A basic distinction is made between adsorption and absorption. In the context of businesses, there are companies that are able to absorb developments, trends or weak signals outside and inside the organization (sponge) and those that are resistant to change (clay).
Absorptive Capacity
Absorptive capacity has been defined as "a firm's ability to recognize the value of new information, assimilate it, and apply it to commercial ends"(Bessant et al., 2009; Lockett et al., 2008; Zahra & George, 2002; Fogg, 2010). Absorptive capacity are therefore abilities of scanning, grasping and combining via different interfaces to the environment. The dynamic capabilities (Teece et al., 1997) are required for absorption in all areas of the company. The company management, the processes involved and the infrastructure must be adapted to the new requirements.
Zahra and George (2002) go on to suggest a series of indicators that can be used to evaluate each element of absorptive capacity.
Knowledge acquisition capability (the number of years of experience of the R&D department, the amount of R&D investment)
Assimilation capability (the number of cross-firm patent citations, the number of citations made in a firm’s publications to research developed in other firms)
Transformation capability (the number of new product ideas, the number of new research and development projects initiated)
Exploitation capability (the number of new product announcements, the length of product development cycle)
George and his colleagues (Zou, Ertug & George, 2018) conduct a meta-analysis of absorptive capacity and they find that: (1) Absorptive capacity is a strong predictor of innovation and knowledge transfer, and its effects on financial performance are fully mediated by innovation and knowledge transfer; (2) The firm size-absorptive capacity relationship is positive for small firms but negative for larger firms. The firm age-absorptive capacity relationship is negative for mature firms and not significant for young firms; (3) Social integration mechanisms, knowledge infrastructure, management support, and relational capability all have a positive and significant impact on the absorptive capacity-innovation relationship (whereas they do not find the breadth of external search or competitive intensity to impact that relationship). Environmental dynamism has a marginally significant negative impact on the absorptive capacity-innovation relationship; and (4) They also find that the absorptive capacity-innovation relationship is stronger when absorptive capacity is measured by surveys rather than when absorptive capacity is measured by archival proxies.
Ok, but what does that mean for a software startup?
Startups are mostly small companies, which means that finding (2) is already fulfilled. Conditions (3) and (4) are dependent variables and can be influenced by the founder teams. In particular, finding (3) is directly related to corporate culture (see our blog post). Startups must therefore create a culture of openness at an early stage, enable a high level of transparency about goals, activities and successes and actively manage relationships within the company and with stakeholders. Insight (4) can also be easily realized by regularly measuring the acquisition, assimilation, transformation, and exploitation of knowledge with surveys. The sum of these measures ultimately leads to better absorptive capacities, and this will be reflected in the financial figures at the end of the day (insight 1).
And what is StudioAlpha’s Role?
StudioAlpha produces high-growth software start-ups, just like a music producer supports bands. The accelerator production program unleashes the startups’ potential and prepares them for the upcoming funding rounds (adapted from Disciplined Entrepreneurship by Bill Aulet, 2024).
Twice a year, a demo day is held in San Francisco, where startups pitch their product-market fit to U.S.-based investors from our network (see our blog post).
After the completion of production and successful VC financing after the demo day, StudioAlpha will mentor and support the startups for as long as they need it. For this, we continue to rely on our network.
Based on our more than 20 years of experience as serial entrepreneurs, we can guide the founder teams in coaching sessions on how to acquire, assimilate, transfer and exploit knowledge.
Our worldwide, unrivaled network of entrepreneurs, investors and experts helps startups to develop their relational capacities.
Stay tuned,
Andy LinkedIn | Insta | Twitter
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List of references
Aulet, B. (2024). Disciplined Entrepreneurship Expanded and Updated: 24 Steps to a Successful Startup. Hoboken, New Jersey, Wiley.
Bessant, J, Tsekouras, G & Rush, H. (2009). Getting the tail to wag - developing innovation capability in SMEs, 10th International CINet Conference: Enhancing the Innovation Environment, Brisbane, Australia, 6-8 September.
Fogg, H. (2010): Tracing the links between Absorptive Capacity, University Knowledge Exchange and Competitive Advantage in SMEs, ISBE Conference 2010, London.
Lockett N., Kerr R. & Robinson S. (2008). Multiple Perspectives on the Challenges for Knowledge Transfer between Higher Education Institutions and Industry. International Small Business Journal. Vol. 26, Issue 6; p.661.
Teece, D., Pisano, G. & Shuen, A. (1997). Dynamic capabilities and strategic management. Strategic Management Journal, 18, 504-534.
Zahra, S. A. & George, G. (2002). Absorptive Capacity: A Review, Reconceptualization, and Extension. Academy of Management Review Vol. 27, No. 2, 185-203.
Zou, T., Ertug, G. & George, G. (2018). The capacity to innovate: a meta-analysis of absorptive capacity. Innovation: Organization & Management. Vol. 20, Issue 2, p. 87 – 121.