Acquisition and It's Impact on Firm

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This study examines the relationship between firm absorptive capacity and organizationalresponsiveness in the context of growth-oriented small and medium-sized enterprises(SMEs). By testing the different dimensions of absorptive capacity, external knowledgeacquisition and intrafirm knowledge dissemination were found to be positively related to

organizational responsiveness. In addition, the relationships between absorptive capacityand organizational responsiveness were moderated by environmental dynamism and theSMEs’strategic orientation. Results demonstrate that the responsiveness of growth-orientedSMEs is expected to increase if (1) they have well-developed capabilities in external know-ledge acquisition and intrafirm knowledge dissemination; (2) they have a well-developedexternal knowledge acquisition capability and adopt a more proactive strategy, such as beinga prospector; (3) they face a turbulent environment and have a well developed internal knowl-edge dissemination capability. Implications and future research directions are provided.

Introduction

This study explores the question of the extent to which the prior knowledge of smalland medium-sized enterprises (SMEs) has an impact on their capability to respond to theexternal environment. Using the definitions of absorptive capacity (Cohen & Levinthal,1990; Leonard-Barton, 1995; Prahalad, 1995) and drawing on organizational learningtheory (Huber, 1991), we posited relationships between different dimensions of absorp-tive capacity and organizational responsiveness and the moderating effects of strategicorientation and environmental dynamism. In the field of organization studies, an increas-ing number of organization theorists have recently emphasized how an organization’sabsorptive capacity can strongly influence its actions and outcomes. For example, the

PTE &Organizational

Absorptive Capacityand Responsiveness:An EmpiricalInvestigation ofGrowth-Oriented SMEsJianwen Liao

Harold Welsch

Michael Stoica

1042-2587-01-262Copyright 2003 byBaylor University

Please send all correspondence to: Jianwen Liao, Department of Management & Marketing, NortheasternIllinois University, 5500 N. St. Louis Ave., Chicago, IL 60625. email: [email protected]


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absorptive capacity concept has been widely applied in investigations on investment inresearch and development (Cohen & Levinthal, 1994), research productivity in thepharmaceutical industry (Cockburn & Herderson, 1998), innovation in banking services(Buzzachi et al., 1995), information technology use (Boynton et al., 1994), strategicalliances (Koza & Levin, 1998) and organizational learning (Shenkar & Li, 1999). Todate, however, few insights from this perspective have diffused into conversations aboutorganizational adaptation and responsiveness, especially in the context of SMEs. As a

result, little is currently known about if, how and why absorptive capacity may affectSMEs’ organizational responsiveness when confronted by environmental changes thatpresent opportunities and threaten survival.

The emphasis on growth-oriented SMEs—those with fewer than 500 employees—not only reflects their importance in the U.S. economy but also responds to the increas-ing calls for more studies of entrepreneurial firms (Heneman, Tansky, & Camp, 2000).Despite the fact that 99.7% of the U.S. companies had fewer than 500 employees and78.8% had fewer than 10 employees (USSBA, 1997), scant attention has been paid toSME research, especially SMEs’ organizational responsiveness.

Our article contributes to the research of SMEs by addressing two major questions

that have been neglected in the extant literature. What is the relationship between or-ganizational absorptive capacity and responsiveness for growth-oriented SMEs? To whatextent is such a relationship moderated by environmental turbulence and the strategic ori-entation of growth-oriented SMEs? By linking absorptive capacity to SMEs’ organiza-tional responsiveness, it is our hope that we will move closer to an understanding of whysome SMEs are more responsive than others. Furthermore, explicit consideration of therelationship between absorptive capacity and organizational responsiveness will proba-bly offer some tentative insights into the condition under which some SMEs may be moreresponsive than others.

This article proceeds as follows. First, we explore the concept of organizational

responsiveness and identify the gaps in the extant research, especially in the context of SMEs. Next, we propose a theoretical framework linking absorptive capacity to organi-zational responsiveness. Then, the research hypotheses in our research model are delin-eated. This is followed by research methodology in which issues related to sampling,measures and model tests are discussed. We then highlight our findings in the resultssection. The article concludes with implications and opportunities for future research.

Theoretical Background and Hypotheses

Traditional Research on Organizational ResponsivenessAn essential theme in the literature on organizational adaptation has been the attempt

to identify the forces that promote and transform organizations in response to environ-mental change. The contingency and resource dependency literature (Thompson, 1967;Pfeffer & Salancik, 1978), the strategic change literature (Ginsberg, 1988), and theorganizational learning and evolution literature (Levinthal & March, 1993; Nelson &Winter, 1982) all share a common concern with organizational adaptation. Overall,models of organizational adaptation range from deterministic ones, such as populationecology (Hannan & Freeman, 1984) and institutional theory (DiMaggio & Powell, 1983)to ones that place more emphasis on the proactive role of managers in the strategic deci-

sion-making process (Child, 1972; Daft & Weick, 1984).Theorists who adhere to a more voluntaristic orientation advocate the primacy of

strategic change and attempt to identify individual, organizational, and external factors

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that drive organizational responsiveness (Silverman, 1970). These arguments are largelyrooted in strategy theory, social construction theory, structural contingency theory, aswell as resource dependence theory. They claim that organizations are continuously con-structed, sustained, and changed by strategists’ definitions of the situation—“the subjec-tive meanings and interpretations of actors impute to their worlds as they negotiate andenact their organizational surroundings” (Van de Ven & Joyce 1981, p. 25). The argu-ments emphasize the proactive role of strategists in monitoring and interpreting envi-

ronmental changes, analyzing environmental threats and opportunities, and modifyingorganizations strategies to match those changes (Weick, 1979; Tushman, Newman, &Romanelli, 1988). Therefore, organizational effectiveness is a function of the matchbetween organizational structure, process, and external environments (Hrebiniak &Joyce, 1985). Additionally, organizations not only passively react to the environmentalchanges but also attempt to change external constraints and maneuver the organizationsinto favorable positions. For example, environmental constraints can be changed andmanipulated through political negotiation to fit the objectives of organizational strategists(Pfeffer & Salancik, 1978). At the macro level, Schumpeter’s (1942) seminal work sug-gests that technological innovations are the fundamental drivers of organizational

changes.Other theorists who promote the theory of organizational inertia contend that or-

ganizations are severely limited in their ability to adapt their strategies to their externalenvironments and therefore tend to persist in using their past strategies despite environ-mental changes. For example, cognitive theorists state that organizational strategists havea limited capacity to process information (Kiesler & Sproull, 1982; March and Simon,1958; Moorman, 1995) and that they operate in organizational contexts that are oftencharacterized by organizational and psychological pressures to persist with present strate-gies (Milliken & Lant, 1991). At the organizational level, organizations have a generaltendency to preserve their strategies rather than radically change them (Quinn, 1980).

