Microfoundations of Internal and External Absorptive Capacity Routines

OrganizationScienceVol. 22, No. 1, January–February 2011, pp. 81–98issn 1047-7039 !eissn 1526-5455 !11 !2201 !0081

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doi 10.1287/orsc.1100.0525©2011 INFORMS

Microfoundations of Internal and ExternalAbsorptive Capacity Routines

Arie Y. LewinThe Fuqua School of Business, Duke University, Durham, North Carolina 27708,

[email protected]

Silvia MassiniManchester Institute of Innovation Research, Manchester Business School, University of Manchester,

Manchester M15 6PB, United Kingdom, [email protected]

Carine PeetersEuropean Center for Advanced Research in Economics and Statistics and Centre Emile Bernheim,

Solvay Brussels School of Economics and Management, Université libre de Bruxelles, B-1050 Brussels, Belgium,[email protected]

The 20 years following the introduction of the seminal construct of absorptive capacity (AC) by Cohen and Levinthal(Cohen, W. M., D. A. Levinthal. 1989. Innovation and learning: The two faces of R&D. Econom. J. 99(397) 569–596;

Cohen, W. M., D. A. Levinthal. 1990. Absorptive capacity: A new perspective on learning and innovation. Admin. Sci.Quart. 35(1) 128–152) have seen the proliferation of a vast literature citing the AC construct in over 10,000 publishedpapers, chapters, and books, and interpreting it or applying it in many areas of organization science research, includingorganization theory, strategic management, and economics. However, with very few exceptions, the specific organizationalroutines and processes that constitute AC capabilities remain a black box. In this paper, we propose a routine-based modelof AC as a first step toward the operationalization of the AC construct. Our intent is to direct attention to the importanceof balancing internal knowledge creating processes with the identification, acquisition, and assimilation of new knowledgeoriginating in the external environment. We decompose the construct of AC into two components, internal and external ACcapabilities, and identify the configuration of metaroutines underlying these two components. These higher-level routinesare expressed within organizations by configurations of empirically observable practiced routines that are idiosyncratic andfirm specific. Therefore, we conceptualize metaroutines as the foundations of practiced routines. The ability of organizationsto discover and implement complementarities between AC routines may explain why some firms are successful earlyadopters and most firms are imitators. Success as an early adopter of a new management practice or an innovation isexpected to depend on the extent to which an organization evolves, adapts, and implements the configuration of its internaland external absorptive capacity routines.

Key words : absorptive capacity; routines; capabilities; microfoundations; complementarities; innovators; imitatorsHistory : Published online in Articles in Advance May 7, 2010.

IntroductionThe 20 years following the introduction of the semi-nal construct of absorptive capacity (AC) by Cohen andLevinthal (1989, 1990) have seen the proliferation of avast literature citing the AC construct in over 10,000published papers, chapters, and books, and interpretingit or applying it in many areas of organization scienceresearch, including organization theory, strategic man-agement, and economics (see, for example, Mowery andOxley 1995, Lane and Lubatkin 1998, Van den Boschet al. 1999, Lane et al. 2006). AC is the “ability ofa firm to recognize the value of new, external infor-mation, assimilate it, and apply it to commercial ends”(Cohen and Levinthal 1990, p. 128) and is attributed tomoderating or mediating a range of phenomena relatingto firm-level innovation, adaptation, and performance.Over time, AC has evolved from being a moderating

factor of firms’ ability to develop and adopt technolog-ical innovation to being an enabler of firms’ adaptationand change in general. But, although a widely used con-struct, with very few exceptions (e.g., Szulanski 1996)the specific organizational routines and processes thatconstitute AC capabilities remain a black box (e.g., Laneet al. 2001, Zahra and George 2002, Lewin and Massini2003, Todorova and Durisin 2007, see in particular Laneet al. 2006).This is perhaps because AC has acquired the charac-

teristics of an umbrella concept (Hirsh and Levin 1999,Meyer 1991). Its development and evolution over timeare consistent with the three-stage model described byHirsh and Levin (1999). In the first stage, the “emergentexcitement” follows the initial articulation by Cohen andLevinthal (1989, 1990), which attributed innovative per-formance to the firm’s absorptive capacity. The second

