An important element of a company’s innovation strategy is the acquisition of know-how-for future innovation. Absorptive capacity has been defined as a firm’s ability to recognise the value of new external knowledge, assimilate it and apply it to commercial ends (Cohen and Levinthal, 1990). Conceptually, it is similar to information processing theory, but at the firm level rather than the individual level.The concept is important as it indicates a firm capacity to innovate. It has been said that in order to be innovative an organization should develop its absorptive capacity (Cohen and Levinthal). Zahra and George (2002) extended the theory by specifying four distinct dimensions to absorptive capacity: acquisition, assimilation, transformation and exploitation.
In the context of Africa
(This section is Reproduced from by kind permission from Innovation and the Development Agenda: An OECD Innovation Strategy: Edited by Erika Kraemer-Mbula and Watu Wamae)
The ability to absorb existing knowledge has complex facets and the underlying dynamics are not well understood, particularly in policy interventions in Sub-Saharan Africa (Wamae, 2006, 2007).
However, authors commonly agree that absorptive capacity is critical for access to and use of existing knowledge. It is argued that it is important for developing countries to build their absorptive capacities by focusing on exploiting existing knowledge. The rationale behind this proposition is closely linked to that underlying incremental innovation.
Incremental innovations provide opportunities for extending and deepening technological learning. Technological learning contributes to the development of competences that are fundamental for developing the ability to use knowledge (absorptive capacity) that exists but is new to the context. This capacity can provide the basis for engaging not only in replication but also in innovations that are new to the world. For this to occur, it is crucial to have a clear understanding of the distinction between capabilities that are required for operating production systems and those that are capable of changing production systems (Bell, 2007; Wamae, 2007).
The latter capabilities are critical for providing solutions to local challenges by converting knowledge to value. Increasingly, this includes finding new uses for emerging technologies such as information and communication technologies. An example is provided by the mobile telephone money transfer innovation (M-PESA), which offers low-income earners a secure and rapid solution (Hughes and Lonie, (2007).
The creation of the capabilities required to convert knowledge to value largely depends on deliberate efforts, involving substantial cost, to provide opportunities for technological learning. These opportunities provide a milieu for engaging in “innovative technology-developing tasks” (Wamae, 2009, p. 203). Most Sub-Saharan African countries attach little importance to this form of capabilities. Efforts aimed at knowledge generation tend to focus on public research institutes, and in particular on science and technology rather than on innovation or the general application and commercialisation of science and technology outputs. By and large, efforts to exploit the backlog of existing knowledge offer limited opportunities to acquire the capabilities required for converting knowledge to value.
The development of an absorptive capacity that focuses on operating or production capabilities and pays no attention to capabilities for transforming knowledge into new configurations is unlikely to contribute effectively to the innovation for development agenda in Sub-Saharan Africa. There is no evidence in any regions of the world to suggest that is possible to embark on a successful path of innovation for development without intervening directly in extending and deepening technological learning (Wamae, 2006). R&D that focuses on development rather than on research plays an important role in strengthening the ability to improve processes and products. It is also important for extending and deepening technological learning, which is necessary for resolving context specific problems.
Ely and Bell (2007, p. 24) provide a clear statement on this point; “But in most … developing countries this approach has been much more idiosyncratic and intermittent, and rarely the subject of explicit policy initiatives. The development of a dynamic and creative engagement with technology has more commonly been left to emerge slowly, sparsely and sporadically, and the two dimensions of innovation centred interaction with imported technology have not been pursued aggressively with active support from policy – neither (i) using the process of importing technology as an important vehicle for strengthening innovation capabilities, nor (ii) ensuring that continuing innovation is the central feature of using what was earlier imported.”