Population ecologists also assert that organizations face both internal and external resis-tance and therefore their capabilities to respond to external changes are restricted.

Despite voluminous research, however, significant gaps in scholars’understanding of the organizational capability to respond to environmental change persist. Within the largebody of literature, the research effort has focused almost exclusively on large, well-established firms. One particularly prominent void is in the area of organizationaladaptation in the context of SMEs, especially growth-oriented SMEs. Current theories inorganizational responsiveness are often developed and tested in large organizations. Thequestion of the extent to which findings from research in organizational adaptation basedupon large, well-established organizations could be extended to SMEs remains unan-

swered. This is problematic given that a critical component of sound theory is the delin-eation of those circumstances, such as organizational size and structure, which serve asboundary conditions to the theory (Klimoski, 1991). In comparison with large compa-nies, SMEs are unfettered by bureaucracy, hierarchical thinking, and expensive existinginformation systems. They are often more innovative and more customer-oriented andhave quick response times when it comes to implementing changes. Additionally, SMEsare also able to adapt, internalize, and crystallize information more efficiently across theentire firm (Pelham, 2000). These attributes are especially true for growth-oriented SMEs.

Organizational Absorptive Capacity and Organizational ResponsivenessEarlier studies indicate an implicit consensus on absorptive capacity as a set of or-

ganizational routines necessary to identify and utilize externally generated knowledge.

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Cohen & Levinthal (1990) offer the most widely cited definition of absorptive capacityby pointing out the following:

. . . absorptive capacity refers not only to the acquisition or assimilation of informa-tion by an organization but also the organization’s ability to exploit it. Therefore, anorganization’s absorptive capacity does not simply depend on the organization’sdirect interface with the external environment. It also depends on the transfers of

knowledge across and within subunits that may be quite removed from the originalpoint of entry. Thus, to understand the sources of a firm’s absorptive capacity, wefocus on the structure of communication between the external environment and theorganization, as well as among the subunits of the organizations, and also on the char-acter and distribution of expertise within the organization (pp. 131–132).

Given this description, research related to a firm’s ability to acquire, transfer, andassimilate new ideas and then put them into concrete actions within the firm can be seenas falling within the conceptual foundation established by Cohen and Levinthal (1990).For example, Mowery and Oxley (1995) define absorptive capacity as a broad set of skillsneeded to deal with the tacit component of transferred knowledge and the need to modify

this imported knowledge. By contrast, Kim (1998) conceptualizes absorptive capacity aslearning capability and problem-solving skills that enable a firm to assimilate knowledgeand create new knowledge. The general consensus is that absorptive capacity is a multi-dimensional construct involving the ability to acquire, assimilate, and exploit knowledge.The basic character of absorptive capacity is that “prior knowledge permits the assimi-lation and exploitation of new knowledge” (Cohen & Levinthal, 1990, pp. 135–136). AsCohen and Levinthal (1990) suggest, the basic role of prior knowledge suggests two fea-tures of absorptive capacity. The first is the cumulativeness, which is referred to as “accu-mulating absorptive capacity in one period will permit its more efficient accumulation inthe next” (p. 136). The second is its effect on expectation formation—permitting the firm

to better understand and evaluate external information. These two features imply thatabsorptive capacity is domain specific and history dependent.

More recently, Zahra and George (2002) reconceptualize absorptive capacity as a setof organizational routines and processes by which firms acquire, assimilate, transform,and exploit knowledge. They also suggest that the four organizational capabilities buildon each other to yield absorptive capacity, a dynamic capability that influences the firm’sability to create and deploy the knowledge necessary to build other organizational capa-bilities. Zahra and George further differentiate two types of absorptive capacity—potential and realized, where the former consists of acquisition and assimilation and latterof transformation and exploitation. In this study, we focus on potential absorptive capac-

ity by defining it as a set of interrelated organizational capabilities of acquiring, dissem-inating, and assimilating external information and knowledge.

Consistent with Heeley (1997), this study posits that absorptive capacity consists of two major components: external knowledge acquisition and intrafirm knowledge dissemi-nation. Our conceptualization is based on two considerations. First, potential absorptivecapacity has received disproportionately less empirical scrutiny when compared to realizedabsorptive capacity. Second, we intend not only to validate the different dimensions em-pirically but also to explore their subsequent influence on organizational responsiveness.Since organizational responsiveness can be viewed as part of realized absorptive capacity,focusing on potential absorptive capacity would probably minimize conceptual tautology.

External Knowledge Acquisition. Acquisition refers to a firm’s capability to identify andacquire externally generated knowledge that is critical to its operation (Zahra & George,



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2002). Acquisition of external knowledge reflects the identification function, whichrepresents the “generator” of intelligence for the organization. External environmentalsignals are identified, and information on those signals is gathered and transmitted acrossthe organizational boundary. The more knowledge that can be collected over a givenperiod, the better the acquisition capability works.

Acquisition also represents a construct that refers to “active listening.” Informationand knowledge can be obtained from a wide variety of sources, using a variety of media.

The generation of external information should not be the monopoly of any one depart-ment but rather an organization-wide activity. Additionally, firms need to scan frequentlyand broadly. Although there is some indication that the most important areas of knowl-edge come from competitors and customers, the organization uses many more than theusual data collection sources from competitors and customers. The more information theorganization gathers through the search process, the more options there are for identify-ing changes in the environment, and therefore, the better the company can perform.

Intrafirm Knowledge Dissemination. Information gathered from the business environ-ment should be transferred to the organization and then transformed through the inter-

nalization process that requires dissemination and assimilation. The second componentof absorptive capacity—dissemination—involves the communication of the generatedknowledge to all relevant departments and individuals. Just as successful acquisition of knowledge requires the participation of many organizations’ departments, successful dis-semination also requires significant knowledge flows and sharing to ensure that theknowledge reaches the relevant people. The organization must be well structured so thatboth formal and informal networks are maximized to transfer knowledge within theorganization and across different functional departments. Without knowledge transfer anddissemination, no viable response can be designed and implemented. Sinkula (1994)pointed out ways to disseminate knowledge, such as interdepartmental meetings and

interdepartmental cooperation.

Organizational Responsiveness. This concept refers to the action taken in response tothe relevant information acquired and subsequently disseminated (Kohli, Jaworski, &Kumar, 1993). Organizational responsiveness is related to performance and reflects thespeed and coordination with which actions are implemented and periodically reviewed.Responsiveness also refers to evaluation of the over- or underfulfilling of goals and thesubsequent corrective actions (Kohli, Jaworski, & Kumar, 1993). These actions areconsistent with the approach of Levitt and March (1988), who examined the mecha-nisms used by firms to acquire technical knowledge of process and product innovations

developed by a competitor. However, we extended it beyond technical information(knowledge) and considered all signals coming from the environment.

Organizational responsiveness occurs through distinct stages of knowledge andresponsive action that flow to form a knowledge chain (Spinello, 1998). The two basiccomponents of the knowledge chain consist of awareness and responsiveness; companiesmust not only have information and knowledge but also the capacity and willingness toact. Knowledge management theories sometimes ignore the latter, becoming preoccupiedonly with a company’s intellectual prowess (Davenport & Prusak, 1998; Johnson, 1995).The viability of a firm’s knowledge chain determines its ability to overcome the forcesof inertia to react swiftly and decisively to environmental changes. A strong and unbro-

ken knowledge chain can consistently lead to essential incremental improvements andmore significant breakthroughs that lay the foundation for new markets and future growth.The knowledge chain represents a company’s cognitive power for action, which is its

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capacity for recognizing, anticipating, and acting on market shifts and movements or newtechnological developments in a way that is superior to its competitors. Some companieshave weak chains that contribute to their lethargic unresponsiveness to turbulent marketconditions. Other companies have knowledge chains that are quite robust and powerful

and are unfettered by impediments to organizational learning or by smothering bureau-cracies. Such companies tend to be superior competitors known for their agility, resource-fulness, and especially their ability to learn from their mistakes (Nonaka, 1994; Van denBosch, Volberda, & de Boer, 1999). The key to this difference involves not just the qualityand quantity of information and knowledge that companies acquire and assimilate but,above all, the velocity with which they can move through the cycle (McKenna, 1995).Any weak link in this intangible chain will have a disruptive effect on the whole process(Spinello, 1998).

The theoretical framework regarding the relationship between absorptive capacityand SMEs’ responsiveness is presented in Figure 1. SMEs’ responsiveness represents the

dependent variable. Absorptive capacity and its components—external knowledge acqui-sition and intrafirm knowledge dissemination—are the predictors, and size and age arethe controlling variables. It is hypothesized that the relationship is moderated by the envi-ronmental dynamism and SMEs’ strategic orientation.

Hypothesis Development

SMEs with well-developed absorptive capacity are more likely to adapt to externalenvironmental changes. Cohen and Levinthal (1990) point out that “absorptive capacity

affects a firm’s expectation formation, permitting the firm to predict accurately the natureand commercial potential of technological advances” (p. 136). They argue that there is alink between expectation formation or a firm’s aspiration level and the sensitivity for


External Knowledge

Acquisition

Intrafirm Knowledge

Acquisition Dissemination

SMEs’

Organizational

Responsiveness

Size

Age

Environmental

Turbulence

Strategic

Orientation

Absorptive Capacity

Figure 1

Research Model: Absorptive Capacity and Organizational Responsiveness


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emerging opportunities in the environment. They continue to suggest that this mosaicrepresents the structure of knowledge within an organization, the overlapping extent of this knowledge, and the interaction among individuals—all of which influence where toacquire information and how to exploit it.

The development of absorptive capacity in certain areas permits an SME to betterappreciate, understand, and evaluate the merit of environmental signals. It also enablesan SME to more readily accumulate what additional knowledge it needs to exploit any

critical knowledge that may become available. Therefore, SMEs with higher levels of absorptive capacity would tend to be more proactive. These “prepared” SMEs are bettertuned to developments in the environments and are more able to exploit opportunitiespresent in the environment, independent of prior performance. By contrast, SMEs havingmodest absorptive capacity will tend to be more reactive. This argument implies that reac-tive and proactive modes of SMEs’ behavior should remain rather stable over time. Inother words, the cumulativeness of absorptive capacity and its nature of history depen-dence preclude SMEs from becoming responsive in a short period of time.

SMEs with developed absorptive capacity are also more efficient in overcoming thecompetence traps that lead to a firm’s lack of responsiveness. Ahuja & Lampert (2001)

suggest that there are three competence traps: familiarity, maturity, and propinquity.Familiarity traps result from an overemphasis on refining and improving the existingknowledge base, precluding the firm from exploring alternate sources of knowledge andlimiting the organization’s cognitive schemas. Maturity traps result from a need to havereliable and predictable outcomes, therefore limiting knowledge exploration. Propinquity(nearness) traps reflect a firm’s disposition to explore knowledge in areas closest to itsexisting expertise, precluding an examination of major shifts in the external environment.In the context of SMEs, given the limited financial resources and risk-bearing capabil-ity, SMEs are much more likely to be confined in these traps, especially propinquity trapsand familiarity traps. These traps cause SMEs to be blindsided by changes in the exter-

nal environment and less responsive to these changes.Zahra and George (2002) provide additional evidence that firms with well-developed

absorptive capacity are likely to be more adept and less confined to the competence traps.Specifically, externally acquired information and knowledge may embody heuristics thatdiffer significantly from the existing knowledge base within a firm, which may minimizethe risk of familiarity traps. Disseminating externally acquired knowledge would enablea firm to generate novel combinations and sensitize the firm to alternative solutions thatmay be tested and not be closely related to its existing expertise, therefore diminishingthe risk of maturity traps and propinquity traps. Consequently, ceteris paribus, the greaterthe capability of acquisition and dissemination of an SME, the more responsiveness there

tends to be. Therefore, we propose the following:

H1: External knowledge acquisition is positively related to SMEs’ organizationalresponsiveness.

H2: Intraknowledge dissemination is positively related to SMEs’ organizationalresponsiveness.

Environmental Turbulence

Duncan (1972) defines the environment as the relevant physical and social factorsoutside the boundary of an organization that are taken into consideration during organi-

zational decision making. Environment can be conceptualized as task environment andgeneral environment. Task environment involves environmental elements that have adirect impact on the competitive situation of individual organizations. Those elements

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are commonly defined as technology, competitors, customers, suppliers, and regulatorybodies. General environment refers to factors, that affect organizations indirectly, includ-ing political, economic, and social/demographic conditions.

