Absorptive capacity and new product development

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 [Adm. Sci. Q. 35 (1990) 128]. 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.