Master thesis:
Small business and Entrepreneurship
By: Peter Nicolai Student number: s1625950
p.nicolai@student.rug.nl July, 2013
University of Groningen Faculty of Economics & Business
Nettelbosje 2
9747 AE Groningen, the Netherlands
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Abstract
The construct of absorptive capacity is one of the most emerging constructs in the field of organizational research. A large part of the popularity of the construct of absorptive capacity is related to the suggested strategic outcomes of absorptive capacity at the firm level. Multiple studies have empirically proven that a firm’s ability to identify, assimilate and exploit external knowledge does have beneficial outcomes for a firm. However, due to differences in the operationalization, conceptualization and definitions of the construct of absorptive capacity and the outcomes of the construct, it is still unknown what this large stream of studies collectively has accomplished. The purpose of this research is to identify and analyze the different outcomes of absorptive capacity in recent literature. Meta-analysis is a suitable research method for the purpose of this research since this method makes it possible to analyze, combine and contrast the results of different studies. The extensive systematic literature research resulted in 46 relevant studies for this research. Analyzing the data of the 46 studies revealed 11 potential outcomes of absorptive capacity as input for the meta-analysis in this research. After correcting for artifacts and sample size differences, the results in this research reveal that among the 11 potential outcomes of absorptive capacity identified in the literature, 6 are homogeneous significant outcomes of absorptive capacity: (1) manufacturing performance; (2) relative performance; (3) product innovation; (4) process innovation; (5) management innovation; (6) organizational responsiveness. One of the 11 potential outcomes of absorptive capacity, knowledge transfer, was not significant correlated with absorptive capacity. The outcome financial performance was heterogeneous; moderator analysis revealed that only the subgroup of studies measuring financial performance with a multi-item scale is a homogeneous significant outcome of absorptive capacity. The three remaining outcomes of absorptive capacity are heterogeneous outcomes of absorptive capacity. Based on the findings, this article provides some directions for future research.
Acknowledgements
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Content
1. Introduction ... 4
2. Theory ... 5
2.1 Definition and background of the construct ... 5
2.2 Common used extensions and redefinitions of the construct ... 6
2.3 Operationalization of the construct ... 7
2.4 Outcomes of absorptive capacity ... 9
3. Methodology ... 11
3.1 Sample and selection process ... 11
3.2 Coding ... 12
3.3 Protocol for meta-analysis ... 13
3.3.1 Corrections for artifacts ... 13
3.3.2 Assessment of meta-factors ... 14
4. Analysis & results ... 16
4.1 Definitions of the meta-factors ... 16
4.2 Results of the Meta-analysis... 18
4.3 Moderator analysis ... 20
5. Conclusions and Implications... 21
5.1 Theoretical and Managerial Implications ... 22
5.1.1 Firm Performance ... 22
5.1.2 Innovation ... 23
5.1.3 Knowledge ... 24
5.1.4 Strategy ... 24
5.2 Limitations of this Research ... 25
5.3 Directions for Future Research... 26
References ... 28
Appendix 1: Methodological Characteristics of Articles Included in Meta-analysis... 34
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1. Introduction
One of the most important emerging constructs in organizational research in the recent decades is the construct of absorptive capacity. The most common definition of absorptive capacity: a firm’s ability to identify, assimilate, and exploit knowledge from the environment, is initiated by Cohen & Levinthal (1989). During the last decades a lot of attention in the literature is paid to the importance of absorptive capacity at the firm level (e.g. Zahra and George, 2002; Lane et al., 2006).
In the early years the construct of absorptive capacity was considered in the context of R&D activities. Cohen & Levinthal (1990) suggest for example that absorptive capacity is a critical innovative capability of a firm, since outside sources of knowledge, sources of knowledge outside the R&D department of the firm, are often critical to the innovation process. In more recent studies the construct of absorptive capacity emerged to a key concept in a broader range of disciplines, for example strategic management (Lane & Lubatkin, 1998) and information systems (Roberts et al., 2012).
A large part of the popularity of the construct of absorptive capacity is directly related to the suggested outcomes of absorptive capacity. Several conceptual studies (e.g. Zahra & George, 2002; Lane et al., 2006) suggest that a firm’s ability to identify, assimilate and exploit external knowledge is positively related to strategic outcomes that form the basis of the competitive advantage of a firm. Finding empirical support for this suggestion could provide great value to strategic decision makers and would increase their common knowledge about the outcomes of absorptive capacity intensively.
Although the importance of absorptive capacity is widely supported in the recent decades, it is still unknown what this large stream of studies collectively has accomplished. The main reason for the lack of collective knowledge about absorptive capacity is the inconsistency in the conceptualization and operationalization of the construct and the context in which it is used (Lane et al., 2006). Because of these inconsistencies a collective consensus about the outcomes of absorptive capacity is also not accomplished.
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shows significant homogeneous outcomes of absorptive capacity and it identifies heterogeneous outcomes of absorptive capacity. If possible, it also tries to find methodological moderators for those heterogeneous outcomes of absorptive capacity. Based on the findings of the analysis, this research provides theoretical and managerial implications and directions for future research. From a managerial view, this research is interesting since it produces an overview of the causal effects of a firm’s ability to identify, assimilate and exploit external knowledge which might lead to a broader knowledge of the creation of a competitive advantage.
This paper proceeds as follows. In the next section the construct of absorptive capacity will be defined and the main streams of research will be identified. The methodology section will explain the data selection method and the meta-analysis protocol used in this research. The results of the meta-analysis will then be presented. Finally, the implications of the findings will be discussed and directions for future research will be identified.