It is widely accepted in the strategy literature that the external environment is aprimary source of uncertainty for managers responsible for identifying opportunities andthreats (i.e., Duncan, 1972). Duncan proposes that environmental complexity and vari-ability are two dimensions of uncertainty. He argues that environmental variability or tur-

bulence was most important to organizational adaptation. Turbulence is defined by highlevels of interperiod changes of key environmental variables (Glazer & Weiss, 1993,Sinkula, 1994; Dess & Beard, 1984). The environment, including both task and generalenvironment, is perceived as turbulent if the number of events per period of time is highfor key characteristics, such as consumer preferences, number of new customers, newproducts, number and position of competitors (Jaworski, Wee, & MacInnis, 1995), sizeof the market, use of technology, and regulations (Glazer & Weiss, 1993).

Prior empirical literature has associated environmental turbulence with the changedbehaviors of firms. For example, Becherer and Maurer (1997) confirm that environmen-tal turbulence is a significant moderating factor on the entrepreneurial orientation and

marketing orientation of entrepreneur-led firms. Chandler, Keller, and Lyon (2000)demonstrate a positive association of an innovative, supportive culture on firm earningsunder the conditions of a turbulent environment. Miller and Friesen (1983) find that, fora sample of successful firms, increased environmental turbulence tended to lead to highlevels of innovation and analysis. Using data from a three-year study of over 400 youngbusinesses, Nicholls-Nixon, Cooper, and Woo (2000) find that the greater the level of perceived environmental hostility, the higher the level of strategic experimentation, whichis defined as changes in different aspects of strategy. Environmental turbulence createsthreats to the existing fit between the SME and the environment. In the meantime, it alsoprovides the possibility of creating a better fit. In either case, an SME has to rely on its

absorptive capacity to discern opportunities from threats and respond accordingly. Con-sequently, it is expected that SMEs that operate in a more turbulent environment willengage in more active external knowledge acquisition and intrafirm knowledge dissem-ination as a way of realigning organizations with the external environment. Therefore,we hypothesized the following:

H3a: The greater the environmental turbulence, the greater the impact of externalknowledge acquisition on SME organizational responsiveness.

H3b: The greater the environmental dynamism, the greater the impact of intrafirmknowledge dissemination on SME organizational responsiveness.

Strategic Orientation

Several typologies of strategic orientation have been set forth in the strategic man-agement literature (i.e., Porter, 1981; Miles & Snow, 1978). For example, Miles and Snow(1978) postulate that competing firms within an industry exhibit patterns of behavior rep-resentative of four ideal competitive strategy types: prospectors, defenders, analyzers,and reactors. The prospectors are characterized by their constant search for new productsand markets. They continually experiment with new products and venture into newmarkets. Consequently, prospectors are more concerned with searching for new oppor-

tunities. By contrast, the defenders have a narrow and stable product and market domainand seldom make major adjustments in its technology or structure. The emphasis is onmore efficient ways of producing a given product or service. A common yet key dimen-



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sion underlying this typology is a firm’s proactiveness in pioneering products andmarkets. The more proactive strategy, such as a prospector’s, would require a firm’s man-agement to spend more time on scanning its external environment and evaluating oppor-tunities and threats. It would also prompt the firms to implement formal procedures andsystems for disseminating and assimilating the knowledge in order to reduce organiza-tional uncertainty.

Levinthal and March (1993) distinguish two types of strategic orientation: (1) an

exploitation strategy that emphasizes operational efficiency, the refinement of a routineset of activities, and maximization of economic return; (2) an exploration strategy thatemphasizes change, flexibility, and innovation, leading to creation of new organizationalgoals, forms, and practices. In a similar vein, Gagnon, Sicotte, and Posada (2000) con-ceptualize strategic orientation as two types of behavior—entrepreneurs’ behavior andadministrators’ behavior, where the former is guided by the opportunities that arise, andthe latter is governed by the optimal use of the resources.

The notion that strategic orientation influences perceptions of external events is alsowell established (Johnson, 1995). Prospectors need a much wider range of informationto make strategic decisions regarding issues, such as competitive response and new

product design. Defenders may emphasize intrafirm knowledge dissemination as a wayto improve internal efficiency in the organization. Therefore we propose the following:

H4a: The more proactive the strategic orientation, the greater the impact ofexternal knowledge acquisition on SME organizational responsiveness.

H4b: The more proactive the strategic orientation, the greater the impact of intrafirmknowledge dissemination on SME organizational responsiveness.

Method

Sampling Procedures

A random sample of 1,000 SMEs from Washington State was used to test the hypothe-ses. Responses were collected from 284 companies (28.4% response rate). Two hundredforty-two usable questionnaires were obtained. Almost one half of the respondents, 43.4%represented businesses in the manufacturing sector; 22.3% were businesses in the servicesector. Retailers and wholesalers came next, each with 8.7%. The remainders were financebusinesses, transportation companies, and construction and agricultural businesses. Achi-square test between respondents and nonrespondents shows no sample bias.

We used a combination of a subjective growth intention measure and objective

growth rates to create our sample of growth-oriented firms. First, respondents were askedto allocate 100 points among four statements: “my organization emphasizes growth andacquiring new resources”; “my organization emphasizes efficiency and smooth opera-tions”; “my organization emphasizes competitive actions and responses”; and “my or-ganization emphasizes stability.” The first statement is related to SMEs’ growth intention,while the other three statements are related to cost efficiency. Respondents that allocatedat least 25 points to the first statement were included in the subsample for subsequentscreening procedures. Second, we reviewed SMEs’ self-reported sales growth data forthe last two years prior to the data collection. Only those SMEs that had at least a 6%growth rate in the last two consecutive years were included in the sample. By combin-

ing both subjective and objective measures of growth orientation, we were able to iden-tify a homogenous group of growth-oriented SMEs. The final sample consists of 107growth-oriented firms.

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Measures

Task Environmental Turbulence. This was measured using a 14-item scale. Participantswere asked to rate the degree of change for various characteristics of task environment,including technology, competition, market/customers, suppliers, and regulations. Theanswers were measured on 5-point scales, with a rating of 1 indicating that the environ-mental element has the least change, and a 5 indicating that the element is undergoingmany changes. The scale was originally based on Glazer and Weiss (1993) and Sinkula(1994). A principal component factor analysis with varimax rotation was conducted onthe responses to the 14 items of environmental turbulence measures and it yielded twofactors—11 items were loaded high (>.50) on one factor, and the other three items loadedhigh on both factors. Based on the recommendation of Hair, Anderson, Tatham, and Black (1995), the three items were eliminated, subsequently resulting in a clear one-factor struc-ture. The scale has a Cronbach’s alpha of .84, which indicates acceptable reliability. Wecomputed the factor mean score for subsequent analysis.

