Absorptive capacity for open innovation

In our increasingly open innovation world wouldn’t it be useful to have ‘‘the ability …. to recognize the value of new, external information, assimilate it, and apply it to commercial ends’?   If all the smart guys don’t work for you then it’s going to be important to have the skills and processes to make sure that what they know somehow finds its way into our organization and that we make effective use of it. It’s really a case of building some capabilities in this area – and the good news is that we’ve known about this problem for a long time. The ‘ability’ referred to above is what two researchers, Cohen and Levinthal, talked about in a very influential paper back in 1990 – they termed it ‘absorptive capacity’.[1]

Having given it a neat label you might expect that the next stage in the process would be for researchers and practitioners to put some flesh on the bones and identify just what organizations need to do to build absorptive capacity. Unfortunately whilst the initial question was elegantly framed a sort of ‘academic fog’ has grown up around the term, with many competing and even conflicting definitions and a lot of discussion about what AC is rather than how to do it. Great conference fodder but not so useful in answering the question ‘ so what do I do on Monday morning?’

One notable exception to this was the work of another couple of researchers, Zahra and George who suggested that AC wasn’t a single ting but actually a series of linked behaviours. Whilst there might be great potential in new knowledge out there, realising it would depend on pulling off four key tricks – identifying what’s out there (and relevant to us), acquiring it, assimilating it (making sense of it in our context) and finally deploying it in ways which add value.[2]

So we’re still left with the key challenge of how to make this happen? The good news is that there are now some excellent tools t help us in the process – for example, identifying what’s available becomes much easier using web-based search, innovation markets like Innocentive.com, employing specialist brokers to search at our periphery and running crowd sourced campaigns for new and different ideas.

But in order to work with this ‘knowledge spaghetti’ and weave the strands into something which creates commercial or social value we still need to look to our own capabilities and be clear how we address those four key questions. Strengthening our absorptive capacity to operate effectively in an open innovation environment not only means learning some new tricks – it’s also worth revisiting our old repertoire and dusting it off. A classic example of ‘dynamic capability ‘ – reviewing, revising and sometimes replacing our innovation routines.

Here’s a framework to help start that reflection process…..

Of our innovation management routines … Which should we do more of, strengthen? Which should we do less of, even stop? Which new ones do we need to learn and add?
…to help us handle these key tasks in absorptive capacity:
Identify useful external knowledge
Acquire it
Assimilate it – connect it with what we know and do
Deploy it

(There’s more, including an Absorptive capacity audit tool, on our Innovation Portal: http://www.innovation-portal.info/?s=absorptive)

[1] Details of their work are in Cohen, W. and D. Levinthal (1990). “Absorptive capacity: A new perspective on learning and innovation.” Administrative Science Quarterly 35(1): 128-152.

[2] Details of their work in Zahra, S. A. and G. George (2002.). “Absorptive capacity: A review, reconceptualization andextension.” Academy of Management Review, 27:: 185-194.

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One thought on “Absorptive capacity for open innovation”

  1. Hi John

    I’ve been using your book “Managing Innovation” during the last one and a half years of studying for my masters degree, and I’m a great admirere of your work.

    Last fall semester, I wrote an internship-report on exactly this topic (open innovation and absorptive capacity).

    Coming from the humanities department, the somewhat clearcut models like the one you supply in this post has always spoken to me as a way of cutting to the chase, and not getting lost in all the fuzzy details. I find the ability to do so highly valueable in my student job.

    However, my experience from my internship is that the question of LEADERSHIP and DIRECTION is a vital aspect of developing an AC. This is very much the case when dealing with open innovation, since the collaborative effort is often constituted by parties from different divisions/organizations, and thus the motivation to carry out the learning-process needed to gain new knowledge is very different.

    My internship-report came to the following conclusions:

    1. Without leadership or direction, an open innovation project is at risk of not developing an internal (to the project) RACAP (realised AC (Zahra & George)). More often than not, my experience was that members of the open innovation project will end up spending too much time on defining the market, because the direction and/or leadership is lacking, and thus, the “end goal” of the efforts is not clearly defined.

    2. Open innovation is a very powerful method for developing both a collective and individual PACAP (potential AC (Zahra & George)). This is due to the fact that – while no direction is supplied – the project group will spend a lot of time assessing the market and their idea(s). During my internship, that meant that most of the members of the project group – while not actually producing any innovations – were very content with the information and discussion had in the project group. As a result, people found the presence of alternate viewpoints, skills and experiences to be a welcome addition to their own views, skills and experience.

    In my report, I reviewed the AC-concept as presented by Zahra & George, and held the innovation- and learning-activity in the project up against the learning-theories of Etienne Wenger. In doing so, it was possible to define how the collective learning-process led (or in this case, did not lead to) to innovation. The beauty of Zahra & Georges model is that innovation is seen as a processual concept (much like you suggest), and with the dimensioning of the innovative capability of the firm into PACAP & RACAP, it’s possible to get a much more fine grained look at innovation – not only as an output-defined activity, but as an ongoing proces of learning.

    Currently, I’m building on these findings in my masters thesis wherein I focus on Technology Roadmapping as an innovative method for SME’s.

    This ended up being a bit longer than anticipated (oh well, it’s sunday!). I would be happy to elaborate on my report and my findings should you be interested in my method.

    Thank you for sparking a little thought on a regular fall afternoon!

    Best Regards
    Mikkel I.K.

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