Generally, absorptive capacity should be focused on the capacity to make use of existing knowledge both internally and externally, placing the emphasis on the capacity to assimilate and transform it (often differently). It deepens the capacity that lies within an organization for exploring innovation further.
The importance is to develop the ability to achieve “new value recognition”in new and different ways.
How do you go about to recognize value when it is not linked to existing thinking? Absorptive capacity can be a paradox. You require more external knowledge to ‘push’ beyond your existing knowledge learning and so absorbing from it; you are demanding more absorptive capacity to be in place. Equally you need to combine this with the need to break down that “prior related knowledge” radically differently, so it can stimulate breakthroughs in your thinking. Absorptive Capacity can pose significant challenges to the organization. How you deal effectively with the absorption of knowledge determines it’s potential to be transformed for new innovative ability and this will be determined partly by how you structure the attractiveness for a learning environment so it ‘takes hold’ and can be absorbed differently, for different needs.
Explaining the key components shown in the above diagram
These components make up the essential elements of a ‘knowledge adoption’ innovation system.
The ‘access capacity’ is the ability to connect and link to external and increasingly international networks of knowledge and innovation. This capacity represents the ability of firms, universities, institutions or individuals to secure benefits through network access, cultivating relationships and being active members. The benefits then can include privileged access to knowledge and information, preferential opportunities and influence. It requires ‘engagement agents’ who can identify sources of knowledge elsewhere; they can be individuals or teams of practitioners. They will require a combination of intellectual, organisational and financial resources to make contacts and diffuse new ideas. A culture of openness and learning is particularly important. Open innovation comes to mind where this should apply.
The ‘anchor capacity’ is about the ability to identify and domesticate external knowledge from people, institutions and firms. While external knowledge flows contribute to local learning, it is the ability to ‘anchor’ these external flows that matters most. Anchoring is the capacity to attract international people, investment and firms to set up in a collaborative form. It is also defined as a process of identifying, attracting and articulating the context between externally mobile knowledge and immobile local context needs. The quality of anchoring will decide the wealth, diversity, intensity and duration of the relationships between external knowledge and local learning within the firm and its ability to absorb and translate this new knowledge. Knowledge anchoring is enhanced by ‘anchoring’ agents, organisations (such as firms and universities) that attract new ideas, technologies or processes from elsewhere and adapt them to their local circumstances. Anchoring activities are often reflected increasingly in business or science parks, and other industrial clusters that form around each other due to mutual reinforcing dependence but also critical advantage. These ‘feed’ into the internal innovation pipeline.
Diffusion capacity is the ability to ‘diffuse knowledge.’ It is the collective ability of a firm to adapt and assimilate new innovations, practices and technologies and then commercialise them in the economy. Diffusion can happen through either ‘active’ or ‘passive’ emulation. The former takes place through activities such as purchases and imports of new patents, technologies or systems. The latter happens through applied learning, reverse engineering or efforts to catch up with the competition. Diffusion is a critical capacity for innovation performance. In open innovation this is the ‘transformation’ from idea to final concept.
The Knowledge Creation & Exploitation part is the ‘Development Capacity’
The development capacity are the components of the innovation knowledge adoption framework. Knowledge creation and exploitation are often understood as start and finish points for innovation. In the past it has been often assume these must take place within a specific context to be successful. However, knowledge creation and knowledge exploitation often happen in different and unexpected places. Developing that awareness, that ‘sense’ of potential is important. ‘Absorptive capacity’ is an important channel of ‘knowledge creation’ and ‘knowledge exploitation’, the two components of the ‘development capacities’ which we now define:
The capacity to ‘create knowledge’ is the ability of a place to generate new ideas, discoveries, designs and inventions. This capacity is often expressed in the production of scientific papers, patents, registered designs and graduates. This capacity can extend horizontally across a broad range of fields and sectors and vertically through specialisation and concentration in specific knowledge domains. A horizontally broad knowledge creation capacity facilitates knowledge absorption from wider fields of knowledge, while a vertically specialised knowledge development capacity gives a region a stronger absorptive capacity in complex domains of knowledge.This capacity, though classified as a ‘development capacity’, is nevertheless critical to any absorptive capacity approach.
The ability to ‘exploit’ knowledge is the general capacity to utilise knowledge for commercial use and to extract value from it. This capacity is about the application of knowledge for practical use. In innovation policy literature, this ability is sometimes referred as the ‘innovation capacity’. In this paper, we consider it only as an innovation output; it is not used to represent all innovation activity. While ‘exploitation’ activities involve the ability to generate new knowledge too, their main aim is ‘knowledge exploitation’ rather than ‘knowledge creation’. Knowledge exploitation requires agents and resources – as well as an entrepreneurial culture – committed to the generation of new social and commercial value from new knowledge. A culture that supports entrepreneurship and risk-taking is often required for a knowledge exploitation capacity to flourish.
Main Source: Extracted and (partly) adapted from the report entitled “Innovation by Adoption”, published by NESTA in October 2008. The full report was written by Sami Mahroum (NESTA), Rob Huggins (University of Wales Institute in Cardiff), Naomi Clayton (The Work Foundation), Kathy Pain and Peter Taylor (Loughborough University – GaWC).