Absorptive Capacity. Ways to operationalize this construct vary widely. Empirical

studies related to the concept do not always capture the multidimensionality of the con-struct and it is frequently operationalized by a unidimensional measure. For example,absorptive capacity has been measured by investment in R&D personnel (Liu & White,1997), R&D intensity (Cohen & Levinthal, 1990), and managerial IT knowledge of busi-ness processes (Boynton et al., 1994). In this study, we measure absorptive capacitythrough two multi-item constructs, external knowledge acquisition, and internal knowl-edge dissemination. The first construct represents the capability through which environ-mental signals are identified and information embedded in those signals is gathered andtransmitted back to the organization. How well the company does this should be judgedby the amount of knowledge and information that is acquired. The more knowledge and

information that can be collected over a given period of time, the better the firm’s acqui-sition capability. The second dimension of the construct represents a firm’s capacity todisseminate and share knowledge.

A 12-item measure of external knowledge acquisition was developed, following theapproach by Kohli, Jaworski, and Kumar (1993), Narver and Slater (1990), and Slaterand Narver (1994). The measure includes items dealing with how often the responsibleentities in the business unit meet with clients, competitors, and others. We asked respon-dents to rate each item, with 1 representing strongly disagree and 5 strongly agree. Aprincipal factor analysis with varimax rotation yielded one single factor with eigenval-ues greater than one. Items with components loadings below .4 were excluded from the

scale, consistent with Hair et al.’s (1995) suggestion. The other dimension of absorptivecapacity, intrafirm knowledge dissemination, was also adapted from Kohli, Jaworski,and Kumar (1993), Narver and Slater (1990), and Slater and Narver (1994). It includesstatements, such as “data on customer satisfaction are disseminated at all levels in theorganizations.” A principal factor analysis yielded a clear factor structure. Cronbachalphas for each scale were .80 and .72 respectively. They were all above the value of .70suggested by Nunnally (1978), indicating an acceptable degree of reliability. The factormean scores were computed for subsequent statistical analysis.

Strategic Orientation. Following previous interpretations of Miles and Snow’s theory

(Hambrick, 1983; Shortell & Zajac, 1990; Delrey & Doty, 1996), we defined strategicorientation as rate of product and market innovation. Three items were adapted fromWilliams (1992) to assess strategic orientation of growth-oriented SMEs. These items



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measured the extent to which growth-oriented SMEs emphasize building brand loyalty,speed of response, and market timing on a 1 to 7 scale, with 1 representing the leastimportant and 7 the most important. A principal factor analysis yielded a one single factorstructure with eigenvalue greater than one. The coefficient alpha for the scale is .73.

Organizational Responsiveness. This was defined as the actions taken in response to theknowledge gathered and filtered. (Kohli & Jaworski, 1990). We adopted the scale devel-

oped by Kohli, Jaworski, and Kumar (1993). Examples of items used for measuringresponsiveness include “Speed and coordination with which the actions (marketing pro-grams) were implemented”; “Periodical review of product/service development”;“Evaluation of the over- or underfilling of goals and correcting accordingly”; and“Interdepartmental cooperation and coordination.” A principal component analysis withvarimax rotation yielded a nine-item factor. The Cronbach’s alpha for the organizationalresponsiveness factor is .89. The summated factor mean was used for subsequent statis-tical analysis.

Size and Organizational Age. Size has been the most frequently examined structural

characteristic in studies by strategy and organizational theorists. On the basis of trans-action cost theory and resource dependence theory, size is one of the most importantorganizational factors that affect firms’ behavior in response to changes in marketenvironments. For example, structural contingency theory argues that organizationstend to become bureaucratized as size increases, thus hampering organizational respon-siveness. In a similar vein, Tushman and Romanelli (1985, p. 192) suggested that, overtime, strategic decision processes “become routinized, commitment to established prac-tices increases as groups become more rigid in their behavior patterns and decrease boththe volume and diversity of information processing.” For these reasons, in this studywe controlled for size and age effect in order to isolate the relationship between absorp-

tive capacity and organizational responsiveness. Size was measured by the numberof employees, with a logarithm transformation. Age was measured by the years sinceestablishment.

Statistical Procedures

Hierarchical regression analysis was employed to test the formulated hypotheses.The statistical testing procedures are as follows. First, a full regression model was run.Independent variables included SME size, years since establishment, external knowledgeacquisition, internal knowledge dissemination, and strategic orientation. The dependent

variable is organizational responsiveness. Second, we rotated each of the cross productsbetween external knowledge acquisition, internal knowledge dissemination, environ-mental dynamism, and strategic orientation into the second block of each hierarchicalregression model. The significant R-square change and F -changes would indicate signi-ficant moderating effects by environmental dynamism and strategic orientation.

Results

Descriptive statistics and the correlation matrix for the independent and dependent

variables are reported in Table 1.H1 and H2 stated that SMEs’ absorptive capacity, including external knowledge

acquisition and intrafirm knowledge dissemination, would be positively related to

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T a b l e 1

D e s c r i p t i v e S t a t i s t i c s a n d C o r r e l a t i o n M a t r i x

E x t e r n a l

I n t r a fi r m

I n f o r m a t i o n

I n f o r m a t i o n

E n v i r o n m e n t a l

S t r a t e g i c

O r g a n i z a t i o n a l

V a r i a b l e s

M e a n

s . d .

S i z e

A g e

A c q u i s i t i o n

D i s s e m i n a t i o n

T u r b u l e n c e

O r i e n t a t i o n

R e s p o n s i v e n e s s

S i z e

4 . 9

7 4

1 . 1

4 1

1

. 0 0 0

A g e

3 . 2

8 3

. 7 5 5

. 3 2 8 * * *

1 . 0

0 0

E x t e r n a l

3 . 7

2 3

. 8 9 8

. 0 6 8

. 1 8 2 *

1 . 0

0 0

I n f o r m a t i o

n


I n t r a fi r m

3 . 8

2 6

. 5 5 0

. 1 0 2

- . 0

0 4

. 3 1 1 * * *

1 . 0

0 0

I n f o r m a t i o

n

D i s s e m i n a

t i o n


3 . 1

0 3

. 5 7 1

. 1 5 2

. 1 4 1

- . 0

6 9

. 0 5 9

1 . 0

0 0

T u r b u l e n c e

S t r a t e g i c

2 . 9

2 6

1 . 4

5 5

. 1 8 4 *

- . 0

5 4

- . 3

5 7 * * *

- . 1

1 8

. 0 1 3

1 . 0

0 0

O r i e n t a t i o n

O r g a n i z a t i

o n a l

3 . 7

6 2

. 6 8 3 5

. 0 8 8

. 1 5 4

. 7 2 1 * * *

. 3 9 7 * * *

. 0 0 5

- . 2

2 5 * *

1 . 0

0 0

R e s p o n s i v e n e s s

* a

<

. 1

* * a

< . 0

5

* * * a


13/24

organizational responsiveness. As indicated in Table 2, model I ( R2 = .446, p < .001)suggests that organizational responsiveness increases as a firm’s external knowledgeacquisition and intrafirm knowledge dissemination efforts increase. The individual stan-dardized regression coefficients for both variables are statistically significant, lendingstrong support for H1 and H2. However, regression coefficients for the two control vari-ables, SMEs’ size and age, are not statistically significant, suggesting that they do nothave a major impact on the organizational responsiveness of SMEs.