2. Theory
The purpose of the theory part in this paper is to introduce the construct of absorptive capacity and its theoretical background. Furthermore, it will present the most common re-conceptualizations and operationalizations of the construct of absorptive capacity. The final part of this section will show some common known outcomes of absorptive capacity based on academic literature.
2.1 Definition and background of the construct
Contrary to previous assumptions in academic literature, a R&D department does generate more than one product. Cohen & Levinthal (1989) identified this second ‘by-product’ of the R&D department, which is directly related to learning. This second product, a firm’s ability to identify, assimilate, and exploit knowledge from the environment, is called the ‘learning’ capacity or the ‘absorptive’ capacity of a firm and this capacity is produced simultaneously with new product development in a R&D department.
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process. For the assimilation and exploitation of new knowledge, the prior knowledge of a firm plays a significant different role. Cohen & Levinthal further elaborate on this relationship in their follow-up article published in 1990. In this article the construct of absorptive capacity is explained more in-depth by using the concept of individual cognitive structures (e.g. Bower & Hilgard, 1981; Lindsay and Norman, 1977), suggesting that absorptive capacity is largely a function of the firm’s level of prior related knowledge. Some portion of that prior knowledge should be very closely related to the new knowledge to facilitate assimilation, and some fraction of that new knowledge must be fairly diverse, although still related, to permit effective, creative utilization of the new knowledge (Cohen & Levinthal, 1990). Another important issue that they address regarding prior experience and individual cognitive structures is that the absorptive capacity of a firm depends on the absorptive capacity of the individual members of the firm. However, the authors state that a firm’s absorptive capacity is not simply the sum of the absorptive capacities of its individual members. Communication is needed to understand the sources of a firm’s absorptive capacity, in particular for the exploitation of external knowledge where subunits should collaborate and communicate in order to gather and share relevant information. Cohen & Levinthal (1990) conclude that there might be a trade-off in the efficiency of internal communication against the ability of the subunit to assimilate and exploit information originating from other subunits or the environment.
2.2 Common used extensions and redefinitions of the construct
As already indicated earlier in this paper the construct of absorptive capacity is one of the most emerging subjects in the organizational research literature in the last decades. Because of the widely usage of the construct in multiple research disciplines, several important extensions and redefinitions regarding the original definition of the construct of absorptive capacity have been made. The section below will elaborate shortly on two of the most important re-conceptualizations of the construct.
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construct of absorptive capacity, introduced by Cohen & Levinthal (1989, 1990, 1994), as a learning dyad-level construct, which they call ‘relative’ absorptive capacity.
Zahra & George (2002) elaborate further on both conceptualizations of the construct of absorptive capacity and re-conceptualize the construct in ‘potential’ absorptive capacity and ‘realized’ absorptive capacity. Potential absorptive capacity (PACAP) makes the firm receptive to acquiring and assimilating external knowledge, while realized absorptive capacity (RACAP) reflects the firm’s capacity to leverage the knowledge that has been absorbed. They redefine absorptive capacity, based on a review of the available literature at that moment, as a set of organizational routines and processes by which firms (1) acquire, (2) assimilate, (3) transform and (4) exploit knowledge to produce a dynamic organizational capability.
Zahra & George (2002) argue that PACAP and RACAP have a complementary function, since PACAP is the capability to explore external knowledge and RACAP is the capability to exploit this potential external knowledge. The authors introduce an efficiency factor (η) as RACAP divided by PACAP. The efficiency factor suggests that firms vary in their ability to create value from their knowledge base because of variations in their capabilities to transform and exploit knowledge. In firms with a high efficiency factor, RACAP approaches PACAP. Given that profits are created primarily through RACAP, firms that achieve or maintain a high efficiency factor are positioned to increase their performance (Zahra & George, 2002).
2.3 Operationalization of the construct
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In their paper published in 2002, Zahra and George criticize studies following the measurement approach of Cohen & Levinthal (1990). The authors argue that the common measurement of absorptive capacity at that moment, using a single-item scale (for example R&D intensity or the number of scientist working in R&D departments) does not reflect the richness of the construct. The main argument is that this approach neglects the role of individuals in the organization, which is crucial for knowledge utilization and exploitation. Therefore, the authors encourage researchers to develop a measure of absorptive capacity that also reflects the role of individuals regarding the acquisition, assimilation, transformation and exploitation capabilities and state that it is questionable to use a single-item measure to reflect the multi-dimensional construct of absorptive capacity. Lane et al. (2006) agree on the argument made by Zahra and George (2002) and elaborate on the fact that absorptive capacity should be empirically explored in non-R&D contexts using metrics that capture each dimension of the absorptive capacity process in a manner appropriate for that context.
Although the arguments made by Zahra and George (2002) and Lane et al. (2006) are well-founded, both studies did not develop a multi-item scale or provide concrete recommendations to develop such a scale. In an extensive review of the measures used for absorptive capacity, Flatten et al. (2011) show that still a large amount of distinct measures are used to measure the construct of absorptive capacity. Analyzing those measures raised questions about the veracity of the claims made in literature about the nature and contributions of absorptive capacity. Based on their analyses Flatten et al. (2011) developed an extensive multi-item scale to measure the construct of absorptive capacity. The developed scale contains multiple measures for each of the four dimensions of absorptive capacity: acquisition, assimilation, transformation and exploitation, which were introduced by Zahra & George (2002).
