatpertain to creating a competitive advantage.These outcomes reflect a firm's realized capac-ity. The potential capacity component, however,has received disproportionately less empiricalscrutiny when compared with realized capacity.In this article we posit that potential capacityprovides firms with the strategic flexibility andthe degrees of freedom to adapt and evolve inhigh-velocity environments. By doing so, poten-tial capacity allows firms to sustain a competi-tive advantage even in a dynamic industry con-text.

We make three contributions to the literaturein this article. First, we recognize ACAP as adynamic capability that influences the natureand sustainability of a firm's competitive ad-vantage. This distinction facilitates analysis of

IBS

186 Academy of Management Review April

ACAP by enabling researchers to explore itsdifferent antecedents and consequences. View-ing ACAP as a dynamic capability also makes itamenable to change through managerial ac-tions that effectively redefine and deploy thefirm's knowledge-based assets (Floyd & Lane,2000). Also, we broaden the theoretical interpre-tation of the ACAP construct by presenting it asa dynamic capability that influences the cre-ation of other organizational competencies andprovides the firm with multiple sources of com-petitive advantage (Barney, 1991), thereby im-proving economic performance.

Second, we recognize the roles and impor-tance of different components of a firm's ACAP,setting the stage for future research on the rela-tionships among these components and theirinfluence on a firm's strategic choices. By spec-ifying and examining these dimensions, weclarify the development and evolution of dy-namic capabilities that determine the pathwaysof organizational change.

Third, by identifying conditions under whichthe components of ACAP create value, we pro-vide some insights into the questions "Whatdrives performance differences within the sameindustry?" and "How do firms sustain such dif-ferences over time?" These issues are central tothe analysis of a firm's evolution, knowledgemanagement, and development of dynamic ca-pabilities.

PAST RESEARCH ON ACAP

Researchers have used the ACAP construct toexplain organizational phenomena that spanmultiple levels of analysis by invoking the or-ganizational learning (Huber, 1991; Kim, 1998),industrial economics (e.g., Cockburn & Hender-son, 1998), resource-based (Lane & Lubatkin,1998), and dynamic capabilities (Mowery, Oxley,& Silverman, 1996) perspectives. Table 1 summa-rizes representative empirical studies usingACAP, showing that researchers have studiedthe effects of ACAP at different levels of analy-sis while adopting multiple measures of thisconstruct. However, it is unclear if these mea-sures converge to capture similar attributes ofthe same construct, indicating a much-neededdialogue on the definition and dimensions ofACAP. Below we address both these issues.

Past research indicates an implicit consensusof the role and outcomes of ACAP as a set of firm

abilities to manage knowledge. Yet definitionsand operationalizations of this construct varywidely. Some researchers have used the termACAP without a definition (e.g.. Glass & Saggi,1998; Keller, 1996), whereas others have invokedthe term broadly to indicate a firm's receptivityto technological change (Kedia & Bhagat, 1988)or to gauge the ability of a firm to use outsideknowledge (Koza & Lewin, 1998). Analysis ofpast research reveals three definitions that havedominated the literature on ACAP. These defini-tions converge to some extent but also differ inmajor ways and highlight different dimensions,as summarized in Table 2.

Cohen and Levinthal (1990) have offered themost widely cited definition of ACAP, viewing itas the firm's ability to value, assimilate, andapply new knowledge. Mowery and Oxley (1995)offer a second definition of ACAP as a broad setof skills needed to deal with the tacit componentof transferred knowledge and the need to modifythis imported knowledge. Kim (1997a,b, 1998) of-fers a third definition of ACAP as the capacity tolearn and solve problems. As Table 2 indicates,there is agreement that ACAP is a multidimen-sional construct involving the ability to value,assimilate, and apply knowledge (Cohen &Levinthal, 1990) or is a combination of effort andknowledge bases (Kim, 1998; Mowery & Oxley,1995). However, as summarized in Table 1, em-pirical studies do not always capture the richtheoretical arguments and the multidimension-ality of the ACAP construct. To improve futuremeasures, we need to reconceptualize the vari-ous dimensions of ACAP and clearly defineeach.

A RECONCEPTUALIZATION OF ACAP

Building upon the research summarized in Ta-bles 1 and 2, we define ACAP as a set of organ-izational routines and processes by which firmsacquire, assimilate, transform, and exploitknowledge to produce a dynamic organizationalcapability. We believe that these four capabili-ties represent four dimensions of ACAP andplay different but complementary roles in ex-plaining how ACAP can influence the organiza-tional outcomes reported in Table 1. Our defini-tion departs from past research in two ways.First, ACAP is viewed as a dynamic capabilityembedded in a firm's routines and processes,making it possible to analyze the stocks and

w

uaoU

o

ra u

•5 t

3 S

s £:

0 gw S

llui

tual

IT3

1n

•3 .2 S

.S I

II

„ c o s

e -3,

« a a _ S ccw 8 S 2 3 c

^ QI V 6 G m

5 i •= ° B

n. u .9

S -9

hi

01

•sa

O 3

2 B U

fill£ o c £

a a e -5•s •" I ^

a 5 e

i! -3

J3 Ol ^

'o -c S "o

.1 ^ I11

5 i!§ B

t-s

B S

S I S 11 Iu

188 Academy of Management Review

TABLE 2Past Conceptualization of ACAP

April

Definition Dimensions Illustrative Studies

The ability to value, assimilate,and apply new knowledge(Cohen & Levinthal, 1990)

A broad array of skills, reflectingthe need to deal with the tacitcomponents of transferredtechnology, as well as thefrequent need to modify aforeign-sourced technology fordomestic applications (Mowery& Oxley, 1995)

ACAP requires learningcapability and developsproblem-solving skills;learning capability is thecapacity to assimilateknowledge—for imitation—<indproblem-solving skills tocreate new knowledge—forinnovation (Kim, 1998)

Ability fo value knowledge through pastexperience and investment

Ability to assimilate• based on knowledge characteristics• based on organizational or alliance dyad

characteristics• based on technological overlap

Ability to apply• based on technological opportunity

(amount ol external relevant knowledge)• based on appropriability (ability to

protect innovation)

Human capital:• skill level of personnel• trained R&D personnel as percent of

population• trained engineering graduates• R&D spending

Prior knowledge base; intensity of effort

Boynton, Zmud, & Jacobs (1994);Cohen & Levinthal (1989, 1990);Cockburn & Henderson (1998);Lane & Lubatkin (1998); Mowery,Oxley, & Silverman (1996);Szulanski (1996)

Glass 8f Saggi (1998); Keller (1996);Kim & Dahlraan (1992); Liu &White (1997); Luo (1997); Mowery8t Oxley (1995); Veugelers (1997)

Kim (1995, 1997a,b); Matusik &Heeley (2001); Van Wijk, Van denBosch, & Volberda (2001)

flows of a firm's knowledge and relate thesevariables to the creation and sustainability ofcompetitive advantage. Second, this definitionsuggests that the four capabilities that make upACAP are combinative in nature and build uponeach other to produce a dynamic organizationalcapability.

It is important to distinguish between capa-bilities and dynamic capabilities in order to ap-preciate the merits of our proposed definition.Winter views a capability as "a high level rou-tine that, together with its implementing inputflows, confers upon an organization's manage-ment a set of decision options for producingsignificant outputs of a particular type" (2000:983). Winter also notes that a capability is re-flected in an activity that produces outputs thatclearly matter to the organization's survival andprosperity. Examples of capabilities are Dell'sstreamlined production capabilities and Coca-

Cola's global marketing capabilities. Dynamiccapabilities, however, are geared toward effect-ing organizational change; they are essentiallystrategic in nature (Teece, Pisano, & Shuen, 1997)and, therefore, define the firm's path of evolu-tion and development. Our definition suggeststhat the four organizational capabilities ofknowledge acquisition, assimilation, transfor-mation, and exploitation build on each other toyield ACAP—a dynamic capability that influ-ences the firm's ability to create and deploy theknowledge necessary to build other organiza-tional capabilities (e.g., marketing, distribution,and production). These diverse capabilities givethe firm a foundation on which to achieve acompetitive advantage that yields superior per-formance (Barney, 1991).