H3a and H3b, stating that the impact of a firm’s absorptive capacity would be strongerin a turbulent environment, were partially supported. As indicated in Model II of Table 2,the regression coefficient for the cross product of environmental turbulence and ex-ternal knowledge acquisition is not statistically significant (b = 1.279), suggesting thatthe impact of external knowledge acquisition is independent of environmental turbulence.Therefore, H3a was not supported. Model III shows the results for H3b. The interactionbetween environmental turbulence and intrafirm knowledge dissemination was foundto be statistically significant (b = 1.450; p < .05), lending support for H3b. It thereforesuggests that the impact of intrafirm knowledge dissemination on organizational respon-siveness would be greater in a more turbulent environment than in a stable environment.

H4a and H4b, stating that a firm’s strategic orientation would moderate the relation-ship between absorptive capacity and organizational responsiveness, were partially sup-ported. As indicated in Model IV of Table 2, the cross product of strategic orientationand external knowledge acquisition was statistically significant (b = .630; p < .1), whichsuggests that the impact of an SME’s external knowledge acquisition on its organiza-tional responsiveness is contingent on its strategic orientation. The more proactive thefirm’s strategic orientation, the greater the impact that external knowledge acquisition hason organizational responsiveness. Therefore, H4a was supported. Model V indicates thatthe cross product between strategic orientation and intrafirm knowledge disseminationwas not statistically significant, therefore lending no support to H4b.

Discussion

This study examined the effect of absorptive capacity on organizational responsive-ness, as well as the moderating effects of environmental turbulence and strategic orien-tation. The study tested four sets of hypotheses derived from a conceptual model of different dimensions of absorptive capacity and their influence on organizational respon-siveness. Overall, our hypotheses were partially supported.

Absorptive Capacity and Organizational Responsiveness

Associations between absorptive capacity and organizational responsiveness werefound in growth-oriented SMEs. As indicated in Table 2, the two dimensions of absorp-tive capacity—external knowledge acquisition and internal knowledge disseminationappear to be strong and positive predictors of SMEs responsiveness, suggesting that bothdimensions are important and interdependent. They are two inseparable components of absorptive capacity that enable growth-oriented SMEs to respond to external environ-ments. The two capabilities are similar to March’s (1991) theory of exploitation andexploration in organizational learning. Exploration represents organizational efforts to

experiment and innovate, while exploitation includes things, such as refinement, selec-tion, and implementation. With the lack of one of the capabilities, organizational respon-siveness of growth-oriented SMEs would be curtailed.

Fall, 2003 75


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T a b l e 2

R e s u l t s o f M u l t i p l e R e g r e s s i o n

A n a l y s i s

M o d e l I

M o d e l I I

M o d e l I I I

M o d e l I V

M o d e l V

V a r i a b l e s

b

t

b

t

b

t

b

t

b

t

S i z e

- . 0

3 2

- . 3

8 0

- . 0

3 5

- . 4

1 6

. 0 0 4

. 0 4 6

- . 0

1 9

- . 2

2 4

- . 0

3 1

- . 3

6 6

A g e

- . 0

4 5

- . 5

4 0

- . 0

4 6

- . 5

4 4

- . 0

5 5

. 5 1 3 – . 6

5 7

- . 0

6 2

- . 7

4 4

- . 0

5 0

- . 5

8 2

E x t e r n a l K

n o w l e d g e

. 5 7 5

6 . 4

6 8 * * *

- . 1

7 7

- . 2

9 8

. 5 3 5

- 5 . 9

5 7 * * *

2 . 3

3

1 . 1

5 3

. 5 7 6

6 . 4

4 3 * * *


I n t r a fi r m K

n o w l e d g e

. 2 1 5

2 . 5

6 9 * * *

. 1 9 7

2 . 3

2 8 * *

- . 6

1 7

- 1 . 4

3 9

. 2 4 0

2 . 8

7 3 * * *

. 1 5 8

. 8 3 2

D i s s e m i n a

t i o n


. 0 9 8

1 . 1

9 7

- . 6

2 7

- 1 . 0

9 5

- . 9

9 2

- 1 . 7

8 2 *

. 0 8 5

1 . 0

5 7

. 0 9 7

1 . 1

8 7

T u r b u l e n c e

S t r a t e g i c O

r i e n t a t i o n

. 0 0 8

. 0 8 8

- . 0

0 3

- . 0

2 9

- . 0

1 3

- . 1

4 7

- . 6

4 3

- 1 . 8

0 0 *

- . 2

0 1

- . 3

1 7


1 . 0

4 2

1 . 2

7 9

T u r b u l e n c e ¥

E x t e r n a l

K n o w l e d g e A c q u i s i t i o n


1 . 4

5 0

1 . 9

7 8 * *

T u r b u l e n c e ¥

I n t r a fi r m

K n o w l e d g e

D i s s e m i n a

t i o n

S t r a t e g i c O

r i e n t a t i o n ¥

. 6 3 0

1 . 8

7 7 *

E x t e r n a l K

n o w l e d g e


S t r a t e g i c O

r i e n t a t i o n ¥

. 2 1 1

. 3 3 2

I n t r a fi r m K

n o w l e d g e

D i s s e m i n a

t i o n

R - S q u a r e

. 4 4 6

. 4 5 6

. 4 7 0

. 4

6 8

. 4 4 7

A d j u s t e d R -

S q u a r e

. 4 0 8

. 4 1 3

. 4 2 7

. 4

2 5

. 4 0 2

R -

S q u a r e C h a n g e

. 0 1 0

. 0 2 4

. 0

2 2

. 0 0 1

F

1 1 . 8

1 4 * * *

1

3 . 4

4 9 * * *

1 5 . 7

2 6 * * *

1 5 . 3

3 6 * * *

1 1 . 9

2 4 * * *

F -

C h a n g e

1 . 6

3 5

3 . 9

1 2 * *

3 . 5

2 2 * *

. 1 1 0

* a

<

. 1

* * a

< . 0

5

* * * a


15/24

To our surprise, the independent effects of environmental turbulence and firms’ strate-gic orientation on organizational responsiveness were statistically insignificant. Our find-ings are not consistent with the extant strategy literature, which has placed great emphasison the direct influence external environment and strategic orientation have on organiza-tional responsiveness in large and well-established companies (i.e., Miller & Friesen,1983; Venkatraman & Prescott, 1990). It therefore suggests that the findings from sampleswith large and well-established companies may not be applicable to the context of SMEs.

