Absorptive Capacity and Knowledge Transfer

Learning Objectives

• Absorptive Capacity• Transformative Capacity• Knowledge Transfer

• Kostova (1999) defines the success of transfer as the degree of institutionalisation of an organisational practice in the recipient organisation.

• This is achieved through implementation and internalisation.– Implementation is achieved through following

formal rules.– Internalisation is achieved when recipient

organisation’s employees give a symbolic meaning and value to the organisational practice.

• Implementation increases internalisation increases.

• Internalisation is determined by practice commitment, satisfaction and employee psychological ownership– Practice commitment is a strong belief in and

acceptance of the goals and values of the organisational practice because of the relative strength of individual’s involvement, identification, implementation and continuance of the organisational practice.

– Practice satisfaction is determined by the positive

attitude and valuation of its importance to the

organisation.

– Employee psychological ownership is a state in

which individual recognise the practice as part of

their extended themselves.

• The factors that determine the effective

implementation and internalisation of an

organisational practice is divided into three

context: social, organisational and relational

which is analysed at three levels: country,

organisational and individual.

• The social embeddedness is the institutional

distance between host and recipient

organisations. This is reflected as the cultural

differences between different countries.

• The social context is defined through three

construct by Kostova (1999). These are

cognitive, normative and regulative.

• Cognitive dimension of national culture is

collective programming of the mind which

distinguishes between different categories

people.

• Normative dimension of national culture is the

difference in the shared values.

• Regulatory dimension of national culture is the

regulatory framework of different countries.

• The organisational practices develop in certain

institutional environments, which are

products of national culture in order to gain

social legitimacy (isomorphic).

• The transfer of an organisational practice may

not be successful because the differences in

institutional environments of different

countries.

• The organisational embeddedness is defined under two constructs favourability of learning and change, and compatibility with practice– Favourability of learning refers to the recipient

organisation’s attitude towards change. If the recipient organisation is change oriented than it is expected that the technology transfer will result in acceptance of the technology by individuals of the recipient organisation.

– This will not work unless the values underlying a technology/knowledge/practice and the culture of an organisation are compatible. In a case of compatibility with practice the individuals in the recipient organisation will find it easy to internalise the technology.

• The relational embeddedness is based on the

cooperative relationship. There are four

constructs suggested by Kostova (1999). – The commitment to the parent company or to the

host company (in the case of a partnership without

equity interest and equal equity) is defined as

willingness to show effort on behalf of the parent or

host organisation and stay as a member of that

organisation. Commitment increases the success of

technology transfer.

– The identity with the parent or the host can be

explained as how well the individuals in the

recipient organisation feels attached and member

of the parent or the host organisation.

– An individual which identifies himself with the

parent company will share the same values hence

find it easier to give meaning and value to the new

practice/technology. This will also reduce the

“non-invented in here syndrome”.

– Kostova (1999) defines trust of transfer coalition

through Bromiley and Cummings (1995). The parent

company is expected to show good faith in

compliance with any commitment and is honest in the

discussions about any commitments.

– Also the parent company should not take advantage

of the recipient organisation. Trust has many positive

effects. It reduces the uncertainty the value of the

technology to the recipient organisation, cost of

communication and time in negotiations.

– The last construct used by Kostova (1999) is the

power dependence relationship. The recipient

organisation will implement a new

practice/technology to be accepted by the

parent/host. This construct does not affect the

internalisation of a practice.

• Cohen and Levinthal (1990) related the ability

to exploit any external knowledge is a function

of prior knowledge in the form of basic skills, a

shared language and knowledge of basic

science and technological developments.

• Cohen and Levinthal (1990) identifies three ways to build the absorptive capacity of an organisation.

1.the company can conduct internal research and development (R&D).

2.they can develop it through manufacturing operations.

3.the personnel can have external technical training.

• In Cohen and Levinthal (1990)’s paper they move from individual (cognitive level) to organisational level of absorptive capacity.

• In the cognitive level a person can not learn unless he can associate the new knowledge to the existing knowledge and frameworks that he has.

• related to problem-solving skills of individuals and creative capacity.

• To develop the absorptive capacity of an individual, they need to learn a subject intensely, which will make the association with the related items in the memory and the knowledge to be learned.

• This will increase the likelihood of the retrieval of

the knowledge later on (which is also called

transformative capacity).

• Diversity and richness of prior knowledge makes

the basis for learning.

• According to Cohen and Levinthal (1990) an

organisation’s absorptive capacity is a by product

of the accumulation of individuals absorptive

capacities.

• A firm’s absorptive capacity depends on the

people who are the interfaces between

subunits and subunits and environment. This

is further enhanced by the absorptive capacity

of people that these interfaces transmit their

knowledge.

• Bhatt (2000) contemplate on why accumulated absorptive capacities of individuals are not the basis of organisational absorptive capacity.

• They detect managerial reasons for the conception of this problem.

• The learning culture of the organisation may not permit for knowledgeable members to exploit their resources.

• The primary reason for the learning culture to fail has been displayed as the managerial attitude towards learning and resource allocation for exploration of new knowledge (Bhatt, 2000).

• The most basic knowledge that is necessary for subunits to share knowledge is defined by Cohen and Levinthal (1990) as shared language and symbols (Dearborn & Simon, 1958; Katz & Kahn, 1966; Allen & Cohen, 1969; Tushman, 1978; Zenger & Lawrence, 1989).

