The Role of Functional Areas in Learning and Innovation In order to explore the role of different internal sources of knowledge and knowledge

flows for innovation, Maidique & Zirger (1985) provide a useful framework based on their study of new product success and failure in the electronics industry. Their model is based on different modes of internal and external learning, i.e. learning by doing, using and failing. These types of learning respectively relate to the role of internal sources of manufacturing and related improvements (cf. Arrow, 1962; Henderson, 1968), external sources of (successful) use in the market (cf. Rosenberg, 1982), and external sources of non-successful attempts. Thus, internal functions as manufacturing and marketing are important sources of learning. Still, the quality of a firm’s R&D organization will determine innovation success (Zirger & Maidique, 1990).

This is in line with RBV that we use to argue that each functional area—R&D, manufacturing and marketing—can develop and utilize its unique resources and capabilities (Bates & Flynn, 1995; Helfat, 1994b, 1997; Helfat & Peteraf, 2003; Newbert, 2007; Schroeder et al., 2002; Srivastava et al., 2001). Organizational mechanisms associated with firms’ capacities have also been shown to enhance absorptive capacity with a particular focus on the role of organizational units and cross-functional interfaces (Jansen et al., 2005). These functional areas have also independently been shown to be potential sources of innovation (Dosi, 1988; Freeman & Soete, 1997; Garvin, 1993; Griffin & Hauser, 1996; Gupta, Raj, & Wilemon, 1985, 1986; Hatch & Mowery, 1998; Jensen et al., 2007; Leonard-Barton, 1995; Maidique & Zirger, 1985; Pisano, 1994; Robertson & Langlois, 1995; von Hippel & Tyre, 1995). However, each of these studies typically addresses only a particular type of innovation or learning.

It is somewhat surprising that the role of different (also non-R&D) functional area in a firm’s absorptive capacity has not been explored in more detail as Cohen & Levinthal (1990) themselves conceptually (not empirically) addressed the detailed attributes of absorptive capacity. They for example argue that an organization’s absorptive capacity depends on the absorptive capacities of its individual members. It can therefore be expected that a wide variety of employees—in different functional areas—contribute to a firm’s absorptive capacity. As this paper tries to address the links between intra-firm and inter-organizational innovation and learning (Becker & Knudsen, 2006; Smith et al., 1995; Takeishi, 2001), we now explore what type of external knowledge is absorbed by which functional area, which in turn contributes to the firm’s innovation process.

In their original work, Cohen & Levinthal (1990) rank different external sources of knowledge with regard to their relevance for the focal firm. They argue that the knowledge that is most targeted to the firm’s needs and concerns will especially be absorbed because the ease of learning is higher. Based on their assessment, we propose that R&D will particularly absorb external knowledge from public and private research institutes. Therefore, when public and private research (e.g., universities and private R&D) are more important as sources of external knowledge, we expect that R&D activities become more important for innovation (cf. Zucker, Darby, & Brewer, 1998). More generally, it can be expected that there is a variety of external sources of knowledge that R&D relies on and absorbs in its quest to develop new knowledge and innovations, although external research is typically considered as a main driver (cf. Adams, 2006; Allen, 1977; Arora & Gambardella, 1994; Cassiman & Veugelers, 2006; Cockburn & Henderson, 1998; Cohen & Levinthal, 1990; Escribano et al., 2009; Fabrizio, 2009; Granstrand et al., 1992; Kaiser, 2002; Kamien & Zang, 2000; Martin, 2002; Schmiedeberg, 2008; Veugelers, 1997).

As we also consider non-R&D activities to be part of a firm’s absorptive capacity (cf. Arbussa & Coenders, 2007), we now explore which types of external knowledge the other functional areas—marketing and manufacturing—are more likely to absorb.8

8 _{Because the literature is not very conclusive about the different types of external knowledge that are}

absorbed by the various functional areas, we will mainly focus on which external source of knowledge each functional area is most likely to absorb. Similarly, there is little evidence on the difference

First, it is well known that marketing plays an important role in understanding customer needs and translating them into successful and innovative products (Burns & Stalker, 1961; Drucker, 1954; Rothwell, 1977; Slater & Narver, 1995; von Hippel, 1978a, b, 1986). We therefore propose that the marketing function of a firm is specialized in absorbing innovative knowledge coming form customers. Thus, marketing is a more important contributor to the firm’s innovative activities when knowledge from customers is important. Furthermore, while there is evidence that manufacturing can be an important source of innovation—in particular process innovation—under certain conditions (Dosi, 1988; Hatch & Mowery, 1998; Pisano, 1994; Rosenberg, 1982), especially the interaction with suppliers can be an important source of innovation (cf. Jensen et al., 2007; von Hippel & Tyre, 1995). Thus, it can be expected that manufacturing is a more important contributor to the firm’s innovative activities when knowledge from suppliers is also important.

More generally, we also explore the different external knowledge source that drive either product or process innovation. However, most research on absorptive capacity and innovation at large focuses on product rather than process innovation. As also recognized by Reichstein & Salter (2006)—and as we argued above—it can be expected that firms rely on suppliers to develop process innovation (cf. Cabagnols & Le Bas, 2002; Rouvinen, 2002). “However,” they state, “the role of other external sources of knowledge on the innovative activities of process innovators is less clear.” (Reichstein & Salter, 2006: 659) (See also footnote 8.)

2.5 Complementarities between Functional Areas as Sources