Thus, our definition subsumes the three defi-nitions reported earlier in Table 2 and accountsfor all their subcomponents. Mowery and Oxley

2002 Zahra and Gfeorge 189

(1995) and Kim (1998) stress the importance ofimporting new knowledge, which forms the ac-quisition dimension. Cohen and Levinthal's(1990) definition highlights the assimilation andexploitation dimensions. Kim (1998) suggeststhat the ability to solve problems comes frommodified knowledge, which is the basis for thetransformation dimension. In Table 3 we relateeach of the four dimensions that compose ACAPto its respective components, roles, and impor-tance. These dimensions are discussed next.

Dimensions of ACAP

Table 3 highlights four distinct but comple-mentary capabilities that compose a firm'sACAP: acquisition, assimilation, transforma-tion, and exploitation. Following Eisenhardt andMartin (2000), we argue that although these ca-pabilities have some commonalities across dif-ferent firms and attain equifinality, they are id-iosyncratic in the specific ways firms pursue,develop, and employ them. This variabilitygives firms a basis to develop different types ofcompetitive advantage. Below we explain eachcapability and how they are combined to pro-duce a firm's ACAP.

Acquisition. Acquisition refers to a firm's ca-pability to identify and acquire externally gen-erated knowledge that is critical to its opera-tions. Effort expended in knowledge acquisition

routines has three attributes that can influenceACAP: intensity, speed, and direction. The inten-sity and speed of a firm's efforts to identify andgather knowledge can determine the quality ofa firm's acquisition capabilities. The greater theeffort, the more quickly the firm will build req-uisite capabilities (Kim, 1997a,b). Obviously,there are limits to a firm's ability to achieve thisspeed, because learning cycles cannot be short-ened easily and some of the resources needed tobuild ACAP are not quickly assembled (Clark &Fujimoto, 1991). The direction of accumulatingknowledge can also influence the paths that thefirm follows in obtaining external knowledge.These activities vary in their richness and com-plexity, highlighting a need to have differentareas of expertise within a firm to successfullyimport external technologies (Rocha, 1997).

Assimilation. Assimilation refers to the firm'sroutines and processes that allow it to analyze,process, interpret, and understand the informa-tion obtained from external sources (Kim,1997a,b; Szulanski, 1996). Ideas and discoveriesthat fall beyond a firm's search zone are over-looked because the firm cannot easily compre-hend them (Cyert & March, 1963; Rosenkopf &Nerkar, 2001). Externally acquired knowledgemay embody heuristics that differ significantlyfrom those used by the firm, delaying compre-hension of the knowledge (Leonard-Barton,1995). External knowledge is also context spe-

TABLE 3Dimensions of ACAP: A Reconceptualization of Components and Corresponding Roles

Dimensions/Capabilities Components Role and Importance Citations

Acquisition

Assimilation

Transformation

Exploitation

• Prior investments• Prior knowledge• Intensity• Speed• Direction

Understanding

• Internalization• Conversion

• Use• Implementation

• Scope oi search• Perceptual schema• New connections• Speed of learning• Quality of leaming

• Inferpretation• Comprehension• Learning

• Synergy• Recodification• Bisociation

• Core competencies• Harvesting resources

Boynton, Zmud, & Jacobs {1994); Cohen &Levinthal (1990); Keller (1996); Kim(1998); Lyles & Schwenk (1992); Mowery,Oxley, & Silverman (1996); Van Wijk,Van den Bosch, & Volberda (2001);Veugelers (1997)

Dodgson (1993); Fichman & Kemerer(1999); Kim (1998); Lane & Lubatkin(1998); Szulanski (1996)

Fichman & Kemerer (1999); Koestler (1966);Kim (1997b, 1998); Smith 8f DeGregorio(in press)

Cohen & Levinthal (1990); Dodgson (1993);Kim (1998); Lane & Lubatkin (1998);Szulanski (1996); Van den Bosch,Volberda, & de Boer (1999); Van Wijk,Van den Bosch, & Volberda (2001)

190 Academy of Management Review AprU

cific. which often prevents outsiders from under-s tanding or replicating this knowledge (Szulan-ski, 1996). Comprehension is especially difficultwhen the value of knowledge depends on theexistence of complementary asse t s that may notbe avai lable to the recipient firm (Teece, 1981).Comprehension, however, promotes knowledgeassimilat ion that allows firms to process andinternalize externally generated knowledge.

Transformation. Transformation denotes afirm's capabili ty to develop and refine the rou-tines that facilitate combining existing knowl-edge and the newly acquired and assimilatedknowledge. This is accomplished by adding ordelet ing knowledge or simply by interpretingthe s a m e knowledge in a different manner .Transformation changes the character of knowl-edge through bisociation, which occurs when asi tuat ion or idea is perceived in "two self-consistent but incompatible frames of refer-ence" (Koestler, 1966: 35). Thus, the ability offirms to recognize two apparent ly incongruoussets of information and then combine them toarrive at a new schema represents a transfor-mation capability. This capability, which ar isesfrom the bisociation process, shapes the entre-preneurial mindset (McGrath & MacMillan, 2000)and fosters entrepreneurial action (Smith & De-Gregorio, 2002). It yields new insights, facilitatesthe recognition of opportunities, and, at thesame time, al ters the way the firm sees Itselfand its competitive landscape . It is in these var-ied activities that the genesis of new competen-cies can be found. Research into strategicchange highlights the importance of new knowl-edge for reframing the firm's definition of theindustry and competitive strategy (e.g., Chris-tensen, Suarez, & Utterback. 1998). In research inentrepreneurship and the growth of firms, in-cluding new ventures, scholars make a similarclaim (e.g., Zahra, Ireland, & Hitt, 2000). Recog-nizing the transformation component of ACAP,therefore, helps to open the black box that hasdominated prior research on organizationaltransformation and strategic change.

Exploitation. Cohen and Levinthal's (1990) def-inition of ACAP emphasizes the application ofknowledge. We build on this insight by incorpo-rating exploitation as a dimension of ACAP. Ex-ploitation as an organizational capability isbased on the routines that allow firms to refine,extend, and leverage existing competencies orto create new ones by incorporating acquired

and transformed knowledge into its operations.The primary emphasis is on the routines thatallow firms to exploit knowledge. Firms may beable to exploit knowledge serendipitously, with-out systematic routines. However, the presenceof such routines provides structural, systemic,and procedural mechanisms that allow firms tosustain the exploitation of knowledge over ex-tended periods of time. Exploitation reflects afirm's ability to harvest and incorporate knowl-edge into its operations (Tiemessen, Lane, Cros-san, & Inkpen, 1997; Van den Bosch et al., 1999). Itrequires retrieving knowledge that has alreadybeen created and internalized for use {Lyles &Schwenk, 1992). The outcomes of systematic ex-ploitation routines are the persistent creation ofnew goods, systems, processes, knowledge, ornew organizational forms (Spender, 1996). Ex-ploitation is evident, for example, in new ven-tures that capture knowledge from their market,competition, and customers, and then in whichknowledge is used to create new competencies.Similarly, successful established companies arelikely to establish routines that target and de-ploy their knowledge to enhance existing initi-atives or encourage new initiatives within afirm (Rumelt. 1987).

The above discussion clarifies the four dimen-sions of ACAP. We now turn our attention to howthese dimensions build upon each other to makeACAP into a coherent dynamic capability thatfosters organizational change and evolution. Todo so, we posit that acquisition and assimilationcapabilities are dimensions of "potential" ca-pacity and that transformation and exploitationcapabilities are dimensions of "realized" capac-ity. We suggest that potential and realized ca-pacities are two components of ACAP. Below wediscuss their role and importance. ,

Potential and Realized ACAP

Potential ACAP (PACAP) makes the firm re-ceptive to acquiring and assimilating externalknowledge (Lane & Lubatkin, 1998). It capturesCohen and Levinthal's (1990) description of afirm's capability to value and acquire externalknowledge but does not guarantee the exploita-tion of this knowledge. Realized ACAP (RACAP)is a function of the transformation and exploita-tion capabilities discussed earlier. RACAP re-flects the firm's capacity to leverage the knowl-edge that has been absorbed.

