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Absorptive capacity and new product development

Profile image of Noel GreisNoel Greis

2001, The Journal of High Technology Management Research

https://doi.org/10.1016/S1047-8310(00)00040-7
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Abstract

New product development, specifically the ability of a company to develop products that outperform their competitors in the marketplace has been shown to benefit from the acquisition and use of external information. In this paper, we examine the relationship between absorptive capacity and new product development performance. Absorptive capacity is defined as the ability to acquire external information, assimilate it, and exploit it for commercial ends . We would expect that greater absorptive capacity, which provides a greater capability to acquire and exploit external information, would lead to more effective new product development. In this paper, we test this proposition using data from the computer modem industry over a 24-year period. Absorptive capacity is operationalized by R&D intensity, and new product development performance is measured by the technical performance of new products. Our results indicate that the relationship between absorptive capacity and new product development performance is nonlinear. An``inverted-U'' shape suggests diminishing returns for absorptive capacity. Implications and possible directions for future research are discussed. D 2001 Elsevier Science Inc. All rights reserved. Keywords: Absorptive capacity; New product development 1047-8310/01/$ ± see front matter D 2001 Elsevier Science Inc. All rights reserved. PII: S 1 0 4 7 -8 3 1 0 ( 0 0 ) 0 0 0 4 0 -7

Figures (6)
Variables, measures, and data sources Table 1
Variables, measures, and data sources Table 1
Descriptive statistics Table 2 orivately held, and, therefore, in many cases, data for R&D intensity are not available. T ‘estriction reduced the final sample to a total of 131 observations.° Table 2 shows minimum, naximum, mean, and median values for the data and variables in this fina sample. Note t here is a very wide range in the number of employees, from a low of 18 to a high a relatively wide 403,000, with a mean of approximately 53,000. R&D intensity shows ange as well, from a low of 1.54% to a high of 22.41%, with a mean va ue of 8.36%. T his hat of his average value is quite high compared to the average industry R&D intensities seen in other ndustries where the measure has been computed (Cohen & Klepper, 1996; Cohen et al., 1987). Given the high-technology nature of data communications, this re s not surprising. atively high va ue
Descriptive statistics Table 2 orivately held, and, therefore, in many cases, data for R&D intensity are not available. T ‘estriction reduced the final sample to a total of 131 observations.° Table 2 shows minimum, naximum, mean, and median values for the data and variables in this fina sample. Note t here is a very wide range in the number of employees, from a low of 18 to a high a relatively wide 403,000, with a mean of approximately 53,000. R&D intensity shows ange as well, from a low of 1.54% to a high of 22.41%, with a mean va ue of 8.36%. T his hat of his average value is quite high compared to the average industry R&D intensities seen in other ndustries where the measure has been computed (Cohen & Klepper, 1996; Cohen et al., 1987). Given the high-technology nature of data communications, this re s not surprising. atively high va ue
Fig. 1. Yearly average firm product development performance vs. year. Resul Mode not provide support for Hypothesis 1. The absorptive significant at P<.05, has the sign predicted by Hypothe indicated performance and absorptive capacity, so an additional term wa size. In .0O1 level. s from both regression models are shown in Tab 1 is the basic model including size and absorp the possibility of a quadratic relationship be s estimated. Model 2 includes the square of a e 4. ive capacity. The first model did capacity coefficient, while not sis 1. However, residual analysis ween new product development model that included a quadratic bsorptive capacity in addition to his model, the coefficients of both absorptive ca) pacity terms are significant at the
Fig. 1. Yearly average firm product development performance vs. year. Resul Mode not provide support for Hypothesis 1. The absorptive significant at P<.05, has the sign predicted by Hypothe indicated performance and absorptive capacity, so an additional term wa size. In .0O1 level. s from both regression models are shown in Tab 1 is the basic model including size and absorp the possibility of a quadratic relationship be s estimated. Model 2 includes the square of a e 4. ive capacity. The first model did capacity coefficient, while not sis 1. However, residual analysis ween new product development model that included a quadratic bsorptive capacity in addition to his model, the coefficients of both absorptive ca) pacity terms are significant at the
Correlations
Correlations
Fig. 2. Expected firm performance vs. absorptive capacity.
Fig. 2. Expected firm performance vs. absorptive capacity.
Regression results (dependent variable: average product performance) Table 4 These results suggest that Model 2 is the more appropriate. What is especially interesting, 1owever, is the fact that the coefficient of the absorptive capacity square term is significant and 1egative, which indicates an “‘inverted-U” relationship. In this relationship, higher levels of ibsorptive capacity are associated with higher levels of new product development perfor- nance, but only up to a certain level. Beyond this turning point, higher levels of absorptive vapacity are associated with lower levels of new product development performance. There is a way to obtain an even clearer picture of the relative effect of absorptive capacity. We can illustrate this effect through an example where we hold year and firm size constant, mnd then varv absorntive canacitv to see the nattern of exnected new product develonment
Regression results (dependent variable: average product performance) Table 4 These results suggest that Model 2 is the more appropriate. What is especially interesting, 1owever, is the fact that the coefficient of the absorptive capacity square term is significant and 1egative, which indicates an “‘inverted-U” relationship. In this relationship, higher levels of ibsorptive capacity are associated with higher levels of new product development perfor- nance, but only up to a certain level. Beyond this turning point, higher levels of absorptive vapacity are associated with lower levels of new product development performance. There is a way to obtain an even clearer picture of the relative effect of absorptive capacity. We can illustrate this effect through an example where we hold year and firm size constant, mnd then varv absorntive canacitv to see the nattern of exnected new product develonment