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Lewin, Massini, and Peeters: Microfoundations of Internal and External Absorptive Capacity Routines82 Organization Science 22(1), pp. 81–98, © 2011 INFORMS

stage, the “validity challenge,” attracts research intendedto operationalize or create direct measures of AC orin other ways empirically validate the construct. How-ever, over time the absence of direct measures leads tothe third stage, “tidying up with typologies,” which isreflected in recent publications by Zhara and George(2002), Lane et al. (2006), and Torodova and Durisin(2007). In the absence of progress on operationalizingan umbrella concept, Hirsh and Levin (1999) expectthree possible outcomes, “override challenges” (alterna-tive constructs emerge), “permanent issue” (unresolvedproblems), and “construct collapse” (usefulness of con-structs diminishes).The model of AC proposed by Zahra and George

(2002) has proved an important contribution in describ-ing AC as bundles of routines and capabilities. It focuseson adaptation of companies to new knowledge originat-ing in the external environment. However, it is silenton the processes and capabilities underlying internalknowledge combination, recombination, transformation,exploitation, and assimilation. In this paper, we advancea more proactive view of AC as a bundle of routines thatencompass the ability of companies to initiate changefrom within as well as identify and assimilate ideasfrom the external environment. In their original con-tribution, Cohen and Levinthal (1989) already empha-sized the twofold purpose of AC (in their model researchand development (R&D) investments) of generating newknowledge internally and enabling absorption of exter-nally generated knowledge. The present paper returns tothe original dual conceptualization of AC and advancesa model of AC incorporating internal and externalmetaroutines that make up an organization AC capabili-ties (i.e., their microfoundations), as well as the expres-sion of these internal and external AC metaroutines inthe form of practiced routines. In doing so, we are alsoaddressing the validity challenge of AC becoming anumbrella concept by proposing a routine-based modelof AC that in our view will advance future empiricalresearch on operationalizing the AC construct.The concept of routines has been applied in a wide

range of settings, and it has a central place in A Behav-ioral Theory of the Firm (Cyert and March 1963, Argoteand Greve 2007) and in evolutionary economics theory(Nelson and Winter 1982). In this literature stream, rou-tines are seen as the building blocks of organizationalcapabilities (Dosi et al. 2000, Winter 2003), and theirsystematic generation and modification in response topast experience and environmental changes is at the coreof firm dynamic capabilities (Teece et al. 1997, Zolloand Winter 2002). Moreover, if such capabilities are firmspecific, idiosyncratic, and/or complex and unobserv-able, they are the source of competitive advantage andmust be difficult to imitate (Nelson and Winter 1982;Barney 1991; Rifkin 2000, 2001). Prime and Butler(2001) argue that it is difficult if not impossible to test a

theory that accounts for heterogeneous performance out-comes on the basis of unobserved capabilities. Barney(2001) counters this criticism by suggesting that directmeasurement of capabilities is not necessary if the the-ory can specify the origins and consequences of capabili-ties. In this paper, we propose to overcome this challengeby advancing a model of metaroutines (Cyert and March1963, Nelson and Winter 1982, Feldman and Pentlands2003) underlying AC capabilities, i.e., higher-order rou-tines that define the purpose of AC capabilities, and dis-cussing their actual expression in the form of observableand measurable practiced routines. In the sections thatfollow, we briefly review the literature on AC and the lit-erature on organizational routines. Then, we distinguishbetween internal and external AC routines, propose ataxonomy of AC metaroutines, and illustrate the opera-tionalization of the metaroutines with examples of prac-ticed AC routines. This is followed by a more generaldiscussion of the role of AC routines and capabilities formediating innovation performance, and a summary andconclusions.

Revisiting Absorptive Capacity andOrganizational RoutinesAbsorptive CapacityThe concept of AC was first advanced by Cohen andLevinthal (1989, 1990) as the “ability of a firm to recog-nize the value of new, external information, assimilate it,and apply it to commercial ends” (1990, p. 128). Theyfurther argued that AC mediates the speed, frequency,and magnitude of innovation, and that the evolution offirms’ AC capabilities has a strong path dependency onthe prior R&D investment and knowledge base of afirm. AC and learning are often described as coevolv-ing and mutually reinforcing (Barkema and Vermeulen1998, Simonin 1999, Autio et al. 2000). AC enablesfirms to innovate and learn, and the new knowledge addsto the existing AC (Kim and Kogut 1996, Helfat 1997,Van den Bosch et al. 1999). Van den Bosch et al. (1999)further argue that the AC–learning–new AC feedbackloop suggested by Cohen and Levinthal (1990) is medi-ated by the environment in which the firm operates andhow it copes with it.Since its introduction by Cohen and Levinthal (1989,

1990), the concept of AC has been further elaborated.Zahra and George (2002) refine the concept of AC asa set of capabilities that underlie the processes identi-fied by Cohen and Levinthal (1990), from the acquisitionand assimilation to the transformation and exploitationof external knowledge. They propose that the first twodimensions make up an organization potential AC, whichis intended to capture the uncertainty associated withhow well the firm will be able to exploit the knowl-edge. The last two dimensions make up an organiza-tion realized AC. Todorova and Durisin (2007) suggest

Lewin, Massini, and Peeters: Microfoundations of Internal and External Absorptive Capacity RoutinesOrganization Science 22(1), pp. 81–98, © 2011 INFORMS 83

an elaboration of the model proposed by Zahra andGeorge (2002) by reinstating the role of recognizingthe value of external information, transformative pro-cesses, and regimes of appropriability. In addition, theyreposition the role of social integration mechanisms andpower relationships, and suggest the need for incorpo-rating feedback loops for a dynamic representation ofabsorptive capacity.Lane et al. (2006) propose a refinement to the

original Cohen and Levinthal model of AC by intro-ducing a sequential process: recognizing and under-standing potentially valuable new external knowledgethrough exploratory learning, assimilation of new knowl-edge through transformative learning, and using theassimilated knowledge to create new knowledge throughexploitative learning. These three competing elabora-tions of the AC construct clearly correspond to the “tidy-ing up with typologies” stage discussed by Hirsh andLevin (1999), and consistently emphasize the dynamicnature of AC. Interestingly, Lane et al. (2006) also rec-ognize that AC has gone through a process of reificationin the extant literature.Lane et al. (2006) identified 14 academic journals

that published five or more papers citing the Cohenand Levinthal (1990) paper between July 1991 and June2002. Of the 289 papers, surprisingly, they identifiedonly 6 papers that they considered to be most central inthe absorptive capacity literature. Of the six papers, four(Mowery et al. 1996, Dyer and Singh 1998, Koza andLewin 1998, Lane and Lubatkin 1998) address knowl-edge sharing and assimilation in interfirm relationships.One paper (Szulanski 1996) focuses on the impedimentsto the transfer of best practices within the firm. The sixthpaper (Zahra and George 2002) provides the basis forthe process model of AC proposed by Lane et al. (2006).Lane et al. (2006) highlight three major shortcomings ofthe existing literature on AC. First, few researchers haveattempted to revise the definition of AC. Second, littleattention has been given to the processes underlying AC.And third, it has almost exclusively been measured inthe context of R&D.Empirical studies make attributions to the role of

AC in innovation, firm adaptation, successful strategicalliances, and knowledge creation (e.g., Mowery et al.1996, Helfat 1997, Simonin 1999, Autio et al. 2000,Steenma and Corley 2000, Ahuja and Katila 2001, Hilland Rothaermel 2003). Lewin et al. (2008) providean overview of research that addresses the constructof AC conceptually and empirically. Following Cohenand Levinthal (1989), most empirical studies that makeattributions to the AC concept rely on an R&D indi-cator (e.g., Veugelers 1997, Rocha 1999, Stock et al.2001, Wenpin 2001), patents (cross-citations of patentsin alliances; Mowery et al. 1996), or coauthored papersas a mediating factor for connectedness between actors

(Cockburn and Henderson 1998). Although these vari-ous proxy measures of AC are only an indirect mea-sure of AC, they have been used as both dependent andexplanatory variables in empirical studies of high-techfirms and industries. The organization and processes ofR&D are very likely only one component of internal ACcapabilities for developing and adopting technologicalinnovations. In a broader sense, innovation encompassesproduct, process, organizational, and market innovations(Schumpeter 1942). If these are the object of the anal-ysis, R&D, patents, and citations only indirectly repre-sent and capture partial aspects of capabilities relatedto valuing new, external information, its assimilation,and its application to commercial ends. Another streamof empirical studies has used case studies or surveyinstruments, normally using self-reports to make attribu-tions about AC (e.g., Szulanski 1996, Lane and Lubatkin1998, Lane et al. 2001). But, similar to measures ofR&D or patents, these are not informative of organi-zational structures or specific routines or processes thatconstitute AC and distinguish between AC capabilitiesof different organizations. The empirical studies usingthe AC construct summarized by Lewin et al. (2008)treat AC as a black box or as an exogenous variable (seealso Foss and Pedersen 2002). In other words, organi-zational practices are used as outcomes or as indirectmeasures for making attributions about the AC of orga-nizations and its mediating role for innovation, change,resilience, flexibility, etc. There is a lack of direct obser-vation or measurement of the routines that make up AC,and a need for better understanding and operationaliza-tion of the AC concept (Joglekar et al. 1997, Matusikand Heeley 2001, Zahra and George 2002).Lewin and Massini (2003) represent a specific attempt

at identifying the constitutive elements of AC. Theydecompose the concept of AC into two elements: inter-nal and external AC capabilities. They note that theprior literature focused on the exploration of knowledgein the external environment and its assimilation whileneglecting the role of internal exploration of knowledge(new knowledge creation) and its assimilation. In theirconceptualization, internal AC capabilities refer to man-aging the processes of internal variation, selection, andreplication (VSR) described in evolutionary economics(Nelson and Winter 1982). External AC subsumes themanagement of exploration for new knowledge in theexternal environment and its assimilation. In this paper,we build on and extend the Lewin and Massini (2003)framework to identify the microfoundations of absorp-tive capacity in the form of a metaroutine taxonomyunderlying absorptive capacity and their expression inorganizations in the form of practiced routines. Theseare discussed in the section following the brief reviewof research on organizational routines below.


Organizational RoutinesThe concept of routines (e.g., decision rules, standardoperating programs, procedures, norms, habits, etc.) hasbeen advanced and applied in a wide range of theo-ries and settings from problem-solving routines (Simon1947, Simon et al. 1950, March and Simon 1958), to thebehavioral theory of the firm (Cyert and March 1963), todynamic capabilities (Teece et al. 1997), and in organi-zation sociology, perhaps beginning with Weber (1978).Routines consist of rules, heuristics, and norms that areoperationalized at different levels of organization activ-ities and processes, and although managerial practicesmay be seen as routines, the two concepts are not equiv-alent because not all routines become standard oper-ating practices. Routines vary from simple rules suchas local problemistic search (Cyert and March 1963)and day-to-day standard operating procedures, to higher-level routines or metaroutines that regulate changes inlower-level routines, adaptive tension, rates of innovationand change, and the interaction with the external socio-political and economic environment (e.g., Nelson andWinter 1982, Adler et al. 1999). In essence, in evolution-ary theory, metaroutines are higher-level routines that areassociated with a bundle of specific operational lower-level routines or standard operating procedures (prac-ticed routines) that express these metaroutines.Zollo and Winter (2002) distinguish search routines

that refer to how firms cope with innovation, adapta-tion, and change (Nelson and Winter 1982). Routines,therefore, are at the core of evolutionary economics the-ory (Nelson and Winter 1982) because they relate tounderstanding firm adaptation, innovation, and changeunder constraints of bounded rationality. They can referto behavioral regularities (Winter 1964, Gersick andHackman 1990, Dosi et al. 2000), a collective phe-nomenon that resides in organization (Nelson and Winter1982; Dosi et al. 2000, 2008), and to the execution ofknown rules and standard operating procedures (Marchand Simon 1958, Cyert and March 1963, Cohen 1991).Routines constitute the building blocks of organiza-tional capabilities (Dosi et al. 2000, Winter 2003) andevolve over time as a result of problemistic search,organizational learning, and past selection and retentionprocesses (Gavetti and Levinthal 2000, Greve 2003).New superior routines, capabilities, and new knowledgeemerge through a dynamic interaction of internal andexternal variation, selection, and replication processesinvolving knowledge creation and change over time.Successful maintenance of a skill or routine requires fre-quent exercise (Winter 2003) and the evolution of rou-tines is path dependent. Performance feedback is alsoassumed to be a key process in the adaptation of rou-tines or learning new routines over time (Nelson andWinter 1982, Levitt and March 1988, Teece et al. 1997).Evolutionary economics (e.g., Nelson and Winter 1982)theorizes that, in response to performance crisis, firms

