An Intra-organizational Perspective

This study examines how business units manage the ratio of realized to potential absorptive capacity and reveals how absorptive capacity drives performance differences. Results from 462 business units within 150 branches show that cross-functional interfaces, participation and jobrotation especially enhance a unit’s potential absorptive capacity. Formalization and socialization tactics particularly develop a unit’s realized absorptive capacity. Regarding consequences of absorptive capacity, our findings show that superior financial performance originates from a unit’s ability to nurture and harvest potential absorptive capacity. Moreover, our study suggests that potential and realized absorptive capacity have different roles in enabling explorative and exploitative adaptations. Lower ratios of realized to potential absorptive capacity are associated with explorative adaptations, whereas higher ratios are related to exploitative adaptations. In this regard, our study shows how managing potential and realized absorptive capacity provides sources of sustainable competitive advantage.