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research is to provide an overall picture of the outcomes of absorptive capacity, eliminating all the studies using a single-item scale to measure absorptive capacity would limit the scope of this research significantly. Secondly, although this research is convinced of the limitations of using a single-item scale, it still believes that single-item scales in line with Cohen & Levinthal (1990) reflect a large part of the construct of absorptive capacity and are thus useful to provide information about the outcomes of absorptive capacity.
Following the definition of absorptive capacity of Cohen & Levinthal (1990) and the argumentation of Zahra and George (2002), Lane et al. (2006) and Flatten et al. (2011), presented above, this research only includes studies that measure absorptive capacity as a capability of the firm. This means that measures of absorptive capacity should be directly related to relevant characteristics of the firm that reflects a firm’s ability to identify, assimilate and exploit external knowledge or to the activities of the firm related to the dimensions of absorptive capacity identified by Zahra & George (2002). Including only studies with this measure results, for example, in excluding the studies that measure absorptive capacity solely in terms of external information available to the firm (e.g. Murovec & Prodan, 2009), since this measure is not related to the capability of the firm but to environmental characteristics of the firm.
2.4 Outcomes of absorptive capacity
Several papers have tried to analyze and re-operationalize the construct of absorptive capacity (e.g. Zahra & George, 2002; Lane et al., 2006; Flatten et al., 2011). What most of these papers have in common is that, although they summarize and analyze a large amount of papers related to absorptive capacity, little attention is paid to the outcomes and antecedents of absorptive capacity.
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Zahra & George (2002) elaborate on the resource based view of Barney (1991). They claim that the transformation and exploitation capabilities that absorptive capacity comprises are likely to influence firm performance through product and process innovation. The argumentation behind this claim is that firms with proper developed transformation and exploitation capabilities are able to transform relevant external knowledge into product line extensions or new product development. In this way a firm is able to transform and exploit external knowledge in a way that it enhances performance (Zahra & George, 2002).
Strategic flexibility is another important characteristic of successful firms in a dynamic market according to the resource based view of Barney (1991). Strategic flexibility is the organization’s ability to develop or maintain a competitive advantage in response to the changing conditions of the environment (Fernandez, 2012). Zahra and George (2002) elaborate on this view by stating that each firm begins their capability development from different starting points, but over time the capabilities of the firms in an industry converge to an industry standard. According to Zahra and George (2002), the ability of a firm to create a competitive advantage in such an industry is depended of a firm’s ability to identify and respond to environmental cues well in advance of performance-oriented payoffs. Firms with a well-developed absorptive capacity, which makes the firm receptive to acquiring and assimilating external knowledge, are likely to be more adept of continually revamping their knowledge stock by spotting trends in their external environment and internalizing this knowledge (Zahra & George, 2002).
Considering the above theories of Barney (1991) and Zahra & George (2002) absorptive capacity can support a firm with the creation of a competitive advantage in two ways. First, a firm with superb transformation and exploitation capabilities is able to create a competitive advantage through transforming external knowledge into new product development and product line extensions, because those innovations will shift the industry standard and will create a fist-mover advantage for the innovative firm. Secondly, a firm with superb acquiring and assimilation capabilities is able to create a competitive advantage since it can respond faster to environmental changes than their competitors.
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The authors claim that this tendency is due to the early association of the construct with R&D-related contexts and the ease of measuring innovation levels. Lane et al. (2006) encourage researchers to focus not only at these outcomes of absorptive capacity and state that researchers should consider both commercial outputs (products, services, and patents) and knowledge outputs (general, scientific, technical, and organizational) in absorptive capacity research. The commercial outputs and knowledge outputs will enhance the performance of the firm according to Lane et al. (2006).
Summarizing the suggested outcomes of absorptive capacity in both conceptual articles (Zahra and George, 2002 & Lane et al., 2006) results in several outcomes of absorptive capacity. Since commercial outputs reflect innovation related outcomes, the expected outcomes categories of absorptive capacity are: innovation, firm performance, knowledge and strategic outcomes, which can contribute to the competitive advantage of a firm. Although several studies have been conducted regarding the different outcomes of absorptive capacity (e.g. Kostopoulos et al., 2011; Lichtenthaler, 2009; Tsai, 2001), to the researcher’s knowledge, there is no comprehensive, quantitative study that summarizes and compares all of these empirical outcomes of absorptive capacity.
3. Methodology
This research uses a quantitative literature study in the form of meta-analysis to identify and analyze the outcomes of absorptive capacity from recent literature. Meta-analysis are a proper research method for the objective of this research, since it makes it possible to analyze, combine and contrast the results of different studies (Hunter and Schmidt, 2004). Furthermore, a main advantage of meta-analysis is that this research method makes it possible to control for variation between studies, which is useful due to the inconsistency in the conceptualization and operationalization of the construct of absorptive capacity.
3.1 Sample and selection process
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articles published between 1990 and 2012 were included. Furthermore, only peer-reviewed articles published in Academic Journals were selected in order to collect credible studies of good quality. This sampling strategy resulted in a total pool of 670 articles.
From the pool of 670 articles, each article was screened for inclusion based on the fact if the study uses a quantitative research method and if the topic of the study was relevant for this research. When it was unclear if a study was relevant for this research, the study was taken into the next, more in-depth, screening round. Removing articles without a quantitative research method and/or a relevant topic for this research resulted in a remaining pool of 195 articles.
