CONCEPTUAL MODEL

The conceptual model advanced in this research, presented in Figure 1, draws from prior absorptive capacity research in proposing that the processes associated with absorptive capacity impact capabilities renewal from acquisition. I adopt Zahra and George’s (2002) definition of 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 and propose that each dimension of absorptive capacity plays a unique and important role in the renewal of capabilities from acquisition. However, unlike Zahra and George (2002), I use the term “externally-oriented absorptive capacity” to refer to what Zahra and George (2002) refer to as “potential absorptive capacity”. Additionally, I use the term “internally-oriented absorptive capacity” to refer to what Zahra and George (2002) refer to as “realized absorptive capacity.” I adopt this alternative terminology for three critical reasons.

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First, the research questions addressed in this dissertation return to Cohen and Levinthal’s original speculation that while both inward and outward looking absorptive capacity processes are important to a firm’s overall absorptive capacity, Cohen and Levinthal caution that

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“excessive dominance of one over the other will be dysfunctional” (1990: 133). Thus, it seemed reasonable to develop terminology that is more explicitly linked to the notion of inward and outward looking absorptive capacity.

Second, Zahra and George (2002) propose that realized absorptive capacity necessarily depends on the level of potential absorptive capacity by nature of its definition. In other words, a firm that has no potential absorptive capacity will have no realized absorptive capacity. Additionally, by virtue of the definition, realized absorptive capacity must always be less than a firm’s potential absorptive capacity. However, in this dissertation I am concerned with the processes and capabilities that are associated with potential and realized absorptive capacity. Additionally, this dissertation is concerned with the effect that the presence of resources and capabilities associated with one dimension will have when the firm lacks the resources and capabilities associated with the other dimension of absorptive capacity.

Lastly, Zahra and George’s (2002) conceptualization of potential and realized absorptive capacity is concerned with thinking about absorptive capacity in terms of efficiency. Alternatively, this dissertation is concerned with independent role of each dimension of absorptive capacity as well as the interactive effects of the dimensions of absorptive capacity.

As a result, in this dissertation the term “externally-oriented absorptive capacity” is used to refer to a firm’s ability to acquire and assimilate external knowledge. Additionally, I adopt Zahra and George’s (2002) definition of acquisition as a firm’s capability to identify and acquire externally generated knowledge that is critical to its operations. Zahra and George (2002) propose that acquisition involves the intensity, speed and direction of efforts to identify external knowledge. These resources and capabilities include such factors as search routines (Fahey, 1999), environmental scanning (Fahey, 1999), benchmarking (Garvin, 1993; Stata, 1989), and maintaining a broad and active network of external relationships (Cohen and Levinthal, 1990). Likewise, I adopt Zahra and George’s (2002) definition of assimilation as the firm’s routines and processes that allow it to analyze, process, interpret, and understand the information obtained from external sources.

In this dissertation, the term “internally-oriented absorptive capacity” is used to refer to a firm’s ability to transform and exploit external knowledge. Similarly, I adopt Zahra and George’s definition of transformation as a firm’s capability to develop and refine the routines that facilitate combining existing knowledge and the newly acquired and assimilated knowledge.

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Thus, transformation includes the diffusion of knowledge across organizational units. For example, social integration mechanisms used to create social capital across the organization aid in transfer (Cohen and Levinthal, 1990). Two important social integration mechanisms that have been highlighted in past research are the use of cross-functional interfaces and job rotation (Galbraith, 1973; Henderson and Clark, 1994; Clark and Fujimoto 1991; Sheremata, 2000; Van den Bosch et al., 1999). Cross-functional interface mechanisms include the use of task forces, teams, and liaison personnel. Job rotation mechanisms are those routines for the lateral transfer of employees between jobs. These socialization mechanisms deepen the lateral flows of knowledge across functional and hierarchical boundaries and provide a greater awareness of where in the organization valuable knowledge resides (Jansen et al., 2005; Campion et al., 1994). In addition, these routines promote the development of social capital that facilitates non-routine knowledge sharing (Egelhoff, 1991), reciprocal trust between colleagues, and mutual willingness to share knowledge (Nahapiet and Ghoshal, 1998). Furthermore, these routines help a firm to transfer knowledge within its boundaries by helping organizational members develop a shared language and/or understanding (Nahapiet and Ghoshal, 1998; Collins and Smith, 2006; Daft and Lengel, 1986).

Additionally, I adopt Zahra and George’s definition of exploitation the routines that allow firms to refine, extend and leverage existing competencies or create new ones by incorporating acquired and transformed knowledge into its operations. These capabilities include the processes associated with the incorporation of the new knowledge to create new products, systems, processes, knowledge, or organizational forms (Zahra and George, 2002; Tiesmessen, Lane, Crossan and Inkpen, 1997; Van den Bosch et al., 1999).

The conceptual model advanced in this research and illustrated in Figure 1 suggests these various absorptive capacity dimensions provide a firm with openness to new knowledge, routines for gaining access to new knowledge, flexibility to disseminate and share the new knowledge in the most appropriate organizational unit, and the ability to transform the new knowledge for commercial ends. Consequently, these collective dimensions of absorptive capacity allow a firm to renew their capabilities through acquisition. I further propose that in firms in which one dimension of absorptive capacity dominates at the expense of another dimension, acquisition may present too large of an encumbrance and lead to a neglect of capabilities.

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This research will further advance the idea that past experience will influence the development of absorptive capacity and the relative strength of each absorptive capacity dimension. Specifically, it will examine how past acquisition and internal development experience impacts the development and emphasis managers place on nurturing each of the absorptive capacity dimensions and the moderating role of past internal development experience. Earlier research has found past acquisition experience may change the structure and processes in the acquiring firm (Hitt et al., 1996; Pitts, 1980). This research will link those organizational changes that occur through past acquisition and internal development with changes in a firm’s absorptive capacity.

Additionally, this research advances the notion that a renewal in capabilities from acquisition will impact a firm’s performance by revitalizing its existing capabilities and providing it with the flexibility to adapt to environmental changes. Furthermore, a change in capabilities from acquisition is linked to a firm’s subsequent growth strategies by shaping their surplus of resources and capabilities and their need for new resources and capabilities. Lastly, the renewal of firm capabilities is associated with post-acquisition performance.