2002 Zahra and George 191

PACAP and RACAP have separate but com-plementary roles. Both subsets of ACAP coexistat all times and fulfill a necessary but insuffi-cient condition to improve firm performance. Forexample, firms cannot possibly exploit knowl-edge without first acquiring it. Similarly, firmscan acquire and assimilate knowledge butmight not have the capability to transform andexploit the knowledge for profit generation.Therefore, a high PACAP does not necessarilyimply enhanced performance. RACAP involvestransforming and exploiting the assimilatedknowledge by incorporating it into the firm'soperations, thereby improving its performance.

We term the ratio of RACAP to PACAP as theefficiency factor (TJ). The efficiency factor sug-gests that firms vary in their ability to createvalue from their knowledge base because ofvariations in their capabilities to transform andexploit knowledge. In firms with a high effi-ciency factor. RACAP approaches PACAP. Giventhat profits are created primarily throughRACAP (Grant. 1996a,b). firms that achieve ormaintain a high efficiency factor are positionedto increase their performance.

Baker. Miner, and Eesley (in press) concludethat firms develop Improvisational learningskills that differ from their innovation executionskills. These authors found that some firms pos-sessed a strong ingenuity to understand com-plex technical problems but were not as effec-tive in translating such knowledge into productinnovation strategies. This corroborates theneed to distinguish between the capabilities toacquire and assimilate knowledge (PACAP) andthe capabilities to transform and exploit thisknowledge (RACAP) and to account for the effi-ciency with which organizations leverage bothPACAP and RACAP.

The theoretical distinction between PACAPand RACAP is important in evaluating theirunique contributions to a firm's competitive ad-vantage. First, this distinction helps explainwhy certain firms are more efficient than othersin using ACAP. Despite the importance ofPACAP. RACAP is the primary source of perfor-mance improvements. Distinguishing betweenPACAP and RACAP shows that some firms areinefficient in leveraging their PACAP and there-fore cannot improve performance. It also showsthe different ways these two components con-tribute toward building the firm's competitiveadvantage. Second, exogenous and endogenous

forces, which we discuss later, may differen-tially influence potential and realized ACAP. in-dicating that different managerial roles arenecessary to nurture and harvest these two com-ponents of ACAP. And third, distinguishing be-tween PACAP and RACAP provides a basis forobserving and examining the fluid and nonlin-ear paths that organizations may follow in de-veloping their core competencies. Making thedistinction between PACAP and RACAP can al-low researchers to study why some firms failbecause of changes in the external environ-ments, such as technological lockout or industryshocks (Bower & Christensen, 1995). while othersthrive under the same conditions.

A MODEL OF ACAP

Here we advance a model that connects theantecedents, moderators, and outcomes of thisconstruct (Figure 1). This model highlights exter-nal sources of knowledge and experience as keyantecedents of ACAP, It also suggests when cer-tain triggers activate ACAP. The discussion in-dicates that both PACAP and RACAP differen-tially contribute to competitive advantage.

Antecedents of ACAP

External sources and knowledge complemen-tarity. Figure 1 suggests that external knowl-edge sources, in various forms, significantly in-fluence PACAP. Relevant prior knowledge formsthe content of a firm's ACAP (Ford. 1996; Schill-ing, 1998). External knowledge sources includeacquisitions (Chaudhuri & Tabrizi, 1999); pur-chasing, through licensing and contractualagreements (Granstrand & Sjolander, 1990); andinterorganizational relationships, includingR&D consortia. alliances, and joint ventures(Vermeulen & Barkema. 2001). A firm's exposureto knowledge within its environment will inilu-ence decision making (March & Simon. 1993)and the development of future capabilities(McGrath, MacMillan. & Venkataraman, 1995).Van Wijk and colleagues (2001) confirm that thebreadth and depth of knowledge exposure pos-itively influence a firm's propensity to explorenew and related knowledge. Clearly, firms ac-quire knowledge from different sources in theirenvironment, and the diversity of these sourcessignificantly influences the acquisition and


0 d

•Q0

od

o

\

"ad

o

on

j ^

ion

0

SUl

I-

1hia0

2

Ot

•c

iI

1

ure

0to0)0)

o

•d"3

a«S"aS0u

vu<u•c

Ol


assimilation capabilities that constitute theirPACAP.

Exposure to knowledge per se does not guar-antee that a firm will have higher levels ofACAP (Matusik, 2000). Exposure to diversesources does not necessarily lead to PACAP de-velopment, especially If these sources have lowknowledge complementarity with the firm.Lofstrom (2000) reports that knowledge comple-mentarity, defined as the extent to which knowl-edge is related to and at the same time differentfrom the knowledge of contacts in their informa-tion networks, is positively related to a firm'slearning. This suggests that the diversity of ex-posure and the degree of overlap between theknowledge bases of the external source andthe firm can enhance the firm's PACAP (Cock-burn & Henderson, 1998; Lane & Lubatkin, 1998;Matusik & Heeley, 2001). Therefore, we posit thefollowing.

Proposifion I: The greater a firm's ex-posure to diverse and complementaryexternal sources of knowledge, thegreater the opportunity is for the firmto develop its PACAP.

Experience. Past experience defines the lo-cus of a firm's technological search (Rosenkopf& Nerkar, 2001)—firms search for informationin areas where they have had past successes(Christensen, 1998; Cyert & March, 1963). Bydirecting knowledge search areas, past expe-rience influences the development of futureacquisition capabilities. Firms gain experi-ence through exposure to, impact of, andknowledge of particular skills and capabili-ties (Hedberg, 1981; Herriot, Levinthal, &March, 1985). Experience is the product of en-vironmental scanning (Fahey, 1999), bench-marking (Garvin, 1993; Stata, 1989), interac-tions with customers (Nonaka & Takeuchi,1995), and alliances with other firms (Lane &Lubatkin, 1998). Some experiences are alsogained from learning-by-doing (Levitt &March, 1988; Rosenberg, 1982), which enablesthe firm to develop new routines (Nelson &Winter, 1982) that influence the locus of afirm's future search for knowledge.

Experience is also closely connected to or-ganizational memory (Walsh & Ungson,1991)—the depository of a firm's knowledge(Herriot et al., 1985). Moorman and Miner (1996),for example, conclude that organizational

memory is closely related to new product de-velopment and product performance. Conse-quently, these authors posit that memory af-fects new product development by influencingthe process by which firms interpret incominginformation and act upon it. Similarly, Tripsasand Gavetti (2000) observe that experience sig-nificantly influences managerial cognition,which eventually determines a firm's ability tomanage knowledge. Thus, a firm's PACAP is apath-dependent capability that is influencedby its past experiences that are internalizedas organizational memory. As experience re-flects a firm's successes and failures over time(Nelson & Winter, 1982), it can also signifi-cantly determine how firms acquire and as-similate new knowledge, as well as the locusof their future technological search. An out-come of continued exploration in a firm'ssearch zone is a more developed and refinedcapability to acquire and assimilate externalknowledge, which increases PACAP.

Proposition 2: Experience will influ-ence the development of a firm'sPACAP. Specifically, experience influ-ences the locus of search and the de-velopment of path-dependent capa-bilities of acquisition and assimilationof externally generated knowledge.

Activation triggers. As indicated in Figure 1,we expect activation triggers to moderate theimpact of knowledge sources and experienceon ACAP development. Triggers are eventsthat encourage or compel a firm to respond tospecific internal or external stimuli (Walsh &Ungson, 1991; Winter, 2000). Internal triggerscould be in the form of organizational crises,such as performance failure, or importantevents that redefine a firm's strategy (e.g.,mergers). Kim (1998) illustrates that a crisis,although a negative event, can intensify afirm's efforts to achieve and learn new skillsand to develop new knowledge that increasesACAP. Crises threaten a firm's existence, pos-sibly stimulating learning (Winter, 2000) andleading it to explore, acquire, and internalizeexternal knowledge (Kim, 1997a). External trig-gers are events that may influence the futureof the industry in which the firm operates(Bower & Christensen, 1995). They include rad-ical innovations, technological shifts, emer-

194 Academy of Managemenf fleview April

gence of a dominant design, and changes ingovernment policy, among others.

