Absorptive capacity is the ability of a firm to make sense of new information and use it towards commercial purposes. It is a great concept in innovation and strategy. It arose from the original work done by Cohen and Levinthal. When firms die due to a new technology they die because they lack the needed absorptive capacity. But, beyond that, there are many other implications of absorptive capacity for your business.
The video above gives you a short version on absorptive capacity. The podcast mentioned in the video can be found at:
For those who would rather read than watch the video, the transcript is as follows:
Hi, I am Ankush Chopra.
You know that when water falls on marble, the stone does not absorb even a drop. On the other hand, when the same after false on a kitchen paper the paper absorbs a lot of water. In a sense, the kitchen paper has a high absorptive capacity whereas marble has a low absorptive capacity.
Even people and organizations have an absorptive capacity for different kinds of information. Often, low absorptive capacity can result in disruption of an organization. Let’s learn more about absorptive capacity.
How Automobiles Killed the Horse and Buggy Industry
You probably know that when the automobiles came on the scene, the horse and buggy makers died. The reason that happened was that the knowledge base needed for building an automobile radically different from the knowledge base required in a horse and buggy making business.
Similarly, when EMI designed the first CT scanner, major X-Ray firms like General Electric couldn’t enter the field as they had no knowledge of algorithm technology needed in CT scanners.
So Horse and Buggy makers and GE had a low absorptive capacity for the needed knowledge in emerging fields. That prevented them from moving into the new businesses fast.
A Sinister Implication of Absorptive Capacity
But absorbtive capacity has even more sinister implications for your business. If you do not possess the needed absorptive capacity, your organization may even fail to understand the meaning of a technical advancement in that field. That can lead to a blindspot which can eventually disrupt your business.
Senior management of Blackberry was surprised to see how a smartphone can have a full fledged browser. They only realized it when Jobs was launching the iPhone. It was too late for Blackberry.
At other times, a lack of absorptive capacity can lock you out of a lucrative industry. In 1969, GE decided to get out of the computer business. As a result, when the PC industry took off in the late 1970s, GE had no absorptive capacity to play in that field. It was locked out.
I explored research on radical innovations and absorptive capacity in my recent podcast linked below. There you can learn more about this fascinating topic. Listen to it now.
This podcast episode is a part of the season dedicated to management research. You can explore the podcast here.
You can listen to the podcast right here below: