Potential Absorptive Capacity Research Articles

Boosting firms’ absorptive capacity: the digital technologies edge

PurposeThis study aims to explore how firms can enhance their innovation processes by effectively utilizing external knowledge and employing digital technologies. Specifically, it emphasizes the role of absorptive capacity (ACAP) in external knowledge acquisition and assimilation (potential ACAP), as well as transformation and exploitation (realized ACAP), highlighting the necessity of equipping firms with digital technologies to support ACAP activities.Design/methodology/approachTo achieve the research purpose, we conducted a structured literature review of academic papers sourced from Scopus-Elsevier.FindingsThe key findings encompass the identification of common digital technologies supporting ACAP and explore how these technologies contribute to knowledge acquisition, assimilation, transformation and exploitation. The main results show that social media and online communities are the most studied technologies in relation to ACAP activities. Research predominantly centres on potential ACAP – with acquisition activity more studied than assimilation – rather than realized ACAP – with only social media and online communities demonstrating full support for transformation and exploitation activities.Research limitations/implicationsThis research represents a pioneering joint study of ACAP and digital technologies, advancing understanding beyond organizational perspectives and expanding open innovation literature by integrating ACAP role in technology collaborations. A call for qualitative investigations into the relationship between digital technologies and ACAP emerged.Practical implicationsThe findings offer valuable guidance to innovation managers, aiding them in selecting appropriate digital technologies to strengthen ACAP activities.Originality/valueThis work’s uniqueness lies in bridging the gaps between open innovation, ACAP and digital technologies, which are often studied in isolation.

The impact of potential and realized absorptive capacity on open innovation: the moderating role of knowledge-oriented leadership

Purpose This study aims to analyze the effects of the components of absorptive capacity (ACAP) – potential absorptive capacity (PACAP) and realized absorptive capacity (RACAP) on inbound and outbound open innovation (OI). In addition, this study investigates the moderating role that knowledge-oriented leadership (KOL) plays in the relationship between ACAP and OI. Design/methodology/approach This research adopts a quantitative approach, using structural equation modeling, in a sample of 218 companies in the Brazilian manufacturing sector, using a random sampling technique and self-administered questionnaire. Findings The results indicate that while PACAP positively influences inbound and outbound OI, RACAP has a significant relationship only with outbound OI. In addition, KOL moderates the significant relationships between PACAP and RACAP and OI, indicating that the development of a leadership that fosters learning and interaction between employees and sectors of the organization impacts the innovation results of companies in the manufacturing sector. Practical implications This study also shows that managers must have an active role in the construction of an organizational context that supports learning through initiatives that encourage the process of trial and error, teamwork and cooperation between employees. Originality/value This research advances previous studies by relating the two components of ACAP (PACAP and RACAP) with the two OI models (inbound and outbound), in addition to analyzing the moderating role that KOL plays in this relationship between ACAP and OI.

Understanding the role of organizational intellectual capital on developing absorptive capacity to strategize innovation ambidexterity

PurposeThe purpose of this paper is to empirically investigate the impact of organizational intellectual capital (IC) components on absorptive capacity (ACAP) such as potential absorptive capacity (PACAP) and realized absorptive capacity (RACAP). Furthermore, it attempts to investigate the mechanism through which PACAP and RACAP jointly influence innovation strategies (i.e.) exploitative and exploratory innovations.Design/methodology/approachThis is an explanatory research using a deductive approach. This study uses survey data from 184 manufacturing export firms analyzed through partial least squares structural equation modelling.FindingsThe results have found that the cognitive and social capital of a firm positively affects PACAP and RACAP, whereas relational capital has a significant effect on RACAP. Moreover, the study reveals that both potential and realized absorptive capacities considerably lead to the development of organizational exploitative and exploratory innovation strategies.Research limitations/implicationsThe research focused on two driving factors, i.e. IC components and ACAP dimensions, and overlooked how each component of IC and ACAP influences ambidextrous innovative strategy.Practical implicationsProviding managers with insights about the critical role of developing IC to facilitate the transfer and exchange of crucial absorptive capacity necessary for ambidextrous innovative strategy.Originality/valueThis study makes a significant contribution to the existing literature by highlighting the importance of ACAP and provides useful insights for firms in developing economies to improve their exploitative and exploratory innovation capability. This study likewise reveals the significance of the four dimensions of IC, which can facilitate bringing in knowledge from developing economies.

