Absorptive Capacity in Knowledge Management - Essay Example

Absorptive Capa in Knowledge Management Introduction Organizations today are currently under intense competition. They have shifted to a knowledge-based world owing to the information revolution. However, firms cannot gain competitive advantage by simply having knowledge resources. They must establish ways of converting these resources into capabilities. Furthermore, companies need to transfer those capabilities into innovations, which will drive their competitive advantage. Absorptive capacity is the means with which companies can achieve this goal through knowledge resources. Explanation Zahra and George (2002) define absorptive capacity as “a set of organizational routines and processes by which firms acquire, assimilate, transform and exploit knowledge to produce a dynamic organizational capability.” It may also be understood as the means with which organizations exploit knowledge from the external environment after assimilating and identifying it. Before a business can develop absorptive capacity, it needs to have related knowledge. It should also have a discretionary system by which it distinguishes relevant and irrelevant knowledge. Absorptive capacity enables companies to recognize the value of that information and then assimilate it into their work processes. They ought to apply these mechanisms through their own judgments. The final result of absorptive capacity is thus innovation and already performance. Absorptive capacity may be construed as a four-tiered concept. It requires acquisition, proceeded by assimilation followed by transformation and eventually exploitation (Smith et. al., 2005). Acquisition involves the process of obtaining knowledge from external sources. The organization needs to have mechanisms for identifying that knowledge first. In essence, the acquisition process should be related to their core operations. Assimilation ought to follow this process; here, firms must capitalize on their processes and routines in order to interpret, analyze as well as understand the external knowledge. Once assimilation has occurred, the company ought to combine current and assimilated knowledge into one platform through transformation. This may involve a modification for existing practices. Finally, exploitation needs to take place, where a company leverages on its transformed capabilities by placing them into their operations. Acquisition may be influenced by a number of variables. The intensity and speed of knowledge acquisition has an effect on the outlook. Sometimes, the level of exploration and exploitation in an organization also alters how effectively companies acquire new investments. Companies must also have a direction which they will follow and ought to possess an inward looking approach. Assimilation largely relies on the scope or the level of efficiency in the companies (Daghfous, 2004). Sometimes people’s ability to understand knowledge and their flexibility towards new knowledge can alter the level of assimilation in the company. The transformation process depends on how effectively a firm can convert its existing knowledge. It needs to have internalized its systems and should also work on the scope of the outcomes. Decisions about the use of the new systems as well as its efficiency can affect how effective the exploitation phases. Additionally, companies must make decisions about the overall relevance of outcomes in this regard. Absorptive capacity thus has determinants, the four-tiered components and business model innovations as shown below: Knowledge management determinants - Absorptive capacity cycle - Business model innovation Knowledge management determinants refer to that prior knowledge that existed in an organization. It may take the form of resources, effort, prior knowledge and knowledge capabilities. Conversely, business model innovation entails business performance, leadership and innovation. Knowledge management determinants for absorptive capacity have four components as outlined above. The term itself refers to the process by which companies blend the information available to them and use it for various purposes through a technology platform. It is an attempt to increase the quantity of useful information in the institution. Knowledge management has four categories that have a direct relation to the absorptive capacity in an institution. The first is prior knowledge, which must be related to the new knowledge under consideration. Sometimes prior knowledge could come in the form of an experience or skill that facilitates problem solving. However, one may conceptualize it in the form of employees’ background, experience at work as well as their educational levels. Typical examples in this arena include certain technologies like customer relations management. Alternatively, talent maybe perceived as yet another resource. Venture capital also falls in this category, and having experiences with consumers can also cause such significant differences. Effort, on the other hand, is a measure of the degree of motivation in an organization concerning the initiatives and business resources in their institution (Slavković, 2008). Under prior knowledge management, firms ought to consider resources as well. They can define these as all the human, technological financial and intangible resources they possess that can affect absorptive capacity. Sometimes this could manifest in the form of job rotation or independent work. It could also be regarded as workgroups from various disciplines, performance for pay and several other human resource practices. People who are highly educated are more resourceful than those who are not, so they need to be treated as such. Financial investment has an adverse effect on the other resources in the organization (Tidd and Bessant, 2009). For instance, it can be able to engage in research and development if it has the right monetary resource. It may also invest in technologies that build on the knowledge base in the organization through the financial avenue. Finally, knowledge management determinants as an antecedent to absorptive capacity also consist of knowledge capabilities. Organizations are increasingly discovering the importance of tailoring their products and services to consumers’ needs. It is no longer sufficient to make products and then try to convince customers to buy them. Instead, firms have realized that anticipating and meeting specific needs is more effective. An organization’s consumer response capabilities can cause success if the speed with which it responds to their needs and their effectiveness of response are satisfactory. All the latter qualities are what determine the absorptive capacity in terms of antecedent factors. Knowledge management, therefore, has a profound influence on the