Internal and external triggers induce or inten-sify a firm's efforts to seek external knowledge(Huber, 1991; Winter, 2000). When triggers arewide in their scope and potential impact or arepersistent, firms are likely to seek externalknowledge. However, some triggers may requirea different type of knowledge that is not avail-able within the firm or is not easily acquired onthe market (Chaudhuri & Tabrizi, 1999). As theintensity of triggers increases, the firm investsheavily in building its ACAP. For instance, achange in the dominant design within an indus-try will compel the firm to expend effort in ac-quiring the information necessary to developthe new technology—a process that willbroaden its PACAP. Similarly, Kim (1998) pro-vides the example of Hyundai's creating a senseof crisis as an organizational response to galva-nize the effort and investment necessary to ac-quire knowledge to develop its own innovativelineup of automobiles. Therefore, as the inten-sity of a trigger increases, firms are likely toallocate additional resources needed to developthe capabilities to acquire and assimilate exter-nally generated knowledge.

The source of a trigger is likely to influencethe locus of technological search (Doz, Oik, &Ring, 2000). Radical technological shifts encour-age a firm to invest resources in acquiring spe-ciiic information relevant to the new technology,thereby determining the locus of its search andthe content of information sought (Rosenkopf &Nerkar, 2001). The intensity of the trigger willinfluence a firm's investments in developing thecapabilities to acquire and assimilate thisknowledge, with the intention of exploiting it toimprove firm performance or avoiding a techno-logical lockout (Tegarden, Hatfield, & Echols,1999). This discussion suggests the followingproposition.

Proposition 3: Activation triggers willinfluence the relationship between(he source of knowledge and experi-ence and PACAP. Specifically, thesource of an activation trigger will in-fluence the Jocus of search for externalsources of knowledge while the inten-sity of the trigger will influence theinvestments in developing the requi-

site acquisition and assimilation ca-pabilities.

Social Integration Mechanisms and theEfficiency Factor (i)) in ACAP

Knowledge exploitation requires the sharingof relevant knowledge among members of thefirm (Spender, 1996) in order to promote mutualunderstanding and comprehension (Garvin,1993). Social integration mechanisms can facili-tate the sharing and eventual exploitation ofknowledge. Firms do not always foster the effec-tive sharing or integration of knowledge, how-ever. Structural (Garvin, 1993), cognitive (Garud& Nayyar, 1994), behavioral (David, 1985), andpolitical (Foster, 1986) barriers may stifle knowl-edge sharing and integration. Nahapiet andGhoshal (1998) suggest that structural, cogni-tive, and relational dimensions of social inter-action also influence the creation of intellectualcapital.

Social integration contributes to knowledgeassimilation, occurring either informally (e.g.,social networks) or formally (e.g., use of coordi-nators). Informal mechanisms are useful in ex-changing ideas, but formal mechanisms havethe advantage of being more systematic. Formalsocial integration facilitates distributing infor-mation within the firm as well as gathering in-terpretations and identifying trends. For exam-ple, Sheremata (2000) observes that certainorganizational structures increase employee in-teraction, promoting problem solving and cre-ative action. Firms that use social integrationmechanisms that build such connectedness aretherefore positioned to make their employeesaware of the types of data that constitute theirPACAP. These mechanisms also facilitate thefree flow of information (Sheremata, 2000), al-lowing the firm to transform and exploit thisinformation (Chaudhuri & Tabrizi, 1999). Theseobservations suggest the following.

Proposition 4: Use of social integrationmechanisms reduces the gap betweenPACAP and RACAP, thereby increas-ing the efficiency factor (r)). Social in-tegration mechanisms lower the bar-riers to information sharing whileincreasing the efficiency of assimila-tion and transformation capabilities.

- • ) ,


ACAP and Sustainable Competitive Advantage

One source of intraindustry performancevariations lies in the differences in firms' uti-lization of organizational resources and capa-bilities (Spender, 1996; Teece et al., 1997).When resources are valuable, rare, inimitable,and nonsubstitutable, they can give the firm acompetitive advantage (Barney, 1991). A firm'scapability to effectively create, manage, andexploit knowledge is one such critical re-source (Matusik & Hill, 1998). As a bundle ofknowledge-based capabilities, therefore,ACAP can be a source of a firm's competitiveadvantage.

While there are many ways a firm canachieve a competitive advantage, two of themost important in dynamic markets are inno-vation and strategic flexibility (Barney, 1991).The transformation and exploitation capabili-ties that RACAP comprises are likely to influ-ence firm performance through product andprocess innovation. For instance, Kazanjian,Drazin, and Glynn (in press) observe that firmsrequire knowledge leveraging and recombin-ing skills to pursue product line extension ornew product development. RACAP includestransformation capabilities, which, throughthe process of bisociation, help firms to de-velop new perceptual schema or changes toexisting processes. Exploitation capabilitiestake this a step further and convert knowledgeinto new products (Kogut & Zander, 1998).Given that RACAP is based on knowledge ex-ploitation (March, 1991), it enhances perfor-mance (Liebeskind, 1996) and yields a compet-itive advantage.

In explaining why firms exhibit performancedifferences, Eisenhardt and Martin (2000) notethat firms begin their capability developmentfrom different starting points. Over time, how-ever, these capabilities converge to an industrystandard wherein competitor capabilities aresimilar in key attributes. This equifinalitymakes sustaining a competitive advantage dif-ficult, because capabilities may be fungible andeasily substituted owing to commonalities intheir key attributes.

Using a simulation study, Zott (2001) departsfrom this conclusion by suggesting that the tim-ing of capability deployment and the differen-tial costs associated with organizational changeamong firms will sustain performance differ-

ences across firms. Similarly, in a study of phar-maceutical firms, Cockburn, Henderson, andStern (2000) conclude that although there may beequifinality in capabilities, the key to a compet-itive advantage lies in the firm's ability to iden-tify and respond to environmental cues well inadvance of performance-oriented payoffs. Thisindicates that firms may possess similar capa-bilities, but performance differences arisefrom the different developmental paths firmsfollow and the timing of deployment of thesecapabilities.

In Proposition 2 we note that the develop-ment of a firm's PACAP is path dependent andinfluenced by its past experience. This pathdependence in developing capabilities candetermine a firm's success or failure. For in-stance, Ahuja and Lampert (2001) observe thatfirms may fall into three types of competencetraps: familiarity, maturity, and propinquity.Familiarity traps result from an overemphasison refining and improving existing knowl-edge, preventing the firm from exploring alter-nate knowledge sources and limiting the or-ganization's cognitive schemas. Maturitytraps result from a need to have reliable andpredictable outputs, which can limit knowl-edge exploration, Propinquity (nearness) trapsreflect a firm's disposition to explore knowl-edge in areas closest to its existing expertise,precluding an examination of radical shifts inthe industry. These competence traps causefirms to get blindsided by radical innovationsthat can transform their industry, leading tothe firms' failure (Christensen, 1997; Zajac &Bazerman, 1991). Some scholars have high-lighted the importance of overcoming suchcompetence traps in organizational learningor risk missing the window of opportunity dur-ing industry upheaval (Tyre & Orlikowski,1994; Winter, 2000).

Firms with well-developed capabilities of ac-quisition and assimilation (PACAP) are likely tobe more adept at continually revamping theirknowledge stock by spotting trends in their ex-ternal environment and internalizing thisknowledge, thus overcoming some of the com-petence traps discussed above. Being adept hastwo dimensions: timing and costs. First, a devel-oped PACAP helps firms track changes in theirindustries more effectively and therefore facili-tates the deployment of necessary capabilities,such as production and technological competen-


cies, at the opportune moment. For example. Lei,Hitt, and Bettis (1996) argue that core competen-cies that are grounded in learning form the ba-sis of sustained competitive advantage.

