Is absorptive capacity significant for innovation at firm level?

Abstract

The current research literature proposes that absorptive capacity is a crucial dynamic capability in knowledge-based competition (Zahra and George, 2002). Cohen and Levinthal define absorptive capacity as: the ability of a firm to recognise the value of new, external information, assimilate it and apply it to commercial ends (1990:128).This study analyses the concept of absorptive capacity in the context of innovation at firm level. The research objective is to examine whether absorptive capacity is significant for innovation at firm level and if it is how firms absorptive capacity be enhanced. This study develops a theoretical framework from previous literature (Cohen and Levinthal, 1989, Zahra and George, 2002, Neely, 1998) and applies this framework to analyse the relationship between research and development, absorptive capacity and innovativeness. A two-stage methodology is used to capture quantitative and qualitative data from engineering and technology based companies in the North West region Ireland.A tool for measuring absorptive capacity is developed, based on previous literature(Nieto, 2004, Schmidt, 2005) and deployed to measure firm absorptive capacity.The research confirmed the significance of absorptive capacity for firms in knowledge intensive sectors and of the metrics employed to measure research and development. The results reveal the innovative characteristics of firms with high levels of absorptive capacity including intensive engagement with knowledge centres and proactive and open innovation. The research outcomes identify the weakest pillars of firm absorptive capacity in the region studied which have implications for support agencies aiming to enhance firms absorptive capacity.