The Under-Developed Social Integration Mechanism as Moderating Factor of Two-Dimensional Absorptive Capacity Relationship: Systematic Literature Review

The study aims to answer how and what kind of the social integration mechanisms may influence the relationship between the two dimensions of absorptive capacity which is, potential absorptive capacity (PACAP) and realized absorptive capacity (RACAP). The social integration mechanism has been neglected from the discussion on how firm assimilate and transform external knowledge to advance their absorptive capacity. In doing so, we answer recent call for research about a more thorough systematic literature review of the absorptive capacity and social integration mechanisms and its definitions. We surveyed literatures published during the years 2010 to 2020 and only found 8 articles discussing moderating variable between PACAP and RACAP out of 277 articles on absorptive capacity. The aim of this systematic review is to evaluate what social integration mechanisms influence the relationship between PACAP and RACAP and how they help overcome barriers to knowledge sharing. The results showed social integration mechanism can be in terms of high commitment works system, knowledge ambiguity, organizational size, relational learning, and cultural balance. Therefore, more research underlines the importance of social integration mechanism should be encouraged.

Linking absorptive capacity and project performance in environmental uncertainty: A perspective on implementation arrangements

AbstractThis study utilizes the concept of absorptive capacity as a unique way to view implementations arrangements in resource‐scarce public sector organizations. It introduces absorptive capacity as a policy implementation capacity and explains the relationship between potential and Realized Absorptive Capacity and project performance, primarily, in the higher education, primary and secondary health and social welfare departments in the Government of the Punjab, Pakistan. The main research question ascertains the effect of absorptive capacity on project performance and how environmental uncertainty intervenes in the relationship between different aspects of absorptive capacity (potential absorptive capacity, PACAP and realized absorptive capacity, RACAP) and project performance. In order to do so five hypotheses are developed. In order to explore the assumptions, the relationships among variables are ascertained based on 167 responses from ongoing public sector projects/schemes (2020) using bivariate correlations, and linear and multiple linear regression analyses. The results of this study support findings suggested by prior research, confirming a positive influence of absorptive capacity on project performance in terms of knowledge acquisition and assimilation. The same is true for a direct relationship of public sector projects. The public sector projects have used the existing experience and knowledge resources to further enhance their capabilities and exploited knowledge. Further, the actionable knowledge has been transformed into performance goals of the projects. The unstable external environment, unable to predict future environmental conditions and changing project requirements did not seem to affect the existing transferability and utilization of knowledge for achieving social sector projects' performance.

Structural Capital and Firm Performance: Synergistic Effects of Realized and Potential Absorptive Capacities in Tourism Businesses

In a competitive and dynamic environment, business performance is a latent concern for managers, requiring firms to implement a set of strategies such as structural capital (SC), potential absorptive capacity (PACAP) and realized absorptive capacity (RACAP) to enhance their performance. Furthermore, our review of the literature found insufficient empirical research to support the theoretical connections between the variables in question. In this sense, the purpose of the present study is to cover this gap and to analyse the effect of SC on business performance. In addition, the mediating effect of RACAP was studied. Finally, the moderating effect of PACAP on the relationship between RACAP and business performance was analysed. Following the non-probabilistic convenience sampling method, a sample of 238 firms in the tourism sector in Peru’s World Heritage Cities was recruited. This study employs partial least squares structural equation modelling (PLS-SEM) for the statistical analysis of mediation and moderation. The results indicate that SC positively affects business performance and RACAP improves it. Likewise, PACAPs positively moderate the effect of RACAP on firm performance (FP). These results contribute to the theoretical understanding of the determinants of FP. Furthermore, it is helpful in practical managerial decision-making in the tourism sector in developing countries.

The impact of dynamic marketing capabilities on startup performance: A case of business incubators in Jordan

Dynamic marketing capabilities provide startups with the platform and market knowledge that entitle them to achieve their goals and survive the competition. The study aims to examine the impact of dynamic marketing capabilities dimensions on startups’ performance in Jordan. This quantitative study employs a questionnaire to solicit answers from respondents who are the incubates that use business incubator services. A total of 302 entrepreneurs from different incubator centers in Jordan participated in the online survey. Using the SmartPLS program version 4, structural equation modeling (PLS-SEM) was used to examine the study model. The findings indicate that startup performance is significantly impacted by dynamic marketing capabilities (β = 0.937, t = 127.2, p = >0.00). Concerning absorptive capacity, both dimensions revealed a significant impact on startup performance: potential absorptive capacity (β = 0.251, t = 7.932, p > 0.000) and realized absorptive capacity (β = 0.177, t = 5.409, p > 0.000). For knowledge management, the results for knowledge acquisition were β = 0.360, t = 11.089, p = >0.000, for knowledge dissemination, β = 0.102, t = 2.367, p = >0.018, and for responsiveness to knowledge β = 0.318, t = 6.852, p = >0.000.

THE INFLUENCE OF ORGANIZATIONAL MEMORY ON INNOVATION PERFORMANCE OF PRIVATE ENTERPRISES: A MODERATING EFFECT BASED ON ABSORPTIVE CAPACITY

To survive in the fierce competition and its own limitations, private enterprises in China must innovate. Since most private enterprises lack material resources, it is realistic to rely on organizational memory to innovate. Based on the perspective of organizational memory, this paper explores the relationship between organizational memory, absorptive capacity and innovation performance. This paper collects data through questionnaire, and verifies the relationship between organizational memory and innovation performance by correlation analysis and regression analysis. It is found that organizational memory and innovation performance have a significant positive correlation at the level of 0.01, the correlation coefficient between organizational memory and innovation performance is 0.538 (P < 0.01), the correlation coefficient between declarative organizational memory and innovation performance is 0.468 (P < 0.01). The correlation coefficient between process organizational memory and innovation performance is 0.308 (P < 0.01). The results show that there is a significant positive correlation between organizational memory and innovation performance of private enterprises. Potential absorptive capacity has a significant moderating effect between organizational memory dimensions and innovation performance, while real absorptive capacity has a significant moderating effect between organizational memory dimensions and innovation performance. Thus, improving the organizational memory level and absorptive capacity of private enterprises has a positive role in promoting their innovation performance. This study examines the relationship between organizational memory, absorptive capacity and innovation performance, which expands the scope of organizational memory research, and provides a reference for private enterprise innovation from the perspective of organizational memory and absorptive capacity.

Thriving in management innovation: an institutional perspective

PurposeManagement innovation is one of the most vital practices underpinning economic growth and is considered to be one of the fundamental components of gaining a superior business position in market conditions that are continually fluctuating. Drawing upon neo-institutional theory as well as absorptive capacity, the current empirical study unpacks the relationships between external institutional forces (i.e. regulative, mimetic and normative pressures) and management innovation through investigating the role of absorptive capacity as a mediator.Design/methodology/approachThe research model is tested using survey data from Australian organisations. The study used Partial Least Squares (PLS), a component-based structural equation modelling (SEM) method, in order to perform the data analysis.FindingsThe results confirm that the various dimensions of institutional forces have diverse influences on management innovation. The authors found mimetic and normative pressures have positive influences on realised and potential absorptive capacity of an organisation. In addition, realised absorptive capacity mediates the relations between institutional forces and management innovation.Originality/valueDissimilar to preceding studies, this research shows that organisations not only innovate to pursue higher performance but sometimes strive for legitimacy. In addition, the significant associations between absorptive capacity and management innovation and the mediation role clearly signify that institutional forces and absorptive capacity play significant roles in the adoption of management innovation.

How resistance to change impairs innovation

PurposeThe study identifies the gap in the understanding of how employee resistance to change (RTC) could impact different stages of the process of innovation. To address this research gap, the paper introduces a new model, which theorizes three moderating effects of RTC on the different elements of absorptive capacity (ACAP).Design/methodology/approach This study empirically tests the proposed model, using survey data collected from healthcare organizations in the United States of America.FindingsFirst, the study reveals that RTC could damage the critical “connectedness” between potential absorptive capacity (PACAP) and realized absorptive capacity (RACAP), thus limiting the organization's ability to exploit new knowledge. Second, the findings also reveal that RTC can reduce the positive effect of acquisition (ACQ) on assimilation – the function responsible for decoding the meaning and for assimilating new valuable information incoming from the market.Research limitations/implicationsResearch limitations of this study are discussed further.Practical implicationsThe paper presents specific practical implications for managers.Social implicationstext.Originality/valueThis paper advances past research and practice by revealing two new mechanisms. When employees resist new changes initiated in the organizations, the resistance of employees will hinder the process of innovation in the following ways. (1) At the beginning of the process, employees can oppose and reject new valuable ideas incoming from the market. (2) At the stage of the implementation, such employees can engage in behavior that will weaken the organization's ability to successfully implement new process improvements that could otherwise increase organizational effectiveness.

Impact of absorptive capacity on project success through mediating role of strategic agility: Project complexity as a moderator

The purpose of this study is to explore the role of potential and realized absorptive capacity on project success through both the mediating roles of strategic agility and the moderating role of project complexity. A simple random sampling was used to collect data from 285 respondents working in the IT sector of small-medium sized Portuguese enterprises (SMEs). Due to the Covid-19 pandemic, data were collected from and distributed on, several online channels (Gmail, LinkedIn, Twitter, and Facebook). Smart PLS-SEM, version 3.2.8 was used for the analysis. The results indicate that the two absorptive capacity sub-dimensions, potential and realized absorptive capacity, not only directly affect a project's success but also indirectly through the mediator of strategic agility. Although the moderating role of project complexity has a positive and significant effect on the relation between potential absorptive capacity and strategic agility, it is insignificant concerning the relation between realized absorptive capacity and strategic agility. Finally, theoretical and practical contributions are made, research limitations are stated and future research is suggested.

How absorptive capacity influences project performance

PurposeThe absorptive capacity (AC) leads to firm performance and influences the development and evolution of capabilities and routines, but the influence of AC in projects remains unclear. Therefore, this study aims to investigate the effect of AC on project performance (PP) in the construction industry of Sao Paulo State, Brazil.Design/methodology/approachThe authors conducted a survey questionnaire with project managers and collected 157 responses in the construction sector. They also used confirmatory factor analysis (CFA) and multiple linear regression techniques to assess the data.FindingsThe study provides empirical evidence that realized absorptive capacity (RAC) has a direct and indirect positive effect on PP. Conversely, the potential absorptive capacity (PAC) only indirectly impacts PP through project management practices (PMPs). PAC and RAC positively influence PMPs that in turn positively influence PP. The findings reinforce the relevance of AC to the development of internal knowledge for processes and routines, thereby enhancing PP.Practical implicationsThe findings provide practical implications: the AC influences PP by refining and adapting routines. Moreover, the consistent application of accepted practices is not enough for PP, but the ability to adapt, adjust and transform the relevant knowledge into routines.Originality/valueThis paper provides empirical evidence that the knowledge application of PMPs improves organizational performance through PP. However, despite what the literature has discussed, this paper proved that AC has no effect as a moderating factor between PMPs and performance; however, AC's role significantly impacts PP through PMPs.

How potential and realized absorptive capacity increased ability to innovate: the moderating role of structural ambidexterity

Purpose Digital start-ups have limited resources. With the demands of rapid growth, digital start-ups need to rely on their ability to explore external knowledge and exploit it into swift innovation. Developing absorptive capacity is an alternative to overcome this difficulty. This study aims to demonstrate how the potential and realized an increase in absorptive capacity enables organizations to innovate moderated by structural ambidexterity. Empirical evidence places more emphasis on the impact of absorptive capacity on innovation but still leaves the “black-box” question of innovation and how potential absorptive capacity (PACAP) can achieve realized absorptive capacity (RACAP). Design/methodology/approach This study tests, with a structural equation model, samples collected from 143 digital start-ups in Indonesia. Findings The finding of this study suggests that PACAP influences the ability to innovate only if RACAP mediates it and structural ambidexterity positively moderates the relationship between these two variables. Research limitations/implications First, this study uses digital start-up organizations as respondents. Second, this study explores the role of the structural ambidexterity that moderates the relationship between PACAP and RACAP manifested in digital start-ups organizations that are identical to temporary companies with limited resources. Third, digital start-ups have a fast-growth life cycle, unlike regular companies. Finally, the validated scale is based on data collected entirely from digital start-ups located in Indonesia, which may limit the generalizability of the findings to other industry contexts. Practical implications Start-ups suffer from the ability to innovate that increases their propensity to fail. They overcome this failure by increasing the absorptive capacity of the founding team to improve their ability to innovate. Because of limited resources available at digital start-ups, the flexibility of their management style can overcome these barriers, allowing the pursuit of both knowledge exploration and exploitation in a balanced way. Originality/value Most of the studies explained that the ability to innovate comes from absorptive capacity. In fact, they do not explore PACAP and RACAP and their relationships. Moreover, the studies also indicated that the contextual ambidexterity moderated PACAP and RACAP. Meanwhile, digital start-ups in this study revealed that structural ambidexterity with two dimensions, i.e. shared value, and behavioral integration, enables and positively moderates the relationship between PACAP and RACAP.

Absorptive Capacity and Its Dual Effect on Technological Innovation: A Structural Equations Model Approach

Knowledge absorptive capacity (ACAP) is a key dynamic capability that boosts business innovation, particularly in developing economies. However, scarce studies focus on ACAP and technological innovation (TI) in the context of small- and medium-sized enterprises (SMEs). Therefore, this study aims to examine the effects of two different types of knowledge absorptive capacities to generate TI in the context of the Mexican manufacturing industry and determine whether realized absorptive capacity (RACAP) mediates the relationship between potential absorptive capacity (PACAP) and TI. This analysis was carried out through an empirical study of predictive type and quantitative approach. A survey-type questionnaire was randomly applied to a sample of 249 SMEs. The survey confers 200 managers’ opinions on the manufacturing industry in Mexico. The outcomes obtained through the variance-based structural equations (PLS-SEM) approach revealed that PACAP significantly influences RACAP, whereas, RACAP does impact TI and has a full mediating effect on the relationship between PACAP and TI. Nevertheless, although the significant direct effect of PACAP on TI is not verified, this research demonstrated the significant indirect effect of PACAP on TI. The findings reveal important implications for managers and decision-makers who must direct their strategies and ensure that the external knowledge acquired is assimilated by their employees so that PACAP will result in the transformation and exploitation of the internal and external knowledge acquired (RACAP), converting it into new products and processes.

The impact of the institutional environment of the host country on the perception of compliance risk of the international engineering contractor: the moderating effect of absorptive capacity

PurposeWhile there is a general belief that a defective institutional environment will lead to higher compliance risk, the current state of knowledge about how the institutional environment affects enterprises' compliance is equivocal. This study aims to explore how does the host country's institutional environment affect the compliance risk perception of international engineering contractors and how to mitigate this impact.Design/methodology/approachThis study empirically tests the impact of the institutional environment from the two dimensions of the institutional environment: legal completeness reflects whether the formal regulations are clear, detailed and comprehensive and legal effectiveness reflects whether rules and policies can be implemented effectively when the proper legal codes are provided. Based on 213 questionnaire data, this study uses partial least squares structural equation model (PLS-SEM) and Smart PLS software to test the hypothesis.FindingsThis study finds a negative relationship between the host country's legal completeness (LC) or legal effectiveness (LE) and a contractor's compliance risk perception. Further, the results show potential absorptive capacity (PAC) and realized absorptive capacity (RAC) of a contractor are critical for mitigating the impact of low LC in the host country, but not when LE is low.Practical implicationsThe findings will be useful for international engineering contractors to respond to the compliance risk of the host country, both in choices of overseas investment locations and compliance capacity building.Originality/valueThis study reveals the impact of the host country's institutional environment on the compliance risk perception of international contractors, and provides theoretical guidance for how to alleviate the compliance barriers brought by the host country's institutional environment to international engineering contractors.

Promotion Path and Application of Enterprises Sustainable Competitive Advantage: Perspective of TMT Behavior Integration

The role of the sustainable competitive advantage of enterprises is becoming increasingly prominent. Taking TMT behavior integration, enterprise sustainable competitive advantage, absorptive capacity, and critical reflection as independent, dependent, intermediary, and regulatory variables, respectively, and 223 enterprises as an empirical research sample, through theoretical analysis and empirical research, this paper reveals the influence of TMT behavior integration on sustainable competitive advantage of enterprises and intermediary role of absorptive capacity and the regulatory role of critical reflection. The empirical results show that the behavior integration of top management team can promote the sustainable competitive advantage of enterprises. The potential absorptive capacity plays a partial intermediary role between TMT behavior integration and enterprise financial performance and a complete intermediary role between TMT behavior integration and enterprise strategic performance. Realistic absorptive capacity can partially mediate the behavioral integration of TMT and the sustainable competitive advantage of enterprises. Critical reflection plays a positive regulatory role between TMT behavior integration and enterprise strategic performance. The research shows that in order to improve enterprises sustainable competitive advantage, enterprises should take the following measures: ① Enterprise executives must attach importance to TMT behavior integration. ② Enterprise executives should focus on critical thinking. ③ Enterprise executives should take cultivation of absorptive capacity seriously and give full play to the intermediary effect of absorptive capacity. Research model provides a new path to build sustainable competitive advantage, and can be applied to enhance enterprises sustainable competitive advantage from the perspective of TMT behavioral integration.

The interactive effect of innovation capability and potential absorptive capacity on innovation performance

The current ecosystem of organisations has generated a high degree of competition amongst business actors, requiring them to develop a range of business management strategies to enhance competitiveness and sustainability. This study examined the interactive effects of innovation capability and potential absorptive capacity on a firm's innovation performance. An empirical analysis was conducted on a sample of 238 firms in cultural tourism destinations in Peru. The hypotheses were tested using the partial least squares statistical method. The results reveal the positive effect of the interaction between innovation capability and potential absorptive capacity on innovation performance. Our findings expand the theoretical background to the interactive effects of dynamic capabilities in promoting innovation, while the practical contribution will be useful in developing strategies, especially for companies located in cultural tourism destinations.