Second, given that capabilities are capturedin a firm's routines, as the firm gains experienceand manages its routines more effectively, thecosts associated with capability developmentdecrease over time. A developed PACAP re-duces sunk investments in changing the firm'sresource positions and operational routines. Thecosts of change are likely to be low when firmshave accumulated adequate knowledge andprior experience with the new knowledge orskill base (Teece et al., 1997; Zander & Kogut,1995; Zott, 2001).

PACAP plays an important role in renewing afirm's knowledge base and the skills necessaryto compete in changing markets. Firms that areflexible in using their resources and capabili-ties can reconfigure their resource bases to cap-italize upon emerging strategic opportunities(Raff, 2000). These opportunities may help thefirms sustain superior performance because offirst mover advantages (Ferrier, Smith, &Grimm, 1999), responsiveness to customers (Ma-tusik & Hill, 1998), or other strategic advantages.Thus, the components of ACAP could lead to andsustain a competitive advantage when de-ployed judiciously and in combination with afirm's other complementary assets and re-sources.

Proposifion 5; Firms with well-devel-oped capabilities of knowledge trans-formation and exploitation (BACAP)are more likely to achieve a competi-tive advantage through innovationand product development than thosewith less developed capabilities.

Proposition 6: Firms with well-devel-oped capabilities of knowledge acqui-sition and assimilation (PACAP) aremore likely to sustain a competitiveadvantage because of greater flexibil-ity in reconfiguring their resourcebases and in effectively timing capa-bility deployment at lower costs thanthose with less developed capabilities.

One factor that can affect a firm's sustainedcompetitive advantage is the regime of appro-priability that dominates its industry. Regime

of appropriability refers to the institutionaland industry dynamics that affect the firm'sability to protect the advantages of (and ben-efit from) new products or processes (An-tonelli, 1999; Buzzacchi, Colombo, & Mariotti,1995). When appropriability is low (i.e., there isa high level of knowledge spillovers), invest-ments in ACAP are likely to be low (Spence,1984). These investments might be unwise, be-cause imitation by rivals might be widespread(Boisot & Griffiths, 1999). However, Cohen andLevinthal (1990) note that the positive absorp-tion incentive associated with spillovers maybe sufficiently strong in some cases to offsetthe negative appropriability incentive. Thisindicates that when regimes of appropriabilityare strong, the payoff from RACAP will behigh, because firms can protect their knowl-edge assets and continue to generate profitsfrom such inventions. When strong appropri-ability regimes exist, firms will patent theirinnovations and protect revenue streams aris-ing from innovations (Anton & Yao, 2000).These strong regimes imply that imitation islikely to be more difficult because of the in-creased costs incurred by rivals for knowledgereplication, leading to performance differ-ences across firms.

Under weak regimes of appropriability, dy-namic capabilities may sustain performancedifferences in the presence of isolating mecha-nisms, defined as idiosyncratic features of afirm's management that create impediments toimitation (Rumelt, 1987). Zott (2001) notes thatbarriers to imitation do not serve to create acompetitive advantage. He argues instead thatthese barriers are purely defensive in natureand contribute to sustaining and possiblyreinforcing an already existing competitiveadvantage.

One such isolating mechanism is secrecy inroutines and processes. A survey of manufac-turing firms by Cohen, Nelson, and Walsh(2000) shows that some firms prefer secrecyover patenting, which may provide competi-tors with too much information. Inventions of-ten have limited legal protection, because theinformation disclosure within patents mayprovide enabling information for other firms tocircumvent the process and yet achieve thedesired output (Anton & Yao, 2000). Thus, un-der weak regimes of appropriability, firms arelikely to sustain performance differences by

2002 Zahxa and George 197

instituting isolating mechanisms, potentiallydecreasing knowledge spillovers.

Implicit in the definition of ACAP is the no-tion that such capabilities may be sociallycomplex and difficult to imitate (Teece et al.,1997). The above discussion suggests thatfirms can sustain performance differences un-der differing regimes of appropriability whenthey institute and use isolating mechanisms.In industries with low appropriability re-gimes, firms have to exert more effort intobuilding their ACAP to develop their own in-novation capabilities, rather than dependupon information disclosure and possibleknowledge spillovers from other firms. Theseinvestments generate positive economic re-turns over the long run by allowing firms todevelop breakthrough inventions.

Proposifion 7; The regime of appropri-ability moderates the relationship be-tween RACAP and sustainable com-petitive advantage, specifically asdescribed below.

Proposition 7a: Under strong regimesof appropriahility, there will be a sig-nificant and positive relationship be-tween RACAP and a sustainable com-petitive advantage because of thehigher costs associated Tvith imitation.

Pioposition 7b: Under weak regimes ofappiopriability. there will be a signif-icant and positive relationship be-tween RACAP and a sustainable com-petitive advantage only when fiimsprotect their knowledge assets and ca-pabilities through isolating mecha-nisms. If not, such a relationship islikely to be weak or nonexistent.

FUTURE RESEARCH DIRECTIONS

Recent research highlights the role of afirm's dynamic capabilities as a criticalsource of its competitive advantage (Helfat &Raubitschek, 2000; Teece et al., 1997; Winter,2000). Eisenhardt and Martin (2000) note thatdynamic capabilities are essential, but howsuch capabilities can help firms reconfiguretheir resources to changing environmentalconditions is more important for sustaining acompetitive advantage. Other researchers ar-

gue that the timing and costs of capabilitydeployment would help firms create and sus-tain performance differences (Cockburn et al.,2000; Zott, 2001). We contribute to this growingbody of literature by unraveling how a firm'sACAP could be a primary source of creatingand sustaining a competitive advantage—opening the black box of the sustainability ofcompetitive advantage in dynamic marketsand thereby extending Eisenhardt and Mar-tin's (2000) work.

ACAP provides rich and fruitful avenues forfuture research. Although researchers haveused this construct in previous empirical work,this article provides a foundation for future workusing ACAP, based on three primary contribu-tions. First, by reviewing prior research (Tables1 and 2) and delineating four dimensions, wedefine and clarify the dimensionality of thiscomplex construct and the dimensions' respec-tive roles and importance (Table 3). Second, thedistinction between PACAP and RACAP sug-gests that externally acquired knowledge un-dergoes multiple iterative processes before therecipient firm can successfully exploit it toachieve a competitive advantage. Distinguish-ing between PACAP and RACAP is useful aswell in explaining success levels with knowl-edge management. Although Cohen andLevinthal's (1990) definition emphasizes the ap-plication of acquired knowledge, past research-ers have overlooked PACAP. Our proposed re-conceptualization corrects this oversight. Also,the introduction of the efficiency factor may pro-vide an explanation of why certain firms thatpossess the potential do not maximize economicvalue from knowledge management. Third andiinally, this article makes clear that in past stud-ies researchers fall short by overlooking the con-tingent conditions under which ACAP couldlead to a competitive advantage. To remedy thissituation, we offer a model (Figure 1) that linksthe components of ACAP to value creation, high-lighting potential sources, reasons, and condi-tions under which the components of ACAP cre-ate and sustain performance differences acrossfirms, which is a fundamental question in thefield.