absorptive capacity of the institution. It would be challenging to management to radically alter their available and new knowledge in order to use them for processes and operations (Todorova and Durisin, 2007). During the assimilation process of knowledge management, organizations usually engage in various processes. They must communicate with one another in order to make new knowledge properly understood. Furthermore, they need to use processes and tools for knowledge management to assimilate knowledge. These are all aspects that make absorptive capacity more effective. Knowledge management makes companies more efficient and creative in knowledge exploitation. Research and development highly depends on knowledge management. Innovation success depends on effective absorption of external knowledge. However, this heavily relies on cooperation between various stakeholders. Commercial cooperation is a critical success of ideas in the business environment. Knowledge management capacities facilitate this cooperation and thus enhance the absorptive capacity of the institution. The willingness to grow also depends heavily on knowledge management. All aspects of absorptive capacity cannot be realized unless there are adequate resources for achieving this. Companies must also set aside the time needed to do so. Businesses that already have knowledge management antecedents are likely to be more motivated to engage in assimilation, transformation and exploitation of their capabilities. They will be more motivated and encouraged to take action. The absorptive business cycle has already been discussed above, and has been noted to contain four key parameters. After assimilating, acquiring, transformation and exploitation in the business cycle, the organization ought to consider business model innovation. Performance, innovation and flexibility are crucial components of this process. Flexibility involves the capacity and willing to anticipate and respond to changing climates. Innovation refers to the process by which organizations design, develop and apply knowledge through creation of new services, technologies and products (Cantner and Joel, 2007). The process is continuous and is an illustration of value propositions for consumers. Performance is a measure of the value created by the organization through the payments consumers are willing to make for certain things. Value of absorptive capacity Absorptive capacity is critical in organizations because it create the prerequisites to innovation. Companies with high absorptive capacities are those that go about learning and looking for new ideas. Therefore, they are at a better position to recognize effect ideas that propagate innovation. Firms in the information technology sector particularly require this trait as survival adversely depends on innovative abilities. Organizations that have high absorptive capability also experiment quite frequently. They have a positive feedback loop for searching, learning and innovating. If a permanent system has been established in the organization, then new knowledge searches will be common and they will occur through new innovations (Jayachandran et. al., 2004). Low absorptive capacity manifests in bad learning activities. Companies that lack this feature are likely to try and squeeze out as much innovation as they can from their current institutions. Members of these departments may presume that they already have sufficient knowledge and could fail to develop. Their fixed mindsets can cause them to discard new knowledge as long it was not invented in the institution. With time, innovation decay commences and leads to lethargy in the institution. Eventually, people are likely to look for other organizational environments that encourage innovation (Saemundsson, 2005). Sometimes absorptive capacity is essential in diffusing ideas. Companies may be overwhelmed by too much information. They may not have the mechanisms for analyzing knowledge. Absorptive capacity allows companies to first establish what they already know. This facilities the process by which they can make sense of new information or even what they already possess. Companies are often too preoccupied to think about new knowledge especially when it does not fit into the norm, yet this could undermine their outcomes. More often than not, there are cognitive constraints in the entry of knowledge. Companies that lack absorptive capacity only think of innovation as something that lies within the hands of relatively few people. Conclusion Absorptive capacity is a process that depends on prior knowledge management as input as well as innovation and performance as the output. It is four-tiered in that it involves assimilation and activation as well as transformation and exploitation of the company. The result is greater competitive advantage. Knowledge management determines absorptive through its effect on the various phases as well as it ability to alter growth willingness. Companies require absorptive capacity in order to create a culture of innovation. References Cantner, U. and Joel, K., 2007. Jena Economic Research Papers: Functional Chains of Knowledge Management -Effects of Firms Innovative Performance. Jena: Friedrich-Schiller-University and the Max Planck Institute of Economics. Daghfous, A., 2004. AC and the Implementation of Knowledge-Intensive Best Practices. SAM Advance Management Journal, 62(2), pp. 21-27. Gray, C., 2006. Absorptive capacity, knowledge management and innovation in entrepreneurial small firms. International Journal of Entrepreneurial Behavior & Research, 12(6), pp.345 – 360 Jayachandran, S., Hewett, K. and Kaufman, P., 2004. Customer Response Capability in a Sense-and-Respond Era: The Role of Customer Knowledge Process. Journal of the Academy of Marketing Science, 32(3), pp. 219-233. Saemundsson, R., 2005. On the interaction between the growth process and the development of technical knowledge in young and growing technology-based firms. Technovation, 25, pp. 223-235. Slavković, M., 2008. Strengthening enterprises competitiveness through development of knowledge management concept. Facta Universitatis, Series: Economics and Organization, 5(2), pp. 167-172. Smith, K.G., Collins, C.L., & Clark, K.B., 2005. Existing knowledge, knowledge creation capability, and the rate of new product introduction in high-technology firms. Academy of Management Journal, 48(2), pp. 346-357. Tidd, J. and Bessant J., 2009. Managing Innovation - Integrating Technological, Market and Organizational Change. NY: John Wiley & Sons. Todorova, G. and Durisin B., 2007. Absorptive capacity: valuing a reconceptualization. Academy of Management Review, 32 (3), pp. 774-796. Zahra, S. A., and George, G., 2002. AC: A Review and Reconceptualization, and Extension. Academy of Management Review, 27(2), pp. 185-203. Read More