From the remaining pool of 195 articles, each article was screened for inclusion based on the following selection criteria:
- Each study should contain a measure of an outcome of absorptive capacity as a variable.
- Each study should contain a measure of absorptive capacity as a variable.
- Availability of a correlation table, with a correlation between the independent variable (absorptive capacity) and the dependent variable (outcome).
- Each study should be conducted at the firm level (sub-unit level and team level of the firm included).
3.2 Coding
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Based on the selection procedure described above, the initial total pool of 670 articles is reduced to 46 appropriate studies. The methodological characteristics of the 46 articles that are included in the meta-analysis can be found in appendix 1, an overview of the publication sources of the articles can be found in appendix 2.
3.3 Protocol for meta-analysis
The protocol for meta-analysis used in this research follows the protocol described in the study of Song et al. (2008), which is based on Hunter and Schmidt (1990, 2004). As input for the meta-analysis in this research, Pearson correlations were chosen. Hunter and Schmidt (1990, 2004) encourage the use of Pearson correlation as input for meta-analysis since this correlation between the dependent variable and the independent variable is not influenced by any other variables. Besides that, the protocol of Hunter and Schmidt (1990, 2004) make use of random effects models, which allow for the possibility that population parameters vary from study to study (Song et al., 2008). Using random effect models is suitable for this research since the construct of absorptive capacity is often measured differently across the studies in this meta-analysis.
3.3.1 Corrections for artifacts
Following the procedure of Song et al. (2008) the next step in the meta-analysis protocol is the correction of the correlation between absorptive capacity and the (dependent) meta-factor for dichotomization, sample size differences and measurement errors. First, correction for dichotomization is necessary since dichotomization reduces the real correlation by at least 0.8 (Hunter and Schmidt, 2004). Following Song et al. (2008), the individual correction of observed correlations for dichotomization is:
where is the correction for dichotomization; is 0.8 if variable is dichotomized and is 1 if it is not; and is the observed correlation of the primary study .
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Following Song et al. (2008), the formula for the weighted average of correlations corrected for sample size is:
where is the sample size of the primary study .
The final correction that is made in this protocol for meta-analysis is to remedy measurement errors. To resolve measurement errors this study uses the Cronbach alpha’s of the dependent and independent variables as reported in the primary studies. If a Cronbach alpha was not available for a variable in one of the primary studies, alphas of the same variable in the other studies were averaged in order to estimate value of the missing alpha (Hunter and Schmidt, 2004). Following Song et al. (2008), the correlation coefficient was divided by the product of the square root of the reliability of absorptive capacity and the square root of the reliability of the meta-factor:
where is the compound reliability correction factor; is the average of the square roots of reliabilities of independent variables composing a given meta-factor; and is the average of the square roots of reliabilities of dependent variables composing a given meta-factor.
3.3.2 Assessment of meta-factors
The next step in the followed protocol for meta-analysis is to assess if a meta-factor is a success factor. A meta-factor is a success factor if three conditions will be met.
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meta-factor is assumed to be homogeneous if the real variance of a meta-factor is less than 25 % of the total variance of a meta-factor.
Following Song et al. (2008) the total variance of meta-factor can be calculated by using the following formula:
where is the sample size of primary study ; the observed correlation of primary study ; and weighted is the average of observed correlations. The variance due to artifacts can be calculated using the following formula:
where weighted is the sample correlation corrected for artifacts; is the reliability of the independent variable; and is the reliability of the meta-factor. Finally, the variance due to sampling error is calculated by using the following formula:
where weighted is the average of observed correlations, weighted N is the average sample size of the meta-factor; and is the sample size of the study using a dichotomized variable. For the meta-factors without a dichotomized variable, only the first part of the equation (before the plus sign) is used to calculate the variance due to sampling error.
Using the formulas above, the real variance can be calculated by subtracting the variance due to artifacts and the variance due to sampling error from the total variance. For a homogeneous meta-factor the real variance should be less than 25 % of the total variance. According to Song et al. (2008) and Hunter & Schmidt (1990, 2004), in that case unknown and uncorrected artifacts account for these 25 percent so that the real variance is actually close to zero.
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to determine if the whole confidence interval (based on the real standard deviation) is above zero. The 95% confidence interval is calculated by using the following formula:
The second step, if the confidence interval was above zero, is to calculate the p-value for the real correlation to estimate the degree of significance. Both of these significance tests are necessary because the p-value is misleading when part of the confidence interval of the real correlation is below zero (Song et al., 2008).
If a meta-factor is heterogeneous the importance of the meta-factors depends on situations (Song et al., 2008). In the case that a meta-factor was heterogeneous, moderator analysis were executed in this study. Attempted was to re-divide the studies that form the heterogeneous meta-factors into distinct subgroups. Subgroups can be classified based on differences in measures of the meta-factor, measures of the construct of absorptive capacity, sample sizes and for example the industry level of a study. In this research subgroups were formed according to different measures of the meta-factor financial performance. For each subgroup a separate meta-analysis was conducted in order to find a homogeneous subgroup.
4. Analysis & results
In the following section the results of the data analysis will be presented. This part of the study starts with presenting the meta-factors and their definitions as a result of the extensive literature selection process, followed by the results of the meta-analysis and the moderator analysis.
