Absorptive Capacity - Zahra and George's Model

Zahra and George's Model

Cohen and Levinthal have focused a lot on investments in R&D to develop one’s absorptive capacity, but many other researchers showed later on that several other areas could be explored to develop an organization’s absorptive capacity. This led to a review of the concept by Shaker Zahra and Gerry George and a reformulation of the definition that expanded greatly the concept and further defined it as being made of 2 different absorptive capacities: potential absorptive capacity and realized absorptive capacity. Their new definition of absorptive capacity is: “a set of organizational routines and processes by which firms acquire, assimilate, transforms and exploit knowledge to produce a dynamic organizational capability.”

Potential Absorptive Capacity Zahra and George presented the potential absorptive capacity as made of 2 elements. First there is knowledge acquisition which “refers to a firm’s capability to identify and acquire externally generated knowledge that is critical to its operations.” Second, there is assimilation capability which “refers to the firm’s routines and processes that allow it to analyze, process, interpret and understand the information obtained from external sources.” “Potential absorptive capacity makes the firm receptive to acquiring and assimilating external knowledge.”

Realized Absorptive Capacity Realized absorptive capacity is made up of transformation capability on one hand that can be defined as “a firm’s capability to develop and refines the routines that facilitate combining existing knowledge and the newly acquired and assimilated knowledge.” On the other hand realized absorptive capacity is also made of the exploitation capability of a firm which is basically the capacity of a firm to apply the newly acquired knowledge in product or services that it can get financial benefit from. “Realized absorptive capacity is a function of the transformation and exploitation capabilities.”

Zahra and George go on to suggest a series of indicators that can be used to evaluate each element of absorptive capacity.

• Knowledge acquisition capability (the number of years of experience of the R&D department, the amount of R&D investment)
• Assimilation capability (the number of cross-firm patent citations, the number of citations made in a firm’s publications to research developed in other firms)
• Transformation capability (the number of new product ideas, the number of new research projects initiated)
• Exploitation capability (the number of patent, the number of new product announcements, the length of product development cycle)