seek to introduce changes in their routines, either bydeveloping better or improved routines, or by comparingthe effectiveness and efficiency of their internal rou-tines to the effectiveness of similar routines of com-petitors. When competitors are found to execute moreeffective routines, the negative comparison triggers inter-nal change processes to improve the relevant internalroutines through imitation of the superior routine (Cyertand March 1963). Zollo and Winter (2002) view this sys-tematic generation and modification of operational rou-tines as the fundamental mechanism underlying firms’dynamic capabilities for improving organizational effec-tiveness. Several theoretical formulations attribute aboveaverage or exceptional firm performance relative to otherfirms in the population to superior internal hierarchy ofroutines (Nelson and Winter 1982, Lewin and Massini2003, Greve et al. 2004).The extant literature has highlighted several charac-

teristics that define routines (see Becker 2004 for anextensive review). Routines are recurrent and a sourceof stability and continuity in organizations (e.g., Nelson1994, Amit and Belcourt 1999, Coombs and Metcalfe2000). They are context specific and embedded in anorganization (e.g., Lippman and Rumelt 1982, Nelson1994, Winter and Szulanski 2001). Routines also serveto coordinate the actions of multiple organizationalunits or actions by individuals (e.g., Nelson and Winter1982, March and Olsen 1989, Gersick and Hackman1990, Dosi et al. 2000). Routines speed up and sim-plify recurrent information processing tasks and decisionmaking, and thereby enable recognition of nonroutineevents (e.g., Cyert and March 1963, March and Shapira1987, Reason 1990, Postrel and Rumelt 1992). Rou-tines mediate uncertainty by increasing predictability,and hence freeing limited cognitive resources (Hodgson1988, North 1990, Baumol 2002). Routines can, there-fore, enable both stability and adaptation (see, e.g.,Feldman 2000, Feldman and Rafaeli 2002, Feldman andPentland 2003). Routines also constitute a form of “orga-nizational memory,” because they contribute to build-ing the stock of knowledge in an organization, and tacitknowledge in particular (e.g., Nelson and Winter 1982,Teece and Pisano 1994, Winter 1994, Teece et al. 1997,Knott 2003).An unresolved debate on routines concerns the con-

sciousness with which actors follow routines (Becker2004). Some authors argue that routines are used andapplied automatically (e.g., Weiss and Ilgen 1985,Gersick and Hackman 1990, Cohen 1991, Louis andSutton 1991, Kilduff 1992, Postrel and Rumelt 1992,Nelson 1995, Dosi et al. 2000) as they constitute inher-itable genetic material in organizations (Nelson andWinter 1982). Others believe that routines are not mind-less, are constantly modified to respond to unexpectedchanges in contexts, which imply some cognitive pro-cesses in applying them (e.g., March and Simon 1958;


Figure 1 Internal and External AC Metaroutines

Internal AC metaroutines for:Facilitating variation

Internal selection regimes

Sharing knowledge and superior practices across the organization

Reflection, updating, and replication

Soc

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ues,

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and

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External AC metaroutines for:

Identifying and recognizing value of externally generated knowledge

Learning from and with partners, suppliers, customers, competitors, and consultants