4.1 Definitions of the meta-factors
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In paragraph 2.3 of this study, it is already mentioned that the construct of absorptive capacity is conceptualized and measured differently among studies. In this research, only studies that measure absorptive capacity in a way that does not reflect the capability aspect of a firm are eliminated from meta-analysis (see paragraph 2.3). No further distinctions are made between the different measures of absorptive capacity in this meta-analysis. The reason for this choice is due to methodological issues and the fact that the purpose of this study is to provide a broad picture of how outcomes of absorptive capacity are correlated with the construct of absorptive capacity in general. For the studies (e.g. Mursitama, 2001; Cepeda-Carrion et al, 2012) that measured absorptive capacity with different variables, for example by using the conceptualization of Zahra & George (2002) resulting in realized and potential absorptive capacity, there was chosen to take the average between the correlations and Cronbach alphas of the measures of absorptive capacity and the outcome variables.
Table 1: Definitions of the meta-factors
Meta-factor: Definition: Selected references:
Firm Perfomance
1. Financial performance
Business performance reflected by
financial/profitability indicators. (For example: Return on Sales, Return on Investments and Return on Assets)
Gunday et al.(2009)
2. Market performance
Level of product success, growth of sales volume, customer retention, and new customer acquisition.
Brettel et al. (2011)
3. Manufacturing performance
The level of attainment of various manufacturing objectives, which are commonly considered to include cost, quality, delivery, flexibility, and innovation.
Liao, Tu & Marsillac (2010)
4. Relative performance
Relative to your competitors, how does your firm perform concerning: ‘achieving overall performance’, ‘attaining market share’, ‘attaining growth’, and ‘the current profitability’.
Lichtenthaler (2009)
Innovation
5. Product innovation
Ability of a firm to provide differentiated or new products/services in the market and obtain satisfaction from customers
Liao et al. (2007), Stock et al (2001)
6. Process innovation
A process in which a firm can provide a better manufacturing or service process than is current in operation in order to achieve better performance
Liao et al. (2007), Stock et al (2001)
7. Management innovation
The capability that improves a firm’s performance by implementing new managerial regulations, systems, and methods etc.
Liao et al. (2007), Stock et al (2001)
8. Organizational innovativeness
Supportiveness and permeability of the company to innovation in terms of developing new products or processes, opening new markets, or simply developing a new strategic direction
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Knowledge
9. Knowledge transfer
A process of dyadic exchanges of knowledge between the source and recipient units consisting of four stages: initiation, implementation, ramp-up and integration
Minbaeva et al. (2003)
Strategy
10. Strategic flexibility
The organization’s ability to develop or maintain a competitive advantage in response to the changing conditions of the environment
Fernandez (2012)
11. Organizational responsiveness
Organization's ability to respond to changes in the external environment
Liao et al. (2003), Fuller et al. (2010)
4.2 Results of the Meta-analysis
The eleven meta-factors are divided among four categories of meta-factors. The purpose of dividing the meta-factors among the outcome categories is that it makes it easier to interpret the results of the meta-analysis. Furthermore, it makes it possible to compare results in each category with the results in another category. The categories used in this study are based on the two important re-conceptualizations of the construct (Zahra & George, 2002; Lane et al., 2006), already discussed in the theory part of this paper. These conceptual papers identify the following outcomes of absorptive capacity: strategic flexibility, innovation and performance (Zahra & George, 2002) and knowledge outputs, commercial outputs and firm performance (Lane et al., 2006). Summarizing both conceptual articles resulted in four different categories used in this study: firm performance, innovation, knowledge, strategy.
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The results of the meta-analysis conducted in this study are presented in table 2. This table presents for each meta-factor: total N, the aggregate sample size; K, the number of correlations that build a given meta-factor; ρ, an estimate of the real population correlation; the 95% confidence interval of the real population correlation and the explained variance.
Table 2: Results of the Meta-Analysis
Meta-factor Total N K ρ 95% confidence interval Explained variance (%) Moderators Firm performance
1. Financial performance 2955 11 0,200 (-0.127;0.527) 17% Yes 2. Market performance 5438 13 0,192 (0.018;0.366) 24% Yes 3. Manufacturing performance 605 3 0,623* (0.584;0.662) 91% 4. Relative performance 1124 6 0,546** 100% Innovation 5. Product innovation 2002 6 0,584** 100% 6. Process innovation 1669 3 0,647** 100% 7. Management innovation 717 2 0,687** 100% 8. Organizational innovativeness 1368 7 0,503 (0.268;0.738) 20% Yes Knowledge 9. Knowledge transfer 1405 8 0,382 (0.324;0.440) 88% Strategy
10. Strategic flexibility 398 3 0,252 (-0.275;0.779) 9% Yes 11. Organizational
responsiveness
198 2 0,628** 100%
For all p-values, one tailed test statistic; direction depends on the sign of ρ. Explained variance below 75% means that the meta-factor has moderators.
See table 3 for the moderator analysis.
* p < 0.05 **p < 0.01
The results in table 2 reveal six homogeneous meta-factors with a significant positive correlation with absorptive capacity, the so called success factors:
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The meta-factor ‘knowledge transfer’ is also homogeneous but the results reveal that the correlation of this meta-factor with absorptive capacity is insignificant, so this meta-factor cannot be assessed as a success factor. The remaining four meta-factors: financial performance, market performance, organizational innovativeness and strategic flexibility, are heterogeneous with an insignificant correlation with absorptive capacity.
4.3 Moderator analysis
For each of the four heterogeneous meta-factors, identified in table 2, moderator analyses were conducted. For the meta-factors market performance and organizational innovativeness, the analyses did not reveal any methodological moderators. For the meta-factor strategic flexibility it was not possible to establish subgroups due to the number of correlations that build this meta-factor. So for these meta-factors no homogeneous subgroups were identified and these meta-factors remain heterogeneous and additional research is necessary.