Taken together, these three contributions rep-resent a departure from the prevailing view ofACAP. In Table 4 we contrast the traditionalview with our proposed reconceptualization.Clearly, we make key distinctions with regard to

198 Academy of Management fleview

TABLE 4Comparing Conceptualizations of ACAP

April

Issue Traditional View oi ACAP Reconceptualization of ACAP

Definition

Dimensions and components

Evolution and development

Contingent iactors andmanagerial roles

Value creation

A firm's ability to value, assimilate,and apply information towardcommercial endsEmphasis on acquiring andexploiting externally generatedknowledge

• Multidimensional definition withthree dimensions

• Operationalized as a single factorcomponent

• Dependent on a firm's priorknowledge base and skills

• Unidirectional and patterneddevelopmental path (prior knowledgedefines firm's ability to value,assimilate, and apply information)

• Exogenous (industry conditionsinfluence firm's investment in R&D)

• Managerial roles restricted toenvironmental scanning and R&Dinvestment

Value creation through innovation

• ACAP is a set of organizationalroutines and strategic processes bywhich firms acquire, assimilate,transform, and exploit knowledgefor purpose of value creation

• Emphasis on dynamic capabilitiesgeared toward strategic change andflexibility wherein firms create andexploit new knowledge bytransforming acquired knowledge

• Multidimensional definition withfour dimensions

• Four dimensions form two distinctcomponents (potential and realizedcapacities)

• Dependent on multiple factors,including a firm's past experience.knowledge complementarity, anddiversity of knowledge sources

• Multidirectional and nonpatterned(fluid) developmental path (locus ofsearch is continually redefined)

Multiple exogenous and endogenouscontingencies:

• Exogenous contingencies(appropriability, external triggers)

• Endogenous contingencies (internaltriggers, social integrationmechanisms)

• Broader managerial roles ininfluencing knowledge searchpatterns, activation of organization-al triggers, and transformation oforganizational knowledge

Value creation differentially derivedfrom the dimensions that comprisethe two components: realizedcapacity allows creation oJ acompetitive advantage; potentialcapacity provides strategicflexibility to change and reconfigurefirm operations, providing means tosustain such performancedifferences; presence of efficiencyfactor between potential andrealized capacity

ACAP definition, dimensions, evolution and de-velopment, contingent factors and managerialroles, and value creation. A key difference liesin our definition of ACAP as a set of knowledge-based capabilities embedded within the firm'sroutines and strategic processes. We adopt adynamic view by suggesting that ACAP follows

a multidirectional and fluid path, rather than apatterned trajectory of knowledge acquisitionand exploitation. We also suggest that past ex-perience, knowledge complementarity, and di-versity of knowledge sources influence PACAPdevelopment. However, activation triggers mayredefine a firm's locus of search, reconfiguring

2002 Zahia and George 199

its PACAP over time and making developmentalpaths fluid and multidirectional. This proposi-tion moves us one step closer to understandingthe sustainability of competitive advantageover time.

Table 4 also highlights the influence of con-tingent factors and managerial roles on ACAPdevelopment. Although the model highlightsexogenous and endogenous variables thatmay aifect ,̂ CAP or the value generated fromits exploitation, our discussion has not di-rectly addressed the role of managers in ACAPdevelopment. Prior prescriptions of manage-rial roles for developing ACAP have empha-sized environmental scanning and changes inR&D investments (e.g., Cohen & Levinthal,1989, 1990). However, the proposed definitionand model of ACAP offer a more inclusive andbroader role of managers in developing ACAP.Viewing ACAP as a dynamic capability sug-gests that it can be formulated and imple-mented with the specific intent to acquire, as-similate, transform, and exploit knowledge.The process of bisociation also suggests thatknowledge transformation occurs when man-agers combine two incongruous frames of ref-erence to arrive at new knowledge that can beexploited for generating profits. This discus-sion is consistent with empirical research byHitt, Bierman, Shimizu, and Kachhar (2000),who highlight the importance of having therequisite human capital necessary to harvestand exploit the firm's knowledge base—a pro-cess that gives the firm a competitive advan-tage that improves performance. Floyd andLane (2000) also discuss the various activitiesmanagers at different organizational levelscan undertake to exploit the knowledge thatresides in the firm's operations, aiming tobring about strategic renewal that improvesfirm performance.

Through the definition, dimensions, andmodel of ACAP advanced in this article, weidentify opportunities for future research.First, there is a clear need to capture the indi-vidual capabilities that constitute a firm'sACAP. Our review af empirical work indicatesthat measures have been rudimentary and donot iuUy reflect the richness of the construct{Table 1). Clarifying and describing each di-mension allow future researchers to isolateand capture underlying dimensions. Second,researchers need to recognize the temporal

aspects of capability development. As capa-bilities develop over time, examining the ori-gins, timing, and pacing of such developmentwould enrich the literature. Third, researchersmodeling ACAP would better serve us if theyconsidered the contingencies and boundaryconditions of ACAP development. Althoughthis issue has been partially addressed in pastwork, we need to further expand our under-standing of this construct. Finally, researchersneed to measure and relate the potential andrealized capacities to multiple outcomes. Pay-offs from PACAP and RACAP offer interestingcombinations to investigate over time, as il-lustrated in studies on capability developmentat Barnes & Noble (Raff, 2000) or at Hyundai(Kim, 1998).

Future research needs to address the spe-cific operationalization of the capabilities thatACAP comprises. Substantial differences existamong these dimensions, which allow them tocoexist and be measured and validated inde-pendently. Table 3 highlights the underlyingrationale for each dimension and could be auseful tool to help develop measures. It is im-portant to focus on the routines and processesthat organizations use to acquire, assimilate,transform, and exploit knowledge. To comple-ment the focus on underlying capabilities, re-searchers might use additional measures ofthese dimensions. For example, researchersmight employ "years of experience of the R&Ddepartment" or "amount of R&D investment"as measures of knowledge acquisition. Assim-ilation can be measured by "the number ofcross-firm patent citations" or "the number ofcitations made in a firm's publications to re-search developed in other firms" (Cockburn &Henderson, 1998). Transformation could becaptured as "the number oi new productideas" or "new research projects initiated"(Leonard-Barton, 1995). Finally, exploitationcould include intermediate outputs, such as"the number of patents," "new product an-nouncements," or "length of product developmentcycle."

The efficiency factor, presented earlier, alsoprovides new opportunities for research. For in-stance, researchers might use survey instru-ments and interview data to capture the fourdimensions of ACAP, the magnitude of the effi-ciency ratio, and its effects on future perfor-mance. Archival data can capture historical ac-


tivities, whereas survey and interview data cangauge attitudes and ongoing activities. Datacollected and analyzed over multiple time hori-zons may also reveal the relative importance ofthe efficiency factor at different points in time.Firms with high efficiency ratios are also likelyto continually renew their operations and enjoysuperior performance, especially in knowledge-intensive industries.

CONCLUSION

Ten years after Cohen and Levinthal's intro-duction of the notion of ACAP in the manage-ment literature, it is prudent to redefine andrefocus research on this important construct. Wehope that this article encourages future re-search on the dimensions and contributions ofthe construct. It is reassuring that researchers indiverse organizational disciplines have recog-nized the explanatory power ol ACAP, and wehope that their future uses of this concept willshow greater recognition of its multiple dimen-sions and their links to creating and sustaininga competitive advantage.

REFERENCES

Ahuja, G., & Lampert, C. 2001. Entrepreneurship in the largecorporation: A longitudinal study of how establishedfirms create breakthrough inventions. Strategic Man-agement Journal. 22: 521-544.

Anton, I. J., & Yao, D. A. 2000. Little patents and big secrets:Managing intellectual property. Paper presented at theHarvard Business School Strategy Research Conference,New Haven, CT.

Antonelli, C. 1999. The evolution of the industrial organisa-tion of the production of knowledge. Cambridge Journaloi Economics. 23: 243-260.

Baker, T., Miner, A., & Eesley, D. In press. Improvising firms:Bricolage, retrospective interpretation and improvisa-tional competencies in the founding process. ResearchPolicy.

Barney, J. 1991. Firm resources and sustained competitiveadvantage. Journal of Management. 17: 771-792.

Boisot, M., & Griffiths, D. 1999. Possession is nine tenths ofthe law: Managing a firm's knowledge base in a regimeol weak appropriability. fnternational Journal of Tech-nology Management. 17: 662-676.

Bower, J., & Christensen, C. 1995. Disruptive technologies:Catching the wave. Harvard Business Review. 73(1):43-53.

Boynton, A., Zmud, R., & Jacobs, G. 1994. The Influence oi ITmanagement practice on IT use in large organizations.MIS Quarterly, 18: 299-320.

Buzzacchi, L.. Colombo, M. G., & Mariotti, S. 1995. Technologyregimes and innovation in services: The case ol theItalian banking industry. Research Policy. 24: 151-168.

