Connecting the unconnected: Analogies and the development of insight in the absorptive capacity process

Abstract

While innovation has been widely attributed to a firm's absorptive capacity (AC), product and marketing studies have found that insight is central to a firm's creativity and innovation. Creativity and innovation studies have found that individuals often relate to external information through an analogical reasoning process and that this process develops insight into a firm's innovation. Although the AC concept has been associated with this insight, it however faces significant difficulties explaining its development. This is because AC has been defined by a social structure where myopic tendencies can preclude its individual members from assimilating new external experiences. As insight often requires an exposure to previously unconnected or unrelated experiences, this myopia can reduce a firm's ability to produce insight in its AC process. By drawing on an individual level analogical reasoning process, this study argues that a firm's coherence and uniqueness offer a social structure that not only leverages this individual level analogical reasoning process but also produces an assimilation that develops insight in the firm's AC process. In using a sample of US biotechnology firms, this study finds empirical support for these arguments to explain the development of insight in ways not possible with AC explanations.