For the meta-factor financial performance a methodological moderator was found, the results of the meta-analysis of the distinct subgroups are presented in table 3. This table presents for the meta-factor financial performance and the distinct subgroups: total N, the aggregate sample size; K, the number of correlations that build a given meta-factor; ρ, an estimate of the real population correlation; the 95% confidence interval of the real population correlation and the explained variance. Dividing a meta-factor in subgroups should result in at least two subgroups with each a minimum of two correlations building those subgroups (Song et al, 2008). Furthermore, when confidence intervals between distinct subgroups overlap, the results of the meta-analysis for that meta-factor are not reported in table 3.
Table 3: Results of Moderator Analysis
Meta-factor Moderator Total
N K ρ 95% confidence interval Explained variance (%) Financial performance 2955 11 0,200 (-0.127;0.527) 17% Measure of Fin. Perf: One-item scale
1466 6 0,035 (-0.172;0.242) 45%
Measure of Fin. Perf: Multi-item scale
1489 5** 0,395 100%
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For the meta-factor financial performance two distinct subgroups were found regarding how financial performance was measured in the different studies. Considering the measures of financial performance it can be noticed that firm performance is measured in two distinct ways: by using a one-item-scale and by using a multi-item-scale. Studies that measured financial performance by using a one-item-scale, used different measures (for example: return on assets, return on sales and return on equity) to assess the financial performance of the firm. Due to the sample size of the subgroup it was not possible to re-divide this subgroup based on the distinct single-item measures. Although the explained variance of the subgroup increased pertaining to the meta-factor financial performance, the subgroup that measured financial performance with a single-item scale remains heterogeneous with an insignificant correlation with absorptive capacity.
In the other distinct subgroup, financial performance is measured with a multi-item-scale. Although the studies in this subgroup measure financial performance with different multi-item-scales, they have in common that the used scales reflect a broader picture of financial performance of the firm, for example by using multiple key-performance-indicators. The results in table 3 show that this subgroup is a success factor (homogeneous subgroup with a significant positive correlation with absorptive capacity).
5. Conclusions and Implications
The main purpose of this research is to provide an overview of the outcomes of absorptive capacity from recent literature. Using meta-analysis, this research showed significant homogeneous outcomes of absorptive capacity and identified heterogeneous outcomes of absorptive capacity. For the heterogeneous meta-factors in this study, moderator analyses were executed in order to find methodological moderators.
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financial performance with a single-item scale is a heterogeneous subgroup without a significant correlation with absorptive capacity. Moderator analysis did not reveal methodological moderators for market performance, organizational innovativeness and strategic flexibility, so future research is necessary regarding these heterogeneous meta-factors.
5.1 Theoretical and Managerial Implications
The section below will elaborate more in-depth on the findings presented in this research. Furthermore, this section will show some theoretical and managerial implications for the main findings of this research.
5.1.1 Firm Performance
In the firm performance category two of the four meta-factors were assessed as a homogeneous outcome of absorptive capacity with a significant correlation with the construct of absorptive capacity. Findings in this study show that the ability of a firm to identify, assimilate and exploit external knowledge is strong and positively related with the manufacturing performance and relative performance of the firm. The finding regarding relative performance is in line with the theory of Zahra & George (2002) and Lane et al. (2006) and suggests that firms with a better developed absorptive capacity will outperform their competitors. The finding that absorptive capacity positively influences manufacturing performance was also expected, since several authors (Cohen & Levinthal, 1990; Lane et al., 2006) claim that acquiring and assimilating activities of a firm can generate relevant technical and organizational external information. Such information can be used by managers and decision makers in order to improve the current manufacturing process of the firm.
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Results in the firm performance category show that market performance is a heterogeneous meta-factor without a significant correlation with the construct of absorptive capacity. A possible explanation of the insignificant correlation of this meta-factor with absorptive capacity can be found in the articles of Lane et al. (2006) and Zahra & George (2002). The authors explain that part of the relation between absorptive capacity and firm performance is enhanced by product and process innovations. Considering the definition of market performance used by Brettel et al. (2011), defining market performance as the level of product success, growth of sales volume, customer retention, and new customer acquisition, it can be imagined that a large part of this relation is directly moderated by the amount of product and process innovation. The main reason is that product and process innovations can indeed increase the growth of sales volume, customer retention and especially the level of new customer acquisition. Following this line of reasoning it could be argued that the insignificant relation between market performance and absorptive capacity is due to the fact that this relation is fully moderated by the level of innovation activities of the firm. Future research should investigate this relation more in depth in order to reveal the exact relation of absorptive capacity with market performance. For strategic decision makers such a study should make clear how absorptive capacity improves the performance of the products that are currently developed and how absorptive capacity improves the performance of new products developed.
5.1.2 Innovation
After the meta-analysis and moderator analysis, three of the four meta-factors in the innovation category are homogeneous meta-factors with a significant relationship with absorptive capacity. Findings in this study show that the ability of a firm to identify, assimilate and exploit external knowledge is strongly and positively related with product, process and management innovation. This outcome is fully in line with what was expected based on the most common conceptualization of the construct of absorptive capacity (Cohen & Levinthal, 1990), claiming that external knowledge is a crucial resource for the innovation capability of the firm. Furthermore, these findings are also in line with the theory of Zahra & George (2002) suggesting that absorptive capacity, especially the transformation and exploitation dimension of the construct, are positively related to product and process innovation.