Chaudhuri, S., & Tabrizi, B. 1999. Capturing the real value inhigh-tech acquisitions. Harvard Business Review. 77(5);123-130.

Christensen, C. 1997. The innovator's dilemma: When newtechnologies cause great firms to fail. Cambridge, MA:Harvard Business School Press.

Christensen, C. 1998. Why great companies lose their way.Across the Board. 35(9): 36-41.

Christensen, C, Suarez, F., & Utterback, J. 1998. Strategies forsurvival in fast changing Industries. Management Sci-ence. 44(12): S207-S220.

Clark, K. B., & Fujimoto, T. 1991. Product deveiopment perfor-mance. Boston: Harvard Business School Press.

Cockburn, I., & Henderson, R. 1998. Absorptive capacity, co-authoring behavior, and the organization of research indrug discovery. Journal of Industrial Economics. 46: 157-183,

Cockburn, I., Henderson, R., 8f Stern, S. 2000. Untangling theorigins of competitive advantage. Strategic Manage-ment/ournai, 21: 1123-1146.

Cohen, W. M.. & Levinthal, D. A. 1989. Innovation and learn-ing: The two faces of R&D. Economic Journal, 99: 569-596.

Cohen, W. M., & Levinthal, D. A. 1990. Absorptive capacity: Anew perspective on learning and innovation. Adminis-trafive Science Quarterly. 35: 128-152.

Cohen, W. M.. Nelson. R. R., & Walsh, J. 2000. Proiecting theirintellectual assets: Appropriability conditions and whymanufacturing firms patent (or not). Working paper No.7552. National Bureau of Economic Research, Cam-bridge, MA.

Cyert, R., & March. J. 1963. A behavioral theory oi the firm.Englewood Cliffs. NJ: Prentice-Hall.

David. P. A. 1985. Clio and the economics of QWERTY. Amer-ican Economic Review, 75: 332-337.

Dodgson, M, 1993. Organizational learning: A review of someliterature. Organization Studies, 14: 375-394.

Doz. Y. L., Oik, P. M., & Ring, P. S. 2000. Formation processesof R8ED consortia: Which path to take? Where does itlead? Strategic Management Journal. 21: 239-266.

Eisenhardt. K. M., & Martin, J. A. 2000, Dynamic capabilities:What are they? Strategic Management Journal. 21: 1105-1121.

Fahey, L. 1999. Outwitting, outmaneuvering, and outperform-ing competitors. New York: Wiley.

Ferrier, W., Smith, K. A., 8i Grimm. C. 1999. The role of com-petitive action in market share erosion and industrydethronement: A study of industry leaders and challeng-ers. Academy of Management Journal, 42: 372-388.

Fichman, R., & Kemerer, C. 1999. The illusory diffusion ofinnovation: An examination ol assimilation gaps. Infor-mation Systems Research, 10: 255-275.

Floyd, S. W., & Lane, P. J. 2000. Strategizing throughout the

2002 Zahia and Gfeorge 201

organization: Management role conflict in strategic re-newal. Academy of Management Review. 25: 154-177.

Ford, CP 1996. A theory of individual creative action in mul-tiple social domains. Academy of Management Review.21: 1112-1142.

Foster, R. 1986. The attacker's advantage. New York: SummitBooks.

Garud, R.. & Nayyar, P. 1994. Transformative capacity: Con-tinual structuring by intertemporal technology transfer.Strategic Management Journal. 15: 365-385.

Garvin, D. 1993, Building a learning organization. HarvardBusiness Review. 73(4): 78-91.

Glass, A. J.. & Saggi, K. 1998. International technology trans-fer and the technology gap. Journal oi Development Eco-nomics. 55: 369-398.

Granstrand. O.. & Sjolander, S. 1990. The acquisition of tech-nology and small firms by large firms. Journal of Eco-nomic Behavior & Organization, 3: 367-386.

Grant. R. M. 1996a. Toward a knowledge-based theory of thefirm. Strategic Management Journal. 17: 109-122.

Grant, R. M. 1996b. Prospering in dynamically-competitiveenvironments: Organizational capability as knowledgeintegration. Organizafion Science, 7: 375-387.

Hedberg, B. L. 1981. How organizations learn and unleam. InP. Nystrom & W. Starbuck (Eds.), Handboot of organiza-tion design, vol. 1: 1-27. New York: Oxford UniversityPress.

Helfat, C. E., 8f Raubitschek, R. S. 2001. Product sequencing:Co-evolution oi knowledge, capabilities, and products.Strategic Management Journal. 21: 961-980.

Herriot, S. R., Levinthal, D., & March, J. G. 1985. Learning fromexperience in organizations. AEA Papers and Proceed-ings. 75: 298-302.

Hitt, M. A.. Bierman. L, Shimizu, K.. & Kochhar, R. 2001. Directand moderating effects ol human capital on strategyand performance in professional service firms: A re-source-based perspective. Academy oi ManagementJournal. 44: 13-28.

Huber, G. 1991. Organizational learning: The contributingprocesses and the literature. Organization Science, 2:88-115.

Joglekar, P.. Bohl, A. H.. & Hamburg. M. 1997. Comments on"Fortune favors the prepared firm." Management Sci-ence. 43: 1455-1468.

Kazanjian, R. K., Drazin, R., 8E Glynn, M. A. In press. Imple-menting structures for corporate entrepreneurship: Aknowledge-based perspective. In M. Hitt, D. Ireland,M. Camp. & D. Sexton (Eds.). Strategic entrepreneurship:Creating an integrated mindset. Oxford: Blackwell.

Kedia. B. L., & Bhagat. R. S. 1988. Cultural constraints ontransfer of technology across nations: Implications forresearch in international and comparative manage-ment. Academy of Management Review. 13: 559-571.

Keller, W. 1996. Absorptive capacity: On the creation andacquisition of technology in development. Journal ofDevelopmental Economics, 49: 199-210.

Kim, L. 1995. Absorptive capacity and industrial growth: Aconceptual framework and Korea's experience. In B. Koo& D. Perkins (Eds.). Social capability and long term eco-nomic growth: 266-287. London: St. Martin's Press.

Kim, L. 1997a. The dynamics of Samsung's technologicallearning in semiconductors. Caliiornia Management Re-view, 39(3): 86-100.

Kim, L. 1997b. From imitation to innovation: The dynamics oiKorea's technological learning. Cambridge, MA: Har-vard Business School Press.

Kim, L. 1998. Crisis construction and organizational learning:Capability building in catching-up at Hyundai Motor.Organizafion Science, 9: 506-521.

Kim. L., & Dahlman, C, 1992. Technology policy for industri-alization: An integrative framework and Korea's experi-ence. Research Policy. 21: 437-453.

Koestler, A. 1966. The act oi creation. London; Hutchinson.

Kogut, B.. & Zander, U. 1996. What do firms do? Coordination,identity, and learning. Organization Science, 7: 502-518,

Koza. M. P., 8E Lewin. A. Y. 1998. The co-evolution of strategicalliances. Organization Science, 9: 255-264.

Lane, P. J.. & Lubatkin, M. 1998. Relative absorptive capacityand interorganizational learning. Strategic Manage-ment Journal. 19:461-477.

Lei, D., Hitt. M., & Bettis, R. 1996. Dynamic core competencesthrough meta-learning and strategic context. Journal oiManagement, 22: 549-570.

Leonard-Barton, D. 1995. We]/springs oi knowledge. Boston:Harvard Business School Press.

Levitt, B., & March, ]. 1988. Organizational learning. AnnualReviews. Inc., 14: 319-340.

Liebeskind, f. P. 1996. Knowledge, strategy, and the theory ofthe firm. Strategic Management Journal. 17: 93-107.

Liu, X.. & White, R. S. 1997. The relative contributions offoreign technology and domestic inputs to innovation inChinese manufacturing industries. Technovation, 17:119-125.

Lofstrom, S. M. 2000. Absorptive capacity in strategic aiJi-ances: Investigating the efiects oi individuals' social andhuman capital on inter-iirm learning. Paper presentedat the Organization Science Winter Conference, Key-stone, CO.