In the context of growth-oriented SMEs, our results indicate that the impact of organi-zational capabilities on knowledge acquisition and dissemination are more important thanthat of environmental turbulence and strategic orientation. It also suggests that the influ-ence of environmental turbulence and strategic orientation on SMEs’ organizationalresponsiveness may be indirect, through their moderating effect on the relationshipbetween organizational absorptive capacity and responsiveness.

Moderating Effects of Environmental Turbulence

Our results indicate a significant positive interaction effect between environmental

turbulence and intrafirm knowledge dissemination. To further interpret the interactioneffect, we conducted the analysis in the following steps. First, variable means in ModelIII were substituted for all predictors except environmental turbulence, intrafirm knowl-edge dissemination, and their cross product. The result was a reduced equation with twopredictors and their cross product. Second, we followed the procedure of Cohen andLevinthal (1990). The values for high and low environmental turbulence as one standarddeviation above zero point and one standard deviation below zero point respectively wereselected. Substituting each of these values into the reduced equation yielded the follow-ing two linear equations, which are depicted in Figure 2(a).

When environmental turbulence is high (means + 1s.d.):

When environmental turbulence is low (means - 1s.d.):

The interaction effect illustrated in Figure 2(a) demonstrates that the relationshipsbetween absorptive capacity and organizational responsiveness are moderated by envi-ronmental turbulence. It suggests that, for growth-oriented SMEs, the influence of intrafirm knowledge dissemination on organizational responsiveness would be greater ina more turbulent environment than that in a less turbulent one. This may be due to the

fact that highly turbulent environments increase volume and complexity of information,which in turn calls for increased demand for information and knowledge-processingcapability.

Our results lend no support for the interaction effect between environmental turbu-lence and external knowledge acquisition. It seems that in a turbulent environment, SMEsplace a greater emphasis on the capability of disseminating and assimilating information,and less on the capability of acquiring new and more information from the environment.This may be due to the fact that SMEs possess limited resources and have a limited degreeof specialization in information acquisition and information processing. More often, topmanagement usually is the one responsible for both important activities. As environments

become more turbulent, SMEs’ management faces a greater volume and complexity of both information and knowledge. It seems that they choose to be more internally focusedby developing disseminating capabilities, buffering them from being overloaded with

Organizational Responsiveness Intrafirm Knowledge Dissemination= - +. . *719 3 054

Organizational Responsiveness Intrafirm Knowledge Dissemination= - +1 852 4 71. . *

Fall, 2003 77


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information and reducing organizational uncertainty. This explanation is consistent withfindings by Pelham (2000) and Oviatt and McDougall (1994), which state that SMEs areefficient in internalizing and crystallizing information across the entire firm.

Moderating Effect of Strategic Orientation

Following similar procedures, we constructed the following two equations demon-strating the moderating effects of SMEs’ strategic orientation on the relationship betweenexternal knowledge acquisition and organizational responsiveness, which were subse-quently depicted in Figure 2(b):

When strategic orientation is more proactive (means + 1s.d.):

When strategic orientation is less proactive (means - 1s.d.):

As illustrated in Figure 2(b), the influence of external knowledge acquisition andorganizational responsiveness is much stronger for SMEs with a more proactive strate-gic orientation. However, SMEs’ strategic orientation has no impact on the relationshipbetween intrafirm knowledge dissemination and organizational responsiveness. Theresults suggest that SMEs with more proactive strategies, such as those of a prospector,would place greater emphasis on developing capabilities in scanning external environ-

ment and evaluating threats and opportunities, enabling them to take the lead in devel-oping new products and venturing into new markets. However, given the limited

Organizational Responsiveness E Knowledge Acquisition= - +. . *063 3 257 xternal

Organizational Responsiveness E Knowledge Acquisition= - +

1 984 5 09. . * xternal


Intrafirm Knowledge

Dissemination

OrganizationalResponsiveness

OrganizationalResponsiveness

External Knowledge

Acquisition

(a) (b)

High Environmental

Turbulence

Low Environmental

Turbulence

High Proactiveness

Low Proactiveness

Figure 2

External Information Acquisition, Internal Information Dissemination, and

Organizational Responsiveness: The Moderating Effect of Environmental

Dynamism and Strategic Orientation


17/24

resources of SMEs, it appears that the development of external knowledge acquisitioncapabilities comes at the expense of intrafirm knowledge dissemination capabilities.

We can therefore conclude that growth-oriented SMEs benefit more from internalknowledge dissemination when environmental changes are fast paced. Also SMEs thatpursue a more proactive strategy benefit more from external acquisition of knowledge.

Conclusions

This study draws several conclusions from its findings consistent with Day’s (1994)results. A key feature of our study has been the suggestion that SMEs’ responsivenessis a function of organizational absorptive capacity. Unlike large and more establishedcompanies, environmental turbulence and strategic orientation have a limited directimpact on SMEs’ organizational responsiveness. Rather, their impact reflects on theirmoderating roles in the relationship between organizational absorptive capacity and orga-nizational responsiveness.