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(2002) make with the resource based view (Barney, 1991), suggesting that innovation is a way to create a competitive advantage in a dynamic market. Although future research should investigate the relation between absorptive capacity and competitive advantage in-depth, the findings of this study confirm already a part of the essential role of absorptive capacity in relation with innovation activities.
5.1.3 Knowledge
Knowledge transfer is a homogeneous factor but insignificantly related with the construct of absorptive capacity. This outcome in the knowledge category is remarkable and is not in line with the conceptual article of Lane et al. (2006) that identifies the increase in knowledge outputs (general, scientific, technical, and organizational) as an outcome of absorptive capacity. The number of studies that built this meta-factor confirms the statement made by Lane et al. (2006) that most research regarding the outcomes of absorptive capacity is focused on performance and innovation related outcomes, and that future research should focus on knowledge related outcomes of absorptive capacity.
The results presented in this study do not show a significant relation between the construct of absorptive capacity and the process of knowledge transfer of a firm. Considering the definitions of the knowledge transfer process (Minbaeva et al., 2003) and the dimensions of absorptive capacity (Zahra & George, 2002), some similarities can be found around the acquiring and assimilation dimension of absorptive capacity and the initiation and implementation dimensions of knowledge transfer. A possible explanation for the insignificant relation may lie in these closely similar operationalizations of both constructs, which might lead to tautological problems. For future research it seems advisable to consider this suggestion and to focus on other knowledge related outcomes of absorptive capacity as suggested by Lane et al. (2006).
5.1.4 Strategy
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and assimilating external knowledge, are likely to be more adept of continually revamping their knowledge stock by spotting trends in their external environment and internalizing this knowledge.
In their conceptual article Zahra & George (2002) elaborate further on the relationship above by suggesting that firms that are receptive to acquiring and assimilating external knowledge are able to develop or maintain a competitive advantage in response to the changing conditions of the environment. This suggestion is reflected in this research by the relation between absorptive capacity and strategic flexibility. Contrary to what was expected, the findings in this research reveal that strategic flexibility is a heterogeneous factor with an insignificant correlation with the construct of absorptive capacity. A possible explanation for this contrasting outcome may lie in the small sample size of this meta-factor. Due to this small sample size the outcomes were sensitive to variance of the research methods of the different studies. Since this meta-factor is built around two articles there were no possibilities to execute moderator analysis for this meta-factor. Future research is necessary to reveal how absorptive capacity is related to a firm’s strategic flexibility. Such a research would be of great value for managers and decision makers given the suggested relation between strategic flexibility and the creation of a competitive advantage in a dynamic market (Barney, 1991).
5.2 Limitations of this Research
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reliability of the findings of this study, especially for those meta-factors that are built by just a few studies.
5.3 Directions for Future Research
The purpose of this research was to extent the body of knowledge regarding the outcomes of absorptive capacity, by providing an overview of the outcomes of absorptive capacity in recent literature. The findings presented in this study can serve as starting point for further research in order to generate an overall picture of the outcomes of absorptive capacity. In the previous section some relevant directions for future research, based on the findings of this study, were already shown. Therefore, this section elaborates on two general directions for future research based on the findings of this research and the current body of knowledge regarding the outcomes of absorptive capacity and the construct of absorptive capacity.
First, this research did not make a distinction between the different operationalizations of absorptive capacity, since the purpose of this research was to provide an overall picture of the outcomes of absorptive capacity. Although this study neglects these differences, it could be valuable to investigate if the outcomes are differently correlated with different parts of the process of absorptive capacity. A complete picture of which dimension of absorptive capacity is responsible for which outcomes, is especially valuable for managers and decision makers because it makes clear in what dimensions a firm has to invest in order to create the desired outcomes. A possible starting point for such a research could for example be to investigate the outcomes of potential absorptive capacity dimensions and realized absorptive capacity dimensions introduced by Zahra & George (2002) and the outcomes of relative absorptive capacity introduced by Lane & Lubatkin (1998).
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Combining both future research directions with the results presented in this research, would create an overall picture of the outcomes of absorptive capacity at the firm level. Such an overall picture will provide firms a unique starting point of how absorptive capacity should be used at the firm level in order to create the desired strategic outcomes.
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Appendix 1: Methodological Characteristics of Articles Included in Meta-analysis
# Author Country Industry Data N Outcome
1 Bapuji et al. (2011) Multiple countries Semi-conductor Publications of Dataquest, Electronics Buyers Guide and CHI Research Inc.
163 Market performance, Product innovation
2 Brettel et al. (2011) Germany Manufacturing & Service
Membership data of German Chamber of Industry and Commerce
346 Market performance
3 Cepeda-Carrion, Cegarra-Navarro, and Jimenez-Jimenez (2012)
Spain Multiple industries SABI database 286 Organizational innovativeness
4 Cepeda-Carrion. Cegarra-Navarro and Leal-Millán. (2012)
Spain Healthcare Data obtained from online survey
44 Organizational innovativeness
5 Cereola et al. (2012) USA Multiple industries Data obtained from online survey
164 Financial performance
6 Chen et al. (2009) Taiwan Multiple industries Business directory of Taiwan 2006
106 Manufacturing performance, Relative performance 7 Fernández-Pérez et al.
(2012)
Spain Manufacturing & Service
Amadeus Database and Dun and Bradstreet Spain
200 Financial performance, Strategic flexibility
8 Fores & Camison (2011)
Spain Unknown Spain's national statistics institute central company directory
952 Financial performance, Product innovation, Process innovation
9 Fosfuri & Tribó (2008) Spain Multiple industries Third community innovation survey (CIS-3) in Spain
2464 Market performance
10 Fuller & Russ-Eft (2010)
Russia Manufacturing & Service
Data obtained from Survey 91 Strategic flexibility,
Page 35 of 39 11 García-Morales et al.