Luo, Y. 1997. Partner selection and venturing success: Thecase of joint ventures with lirms in People's Republic ofChina. Organization Science, 8: 648-662.

Lyles, M. A., & Schwenk. C. R. 1992. Top management, strat-egy and organizational knowledge structures. Journal ofManagement Studies, 29: 155-174.

March, J. 1991. Exploration and exploitation in organization-al learning. Organization Science, 2: 71-87.

March. J., & Simon, H. 1993. Organizations. Oxford: Blackwell.

Matusik, S. F. 2000. Absorptive capacity and firm knowledge:Separating the eifects oi public knowledge, ilexihle firmboundaries, and firm absorptive abilities. Paper pre-


sented at the Organization Science Winter Conference,Keystone, CO.

Matusik. S. F.. & Heeley. M. 2001. Absorptive capacity andfirm knowledge: Separating the multiple components oithe absorptive capacity construct. Paper presented atthe annual meeting of the Academy of Management.Washington, DC.

Matusik, S.. & Hill. C. 1998. The utilization of contingent work,knowledge creation, and competitive advantage. Acad-emy oi Management Review. 23: 680-697.

McGrath, R. G., & MacMillan, I. C. 2000. The entrepreneurialmindset. Cambridge, MA: Harvard Business SchoolPress.

McGrath. R. G., MacMillan, I. C, & Venkataraman, S. 1995.Defining and developing competence: A strategic pro-cess paradigm. Strategic Management Journal. 16: 251-275.

Moorman, C, & Miner, A. S. 1996. The impact of organiza-tional memory on new product development. Journal oiMarketing Research, 34: 91-106.

Mowery, D. C, & Oxley, J. E. 1995. Inward technology transferand competitiveness: The role of national innovationsystems. Cambridge Journal of Economics. 19: 67-93.

Mowery, D. C, Oxley, J. E.. & Silverman. B. S. 1996. Strategicalliances and interfirm knowledge transfer. StrategicManagement Journal. 17: 77-91.

Nahapiet, J.. & Ghoshal. S. 1998. Social capital, intellectualcapital, and the organizational advantage. Academy ofManagement Review, 23: 242-266.

Nelson, R., & Winter, S. 1982. An evoiutionary theory of eco-nomic change. Cambridge, MA: Harvard UniversityPress.

Nonaka, I., & Takeuchi, H. l'995. The knowledge-creatingcompany: How Japanese companies create the dynamicsoi innovation. New York: Oxford University Press.

Raff, D. M. 2000, Superstores and the evolution of firm capa-bilities in American bookselling. Strategic ManagementJournal. 21: 1043-1060.

Rocha, F. 1997, inter-firm technological cooperation: Ei-fects oi absorptive capacity, firm-size and specializa-tion. Discussion paper series No. 9707, United NationsUniversity. Institute for New Technology. Maastricht.Netherlands.

Rosenberg, N. 1982. Inside the black box: Technology andeconomics. Cambridge: Cambridge University Press.

Rosenkopf. L.. & Nerkar, A. 2001. Beyond local search: Bound-ary spanning, exploration and impact in the optical diskindustry. Strategic Management Journal, 22: 287-306.

Rumelt. R. 1987. Theory, strategy, and entrepreneurship. InD. J. Teece (Ed.). The competitive challenge: Strategiesfor industrial innovation and renewal: 137-159. Cam-bridge, MA: Ballinger.

Schilling, M. 1998. Technological lockout: An integrativemodel oi the economic and strategic factors drivingtechnology success and failure. Academy of Manage-ment Review. 23: 267-284.

Sheremata. W. A. 2000. Centrifugal and centripetal forces inradical new product development under time pressure.Academy of Management fleview, 25: 389-408.

Smith, K. A., & DeGregorio, D. D. In press. Bisociation, dis-covery, and entrepreneurial action. In M. Hitt, D. Ireland.M. Camp, & D. Sexton (Eds). Strategic enirepreneurship:Creating an integrated mindset. Oxford: Blackwell.

Spence. A. M. 1984. Cost reduction, competition, and industryperformance. Econometrica, 52: 102-122.

Spender. J.-C. 1996. Making knowledge the basis oi a dy-namic theory of the firm. Strategic Management Journal,17: 45-62.

Stata, R. 1989. Organizational learning—the key to manage-ment innovation, SJoan Management Review. 30(3):63-74.

Szulanski. G. 1996. Exploring internal stickiness: Impedi-ments to the transfer of best practice within the firm.Strategic Management Journal. 17: 27-43.

Teece, D. J. 1981. The multinational enterprise: Market failureand market power considerations. Sloan ManagementReview. 22(3); 3-17.

Teece, D. J., Pisano. G.. & Shuen. A. 1997. Dynamic capabili-ties and strategic management. Strategic ManagementJournal. 18: 509-533.

Tegarden, L. F., Hatfield. D. E.. 8f Echols, A. E. 1999, Doomedfrom the start: What is the value of selecting a futuredominant design? Strategic Management Journal. 20:495-518,

Tiemessen, I.. Lane, H. W.. Crossan, M., & Inkpen. A. C. 1997.Knowledge management in international joint ventures.In P. W. Beamish & J. P. Killing (Eds.), Cooperative strat-egies: Worth American perspective: 370-399. San Fran-cisco: New Lexington Press.

Tripsas, M., St Gavetti, G. 2000. Capabilities, cognition, andinertia: Evidence from digital imaging. Strategic Man-agement Journal. 21: 1147-1162.

Tyre, M. J., & Orlikowski, M. J, 1994. Windows of opportunity:Temporal patterns of technological adaptation in or-ganizations. Organization Science, 5: 98-118,

Van den Bosch. F,. Volberda, H., 8E de Boer, M, 1999. Coevo-lution of firm absorptive capacity and knowledge envi-ronment: Organizational forms and combinative capa-bilities. Organization Science, 10: 551-568.

Van Wijk, R,, Van den Bosch, F., & Volberda, H. 2001, Theimpact oi knowledge depth and breadth oi absorbedknowledge on levels of exploration and exploitation.Paper presented at the annual meeting of the Academyof Management, Washington, DC.

Vermeulen, F,, & Barkema. H. 2001. Learning through acqui-sitions. Academy oi Management Journal. 44: 457-476.

Veugelers, R. 1997. Internal R&D expenditures and externaltechnology sourcing. Research Policy. 26: 303-315.

Walsh, J. P., & Ungson, G. R. 1991. Organizational memory.Academy oi Management Review, 16: 57-91,

Winter, S, 2000. The satisficing principle in capability learn-ing. Strategic Management Journal, 21: 981-996.


Zahra. S., Ireland, D.. & Hitt, M. 2D0O. International expansion Zander, U., & Kogut, B. 1995. Knowledge and the speed ofby new venture firms: International diversity, mode of transfer and imitation of organizational capabilities. Or-market entry, technological learning, and performance. ganization Science, 6: 76-92.Academy of Management/ournai, 43: 925-950. ^ott, C, 2001. Dynamic capabilities and the emergence of

Zajac. E.. 8E Bazerman. M. 1991. Blind spots in industry and intra-indus(ry dif/erentiai firm periormance. insightscompetitor analysis. Academy of Management Review. from a simuiation study. Working paper No. 2000/86/ENT,16: 37-57. INSEAD, Paris.

Shaker A. Zahra is professor of strategy and entrepreneurship in the Department ofManagement and eCommerce Institute at ]. Mack Robinson College of Business atGeorgia State University. His research centers on the dynamics of entrepreneurship inhigh-technology industries, the role of technology in global industries, and techno-logical learning in global markets.

Gerard George is an assistant professor of entrepreneurship and an associate ol theWeinert Center for Entrepreneurship at the University of Wisconsin-Madison. Hereceived his Ph.D. from Virginia Commonwealth University. His research interestsinclude the study of contextual and structural factors affecting innovation and entre-preneurship.

absorptive capacity: a review, reconceptualization, and

Documents