Absorptive Capacity

Abstract

Absorptive Capacity is a critical component of innovative capabilities that enables the firm to exploit external knowledge. It allows a firm to recognize the value of new information, assimilate it, and apply it to commercial ends. Firms' absorptive capacity is part of their dynamic capabilities and can be conceptualized as having four dimensions: acquisition, assimilation, transformation, and exploitation. Another way to further understand a firm's absorptive capacity is to think of it as a quality that is derived by the firm's level tacit knowledge.