(2008)
Spain Food farming, manufacturing, construction and services
Dun and Brandstreet Spain (2000) for food farming, manufacturing, construction and services 408 Relative performance, Organizational innovativeness 12 García-Morales et al. (2007)
Spain Technology Dun and Brandstreet Spain (2000) for technology
246 Relative performance,
Organizational innovativeness 13 George et al. (2001) Unknown Biotechnology The guides to biotechnolgy
companies (1997)
143 Market performance
14 Huang & Rice (2009) Australia Manufacturing Australian Bureau of Statistics' Business Longitudinal Survey
92 Financial performance
15 Hurmelinna-Laukkanen et al. (2012)
Finland Multiple industries Amadeus Database 213 Organizational innovativeness
16 Jane Zhao & Anand (2009)
China Automotive Data obtained from online survey
161 Knowledge transfer
17 Joshi et al. (2010) Unknown Information Technology
Secundary data sources (not specified)
110 Product innovation
18 Kostopoulos et al. (2011)
Greece Multiple industries Third community innovation survey (CIS-3) in Greece
461 Financial performance, Market performance
19 Kotabe et al. (2011) China Manufacturing & Service
Database from ChinaMinistry of Commerce and the State-Owned Assets Supervision and Asministration
Committee
121 Relative performance
20 Kumar et al. (2009) Japan & Malaysia Electrical and Electronics manufacturing
Data obtained from online survey
299 Knowledge transfer
21 Lane et al. (2001) Hungarian Manufacturing & Service
Hungary's Central Statistical Office
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22 Lawson & Potter (2012) UK Manufacturing Databases held by Department of Trade & Industry (UK)
153 Knowledge transfer
23 Lev et al. (2009) Israël Healthcare Data obtained from survey 522 Market performance 24 Liao et al. (2007) Taiwan Electronic,
Finanical insurance and Healthcare
Data obtained from Survey 355 Product innovation, Process innovation, Management Innovation
25 Liao, Tu, and Marsillac (2010)
USA Manufacturing The Society of
Manufacturing Engineers (SME)
303 Manufacturing performance
26 Liao et al. (2003) USA Manufacturing & Service
Firms selected from 1000 SMEs from Washington State Database
107 Strategic flexibility,
Organizational responsiveness
27 Liao, Wu, Hu, and Tsui (2010)
Taiwan Financial & Manufacturing
Comon Wealth Magazine's top 1000 manufacturers and top 100 finanical firms (2006)
362 Product innovation, Process innovation, Management Innovation
28 Lichtenthaler (2009) Germany Manufacturing Data obtained from survey 175 Relative performance 29 Luan & Tang (2007) Taiwan Electronics TEJ2 Financial Databank 259 Financial performance 30 Malhotra et al. (2005) USA Information
Technology
RosettaNet B2B iniative 41 Knowledge transfer
31 Matusik & Heeley (2005)
Unknown Software developing
The Company profiles database
293 Knowledge transfer
32 Minbaeva et al. (2003) USA, Russia & Finland Unknown Data obtained from telephone survey
169 Knowledge transfer
33 Mursitama (2011) Indionesia & Japan Manufacturing Social Science Japan Data Archive
68 Relative performance
Page 37 of 39 35 Park & Gang (2009) South Korea Information
Technology
FSS (Financial Supervisory Service) & KOSDAQ (Korean Securities Dealers Automated Quotation)
62 Market performance
36 Petersen et al. (2008) Denmark & Sweden Manufacturing & Service
Database Greens and Kompass
369 Market performance
37 Rhee (2008) South Korea Unknown Firms obtained from the directory published by the Small and Medium Business Administration
95 Financial performance, Market performance
38 Shu et al. (2005) Taiwan Information Technology
Hsinchu Science-based Industrial Park (2002) & Top 1000 Taiwanese
Manufacturing firms of the Commonwealth (2000)
116 Organizational innovativeness, Knowledge transfer
39 Stock et al. (2001) Multiple Telephone modem Yearly modem industry overview reports from Datapro Research
131 Market performance
40 Thuc Ahn et al. (2006) Vietnam Trainsport & Service
Firm selected using listing by the Ministry of Planning and Investment
173 Market performance, Knowledge transfer
41 Tsai (2009) Taiwan Manufacturing Taiwanes Technological Innovation Survey (TTIS Database)
140 Market performance, Product innovation
42 Tsai (2001) Unknown Petrochemical & Food manufacturing
Data obtained from two large multi-national companies
60 Financial performance
43 Ungan (2007) USA Manufacturing Online Survey 55 Organizational innovativeness 44 Xiong & Bharadwaj
(2011)
USA Computer & Software
Thomson Financial Global New Issue Database
Page 38 of 39
45 Zahra & Hayton (2008) Multiple Countries Manufacturing Industry Week 100 global manufacturing companies (1998)
217 Financial performance
46 Zhang et al. (2011) China Software Data obtained by survey from software developers in a specific company