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    Frans A J Van Den Bosch

    2008

    Understanding the phenomena of corporate longevity and self-renewing organizations has become an important topic in recent management literature. However, the majority of the research contributions focus on internal determinants of longevity and self-renewal. Using a coevolutionary framework, the purpose of this paper is to address the dynamic interaction between organizations and environments in the realm of sustained strategic renewal, i.e. corporate longevity. To this end, we will focus on the competence of long-lived firms to coevolve due to the joint effect of managerial intentionality and environmental selection pressures. Building on coevolutionary framework, we develop a conceptual framework that highlights an organization's coevolutionary competence. Two longitudinal case studies are presented illustrating the arguments.

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    Procedural Justice, Not Absorptive Capacity, Matters in Multinational Enterprise ICT Transfers
    alain verbeke

    Management International Review, 2013

    0 this paper empirically tests the effectiveness of information and communications technology (ict) knowledge transfer and adoption in the multinational enterprise (MNe) as an issue of critical importance to contemporary MNe functioning. in contrast to mainstream thinking on absorptive capacity, but in line with prevailing international business theory, our research supports the proposition that perceptions of procedural justice, rather than absorptive capacity, determine effectiveness, especially in cases of high tacit knowledge transfers. 0 Data was collected from senior ict representatives in 86 canadian subsidiaries of foreign owned MNes. each of these subsidiaries recently experienced a significant ict transfer imposed by the parent organization. 0 support was found for the main propositions: Procedural justice significantly predicted successful ict transfer and adoption, while absorptive capacity was not significant. these findings are consistent even when knowledge tacitness was high. 0 the perceived success of the ict transfer as well as its adoption varied widely across these firms. the potential reasons for this divergence in effectiveness are manifold, but our findings suggest that in situations of substantial knowledge tacitness, a higher level of procedural justice, rather than a higher level of absorptive capacity, is critical to effective transfer and adoption.

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    How do young firms manage product portfolio complexity? The role of absorptive capacity and ambidexterity
    Stephanie Fernhaber

    Strategic Management Journal, 2012

    Building a complex portfolio of products can be beneficial for young firms due to increased sales growth and competitiveness. Yet, the benefits from product portfolio complexity (PPC) are often outweighed by rising costs, leading to an inverted U-shaped relationship between PPC and performance. Recent research has called for an increased understanding of how firms are able to better manage higher levels of PPC. We suggest that absorptive capacity and ambidexterity are vital to enhancing the benefits and mitigating the costs of increasing PPC. Using a sample of 215 young high technology firms, we find support for positive moderating effects of absorptive capacity and ambidexterity on the inverted U-shaped relationship between PPC and firm performance. † Authors contributed equally. Closs and colleagues (2008: 591) define PPC as the 'state of processing difficulty that results from a multiplicity of, and relatedness among, product architectural design elements.' Thus, not only does the volume of a firm's product offerings

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