• The most of knowledge necessary for absorptive capacity are tacit and path dependent.

• Cohen and Levinthal (1990) propose some measures that increase the absorptive capacity of companies.

• These are: – direct effect of ease of learning – technological opportunity as high level of available

technological information – appropriability as positive effects of spillovers in

loosely dependent industries.

• Lane and Lubatkin (1998) propose that recipient organisation absorptive capacity is dependent on specific type of new knowledge, similarity between compensation practices and organisational structures and finally similarity of organisational problems.

• Their basic assumption is if a recipient organisation wants to assimilate the new knowledge, they need to have a similar knowledge processing system.

• Von den Bosch, Volberda & De Boer (1999) used three common forms of organisational forms instead of dimensions of organisational behaviour.

• The similarity of organisational problems is perceived as an obstacle in commercialising new knowledge.

• Lane & Lubatkin (1998) think that organisational choices because of their markets and products will make intelligible choices on which knowledge to acquire and develop over time.

• This relationship will create organisational rigidities as they will find it had to assimilate new knowledge that has been created within other organisational constraints as they will find it hard to value and give meaning to this new knowledge.

• From their study they found that prior knowledge, specialised knowledge, organisational structures and problems have positive impact on absorptive capacity and learning.

• They have found limited justification for similarity in compensation systems

• Albino, Garavelli & Gorgoglione (2004)

substantiate with combining organisational

structure and cognitive processes involved.

• The organisational dissimilarities and

similarities should be supported by cognitive

processes.

• Grant (1996) the process of forming absorptive capacity is evaluation, acquisition, integration and commercial utilisation of commercial knowledge.

• He continues to explain three dimensions of knowledge acquisition. – First, efficiency of organisations to identify, assimilate

and exploit new knowledge in terms of cost and scale.– Second, scope of knowledge can be accessed by

organisations. – Last, flexibility of an organisation to access new

related knowledge whenever it is needed.

• Liyanage & Barnard (2003) look at the diversity

between new knowledge and prior knowledge,

which they call knowledge distance. Their

findings are similar to Cohen and Levinthal’s

(1990). There is a limit to the similarity of

knowledge. There should be some difference so

that the recipient organisation will be willing to

internalise the new knowledge through learning

• Augier & Vondelø (1999) draw attention to the diversed nature of knowledge within the firm. There are specialised islands of knowledge within the firm.

• To fill the gaps and combine with other relevant knowledge from other companies, they form knowledge networks.

• These networks can be classified as loose networks and management of them creates two distinctive problems for the companies.

• First, controlling the flows of knowledge between nodes of the network bring about the problem of accessibility.

• Second, all knowledge will not be vital at all times. Some companies will be redundant for a long time before they can contribute or even knowledge needed may need to be uncovered through scanning of knowledge from the environment.

• The advantage of a loose network is the weak relationship between networks.

• On the other hand the disadvantage of such weak

ties is most valuable knowledge to transfer is tacit

in nature.

• Tacit knowledge can only be transferred through

strong ties allowing face to face interaction which

in return develop the necessary cognitive

frameworks/ mental models (Augier & Vondelø,

1999) or creating common values and meaning

(Kostova, 1999).

• Langlois (1997) also reinforce the need of similar cognitive system between the recipient and the host (environment/ organisation).

• Bhatt (2000) enunciates multiple interactions for organisational members to adjust their belief system (similar to cognitive frameworks or value and meaning).

• Bergman, Jantunen & Saksa (2004) recommend the use of scenarios in knowledge networks to see how new knowledge can be combined together.

• They also bring up the importance of transformative capacity in learning and its relation to absorptive capacity (Metclafe & James, 2000). This is shown as a prerequisite for absorptive capacity.

• Van den Bosch, Volberda & De Boer (1999) adds two specific organisational determinants to absorptive capacity. These are: organisational forms and combinative capabilities with which they are trying to analyse the path dependency of absorptive capacity.

• Although Cohen & Levinthal (1990) mention about the importance of interfaces in intersubunit and between subunit and environment communication.

• Organisational structure or forms are closely related to the study of Lane and Lubatkin (1998).

• The combinative capabilities have been

studied before by Kogut and Zander (1992).

• They compare three organisational forms:

functional, matrix and divisional form.

• The combinative capabilities can be divided

into system, coordination and socialisation

capabilities.

• System capabilities are used to integrate external knowledge through written procedures, manuals, directions and policies.

• This is used to reduce variability in communication and coordination.

• Coordination capabilities are a product of training and job rotation, natural liaison devices (interfaces) and participation in decision making.

• It can be ad hoc or planned. • Socialisation capabilities are similar to internalisation

of Kostova (1999). • They are related to a common meaning and value,

which is expressed as a range from minimum common language and symbols to a common culture.

• Cohen and Levinthal (1990), Kostova (1999) and Grant (1996) relates absorptive capacity to this type of combinative capability.

• Van den Bosch, Volberda & De Boer (1999) add three other forms of combinative capabilities, which are more manageable than socialisation capability.

• The importance socialisation capability can be seen from the knowledge management school in which system capabilities are good to exchange explicit knowledge.

• Tacit knowledge can only be exchanged by socialisation, which includes cooperative capabilities as well as socialisation capabilities (Nonaka, Toyama & Konno, 2001).