How Open Innovation Mediates Absorptive Capacity: Evidence from Japanese Firms

Except for a few studies, prior research has not investigated the contingency fit between open innovation and absorptive capacity. To study the effects of these concepts in detail, this work classifies open innovation into academic and business collaboration, while also classifying absorptive capacity into potential and realized absorptive capacity. Then, we show our hypotheses for the above four concepts. This study uses questionnaires and archival data from Japanese firms and shows that potential absorptive capacity is positively correlated with innovation performance when a firm conducts academic collaboration but that realized absorptive capacity is negatively correlated with innovation performance under the same conditions. In contrast, potential absorptive capacity is negatively correlated with innovation performance when a firm conducts business collaboration, especially with suppliers, but realized absorptive capacity is positively correlated with innovation performance under the same conditions. This study shows that the consideration of a combination of patterns among these concepts may be important for enhancing innovation performance and highlights the possibilities and limitations of these concepts.

Social capital and corporate entrepreneurship: the role of absorptive capacity in emerging markets

PurposeThis paper studies the role of inter-firm supply chain social capital and intra-firm social capital in enabling Corporate Entrepreneurship (CE), and also investigates the moderating and mediating effect of absorptive capacity.Design/methodology/approachA correlational descriptive survey research is employed for 200 firms; adopting a 13-item Likert scale obtained from Wang and Li (2016) for measuring inter-firm social capital, and an eight item Likert scale for measuring absorptive capacity. This is in addition to a nine item Likert scale obtained from De Clercq et al. (2013) to measure the intra-firm social capital, and a nine item semantic differential scale developed by Covin and Slevin (1989) for measuring the level of corporate entrepreneurship. Statistical analysis packages SPSS V.24 and AMOS V.24 were used.FindingsResults provide evidence that structural supply chain social capital has an effect on corporate entrepreneurship; mediated by potential absorptive capacity. Additionally, the effect of relational supply chain social capital on corporate entrepreneurship is fully mediated by potential absorptive capacity. Furthermore, the effect of cognitive supply chain social capital on corporate entrepreneurship is fully mediated by potential absorptive capacity. On the other hand, results show that both intra-firm social capital and realized absorptive capacity moderate the relationship between potential absorptive capacity and corporate entrepreneurship.Research limitations/implicationsThe convenience sampling technique increases the probability of selection bias. In addition, the research focused on two aspects of intra-firm social capital, namely relational and cognitive dimensions, and overlooked the structural dimension of social capital.Practical implicationsProviding managers with insights about the critical role of developing social capital among supply chain partners to facilitate the transfer and exchange of crucial knowledge necessary for product development and innovation. This is in addition to the need to capitalize on intra-collaborations and cross-functional routines to facilitate CE.Originality/valueThis study provides a required extension to the previous literature, which has not empirically modeled the role of potential absorptive capacity as means by which supply chain social capital dimensions enable CE. Also, the research identifies contingency factors that enable the effect of potential absorptive capacity on CE; namely intra-firm social capital and realized absorptive capacity.

Enhancing external knowledge search: The influence of performance measurement system design on the absorptive capacity of top management teams

External knowledge search is critical for innovation performance and centers on a firm's absorptive capacity. This study investigates whether and how two dimensions of absorptive capacity at the top management team (TMT) level, potential absorptive capacity and realized absorptive capacity, are influenced by two design choices of the performance measurement system (PMS), broad scope PMS and PMS integration, under different conditions of environmental dynamism. Based on cross-sectional survey data from firms in innovative industries, the results of our empirical study indicate that in more dynamic environments, a broader scope PMS is associated with higher potential absorptive capacity whereas higher PMS integration is associated with lower potential absorptive capacity. These associations are not observable in more stable environments. Moreover, broad scope PMS and PMS integration are both positively associated with realized absorptive capacity, independently of environmental dynamism. These findings highlight the relevance of PMS design choices for absorptive capacity, showing on the one hand the differences between the implications of broad scope PMS and those of PMS integration and, on the other hand, that the implications of PMS design choices for potential absorptive capacity (i.e. acquisition and assimilation of external knowledge) follow different patterns than the implications for realized absorptive capacity (i.e. the transformation and exploitation of such knowledge).