Absorptive capacity for radical innovation: A case study in the semiconductor industry

Absorptive capacity is one of the most important constructs to emerge in organizational research in recent decades for gaining insight into the link between knowledge and innovation. In 1989, Cohen and Levinthal analyzed the role of R&D in this context and distinguished “information generation” and the “ability to assimilate and exploit existing information” for innovation purposes. They proposed a model of this second, less recognized capacity. They define Absorptive Capacity (AC) as the organizational capability to organize value and assimilate external knowledge in order to increase firm innovativeness. They assume that AC is a dynamic capability that depends on prior related knowledge in the form and combines value recognition of the missing knowledge, its assimilation and application. Generally speaking, absorptive capacity literature focused on the capacity to make use of existing knowledge, placing emphasis on the capacity to assimilate and transform it and the necessity for a firm to accept external knowledge as a legitimate resource for innovation. However, only limited investigations have been done on absorptive capacity with respect to radical innovation. In the case of radical innovation, one notion of the "absorptive capacity" model becomes critical, namely "value recognition": how to recognize value when it is not linked to past products and competences? How can a company identify the knowledge it needs for radical innovation? Moreover how to identify the relevant knowledge producers for this missing knowledge? In fact, the respective literatures on AC and radical innovation seem to lead to a paradox: on the one hand radical innovation would require more external knowledge and hence more absorptive capacity; but on the other hand radical innovation requires to break design rules and breaks in "prior related knowledge" that could impede breakthroughs, so that if one considers, as do Cohen and Levinthal, that AC is la- - rgely a function of the firm\´s level of prior related knowledge, then radical innovation should decrease AC. Hence our research question: what kind of Absorptive Capacity can support Radical Innovation? We begin by a literature review which leads to clarify three specifications that an AC for radical innovation should meet: the ability to help to overcome fixation effect of knowledge, the ability to identify multiple research spaces through generative metaphors, the ability to help to create new knowledge to explore original frames of the innovation issue. We next detail our methodological approach to discover and analyze the new type of AC that can support radical innovation. We then present the results of our analysis, describing three facets of a new type of absorptive capacity: desorptive capacity, hook building and milieu stimulation. We show that this new type of AC, that we call conceptual absorptive capacity, explains successful Radical Innovation, is complementary with the classical AC, which we label epistemic AC, and tends to reshape organizations, mental models and strategy.