Developing a Firm's Absorptive Capacity with Strategic Orientation

Absorptive capacity confers an ability to recognize the value of new information, assimilate it and apply it to commercial ends. It is well believed that the stronger absorptive capacity means the greater competitive advantage. However, this perception of firms’ knowledge transferring seems to misunderstand real learning due to three characteristics of absorptive capacity: path dependence, relativity, and expensive cost. In contrast, this paper shows that, given that absorptive capacity is highly path dependence, relative, and expensive to develop and maintain, it is necessary for firms to manage this scarce resource under their long-term strategy orientation aiming at continuing competence. From this perspective, three characteristics of absorptive capacity are analyzed in depth. Then, on the basis of a literature review of strategic orientation, the interaction between strategic orientation and absorptive capacity is discussed. Proposition about the effect of both strategic orientation and absorptive capacity on each other are given at the same time. Furthermore, the author builds up a two dimensional organizational learning framework that mixes the firm’s strategy orientation and absorptive capacity to explore the source of the firm’s competitive advantages. In this framework, only firms that combine explicit strategy and strong absorptive capacity will earn high learning performance and establish ultimate competitive advantages. Overall, the arguments made in this paper depict a complete picture of the relationship between absorptive capacity and firms’ strategic orientation, thus push forward our existing understanding of organization learning. It is an attempt to establish the conceptual foundation of strategic design of absorptive capacity for firms.