Specifically, the responsiveness of growth-oriented SMEs is expected to increase

if (1) they have well-developed capabilities in external knowledge acquisition andintrafirm knowledge dissemination; (2) they have well-developed external knowledgeacquisition capability and adopt a more proactive strategy, such as that of the prospec-tor, in Miles and Snow’s typology (1978); (3) they face a turbulent environment andhave well developed intrafirm knowledge dissemination capability. These findings reflectdynamic interactions among absorptive capacity, environment, and SMEs’ strategy.Environmental turbulence only motivates an SME’s searches for changes and responseswhen the SME possesses well-developed internal capability in disseminating and assim-ilating these environmental signals. The adoption of a proactive strategy may lead to moreresponsive SMEs only when they have well-developed external knowledge acquisition

capability.This study also yields important managerial implications for SMEs managers. Our

findings sensitize SMEs’ managers to the importance of absorptive capacity in main-taining organizational responsiveness to external environmental changes, and also pointto directions in which SMEs managers can follow to allocate limited organizationalresources to develop the absorptive capacity. For SMEs, developing internal organiza-tional capabilities in acquiring and disseminating knowledge is very important in align-ing organizations with external environments. These capabilities play a greater role indetermining organizational responsiveness than environmental turbulence and strategicorientation. When facing turbulent environmental conditions, SMEs’ managers should

pay more attention and therefore allocate more resources to nurture and develop theirintrafirm knowledge dissemination capability, rather than external knowledge acquisitioncapability, to achieve the level of responsiveness so that SMEs’ environment alignmentcould be maintained. When a more proactive strategy is adopted, SMEs’ managers shoulddevote more resources to developing external knowledge acquisition capability insteadof intrafirm knowledge dissemination capability. Additionally, given the fact that absorp-tive capacity is history dependent and could not be developed in a relatively short periodof time, SMEs managers should focus on developing external knowledge acquisition andintrafirm knowledge dissemination capabilities as early as possible.

A few caveats should be noted when interpreting the results of this study concerning

the relationships between absorptive capacity and organizational responsiveness, and themoderating effects of environment and strategy. First, since we asked a single respon-

Fall, 2003 79


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dent in an SME to provide the data at a single point in time, social desirability biasremains a potential concern. Although in most of the cases that respondent was the ownerof the responding firm, it may be preferable to use multiple respondents in future researchto provide evidence of the validity of the responses.

The second limitation of this study is the use of a cross-sectional research designand the difficulty of being able to judge causality. Although we have argued that a well-developed absorptive capacity should lead to SMEs’ greater organizational responsive-

ness, our cross-sectional design does not allow us to establish causality. For example,does absorptive capacity cause SMEs’ responsiveness, or vice versa, or do they simplycovary across time? The issue of causality can be better addressed in longitudinal designs.

Third, the present study relies on one dimension of environment. As noted in theliterature (i.e., Dess & Beard, 1984), the level of uncertainty and environmental munifi-cence may also have important implications on SMEs’ behavior, such as their responsive-ness (Matthews & Scott, 1995). Future research should include the multiple dimensionsof environment and test how these dimensions interact with an SME’s absorptive capacity.Additionally, the relatively small sample of growth-oriented SMEs in this study precludedour testing for industry effects. The results presented here suggest that additional studies

with larger samples are needed so that industry effects can be investigated.Fourth, we also noted some limitations in our sampling procedures. While the current

sample of growth-oriented SMEs was selected based on a combination of objectivegrowth rates (>6%) as well as subjective growth intention measures, more conservativeselection criteria can be employed. For example, Fischer et al. (1998) defined high growthSMEs as those with 20% sales growth for the last three years. In their empirical researchon human resource practices in SMEs, Heneman, Tansky, and Camp (2000) include SMEsthat exceed a 30% annual growth rate for the last three years and/or a 20% growth ratein the number of full-time employees. Those stringent criteria would ensure that the par-ticipating SMEs are at the top 1% of fast-growing SMEs in the United States (Kirchoff,

1995; Birch, Hagertu, & Parsons, 1995). It would be interesting to extend our framework to samples of high-growth SMEs and see if the findings from the current study still hold.

Fifth, further refinement of the measures of absorptive capacity would improve ourability to study these proposed relationships. For example, the development of a morefine-grained, multi-item index of absorptive capacity that includes both objective (suchas SME owner’s education, years of experience, R&D intensity, and so forth) and judge-mental measures may be needed. Other potential moderating variables should be exam-ined in future research, including SMEs’ age, culture, structure, and top managementcharacteristics (Becherer & Maurer, 1997).

Finally, we also recognize the few directions to extend the current study by explor-

ing the relationships between organizational responsiveness and performance in thecontext of SMEs. While it is conceivable that either being overly adaptive or under-adaptive would sacrifice organizational effectiveness, a paucity of research and empiri-cal evidence exists for SMEs. Future studies should focus on what roles absorptivecapacity plays in the relationships between organizational responsiveness and perfor-mance. The current research examines the relationship of absorptive capacity and orga-nizational responsiveness in a sample of growth-oriented SMEs. It would be interestingto compare the findings with a sample of nongrowth-oriented SMEs. Such comparativeresearch would provide insights into what differentiates growth-oriented SMEs fromnongrowth-oriented ones.

Additionally, future research could also examine the inter-relatedness between thetwo components of absorptive capacity and how they interact in affecting organizationalperformance. As Nelson and Winter (1982) point out, an organization’s capabilities—



19/24

including absorptive capacities—do not reside in any single individual but depend on themosaic of activities, interactions, and exchanges among a number of individuals throughboth informal and informal media. In a similar vein, Cohen and Levinthal (1990) suggestthat the mosaic represents the structure of knowledge within a firm, the extent of over-lapping of this knowledge, and the interactions that occur among individuals—all of which influence who knows what information, who can help with what sort of problem,and who can exploit new information. These arguments imply the existence of inter-

relatedness among the organizational capabilities of acquisition and dissemination andassimilation. Relying on one while ignoring others is not sufficient for rapid innova-tion and flexible organizational response to changing market conditions (Nonaka, 1989;1991).

In spite of these shortcomings, this research confirms the role of absorptive capacityas an important aspect of SMEs’ organizational responsiveness, and of the moderatingeffects of environmental turbulence and strategic proactiveness. It suggests that there aresufficient grounds for future research as highlighted. This study also points to a need fora new research direction of SMEs’ organizational responsiveness from a knowledge man-agement perspective. It is especially important to investigate two capabilities: external

knowledge acquisition and intrafirm knowledge dissemination. The first should determinehow well-developed the knowledge search system of an SME is and how well it detectschanges in the external environment. The second relies on the memory of the organiza-tion, on the materialized knowledge (Glazer, 1991) already existent and transformed intorules and routines (Sinkula, 1994).

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Jianwen Liao is a professor at the Department of Management & Marketing at Northeastern IllinoisUniversity.

Harold Welsch is a professor at the Department of Management at DePaul University.

Michael Stoica is a professor at the School of Business at Washburn University.

The authors would like to thank the editor and two anonymous reviewers for their constructive comments.An earlier version of this article was presented at the 14 th Annual Conference of the U.S. Associationfor Small Business and Entrepreneurship (USASBE), February 2001 (Orlando, FL), and received the BestEmpirical Paper Award.

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Acquisition and It's Impact on Firm

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