Managing adaptivetension

Transferring knowledgeback to the organization

Pentland and Rueter 1994; Pentland 1995; Costello2000; Perren and Grant 2000; Feldman 2000, 2003;Feldman and Pentland 2003). More recently, Levinthaland Rerup (2006) elaborated on mindful and less mind-ful behavior in organizations and posited that routine-and rule-based behavior, although based on the absenceor reduction of active thinking (Cohen et al. 2002),does not imply lack of appropriateness (March 1994).Whether routines are applied instinctively or requirecognitive processes, the execution of practiced rou-tines does not assume or require understanding of theknowledge basis of the routine or rationale for it.Moreover, execution at the level of the role occupantdoes not exclude further local variation or interpreta-tion and adaptation at the individual level (March andSimon 1958).Despite this considerable conceptual literature, re-

search on routines is hampered by a lack of empiricalmeasurement necessary for any validation of the theoret-ical construct. This poses a challenging task for study-ing routines empirically (Becker 2005, Becker et al.2005), in particular those routines that underlie absorp-tive capacity, because of its inherent intangibility. Thegoal of this paper is to advance a conceptualization ofAC as configuration of internal and external routines bydistinguishing between metaroutines and practiced rou-tines as a step toward operationalizing and measuringAC routines within organizations.

Toward a Routine-Based Model ofAbsorptive CapacityThe conceptualization of AC as constituted by routinesaims at overcoming some limitations of the extant liter-ature, which tends to focus on indirect proxy measuresof AC, e.g., R&D expenditures, patents, and patent cita-tions. These are also limited to industries where formal

R&D processes are common, and where the outcomesof such processes can be protected by patents, i.e., tech-nological innovations. Another limitation of the extantliterature and research on AC is that it overlooks theinternal dimension of AC as enabling companies to initi-ate change from within. Building on Lewin and Massini(2003), we therefore decompose the construct of AC intotwo components, internal1 and external AC capabilities,and identify the configuration of metaroutines underly-ing these two components (see Figure 1).In this paper, we apply the concept of metaroutines

(Nelson and Winter 1982, Feldman and Pentland 2003)to propose a taxonomy of metaroutines underlying theinternal and external dimensions of AC, building onand extending the categorization proposed by Lewin andMassini (2003). More specifically, we refer to metarou-tines as higher-level routines that define the general,abstract purpose of routines and that are expressed bypracticed routines, which are firm specific, idiosyncratic,and observable. Therefore, metaroutines represent theconceptual foundation that gives rise to observable andexecutable AC-practiced routines within organizations.Internal AC metaroutines involve the regulation of activ-ities related to managing internal VSR processes. Theyinclude contextual organization-specific routines (formaland informal) for facilitating variation and enablingthe emergence of new ideas within organizations, forselecting ideas for further development (design of selec-tion regime), for sharing and combining knowledge andsuperior practices across the organization, and routinesfor reflecting on, updating, and replacing old practices.External AC metaroutines follow the tradition of extantmodels of AC, and Zahra and George (2002) in par-ticular, which focus on the acquisition and utilizationof knowledge from the external environment but over-look the role of AC for generating new knowledge inter-nally. The external AC metaroutines include routines for


identifying external knowledge and routines for learn-ing from and with external organizations. Our taxonomyfurther includes two metaroutines that lie at the inter-face between internal and external dimensions of AC.On the one hand, the management of adaptive tensiondetermines the strategic urgency or impetus for stim-ulating exploration of internal innovations products orprocesses and for exploring new ideas and good prac-tices in the external environment of the organization. Onthe other hand, the assimilation of externally acquiredknowledge requires routines for transferring the knowl-edge back to the organization. We do not, however, makestrict assumptions on whether external knowledge needsto be transformed to enhance the organization knowl-edge base.Finally, sociocultural values, norms, and mechanisms

extend the social integration mechanisms proposed byZhara and George (2002) and Todorova and Durisin(2007) as moderators of AC capabilities, to encompassmore broadly the role of socially enabling mechanismsthat facilitate variation and influence the direction andorganizational configuration of knowledge generationand assimilation processes in an organization (e.g.,Tushman and O’Reilly 1997, Chatman and Cha 2003).Socially enabling mechanisms refer to the shared val-ues, norms, and other social mechanisms that buildthe necessary connectedness (Tsai and Ghoshal 1998,Jansen et al. 2005) between people of an organizationfor them to develop knowledge together or share andintegrate knowledge (Jaworski and Kohli 1993) com-ing from different parts of the organization or from theexternal environment. In line with Todorova and Durisin(2007), who argue that social integration mechanismsimpact all aspects of AC, socially enabling mechanismsin the present model transcend internal and external ACmetaroutines. Although some of these values and normsmay be formalized and explicitly practiced by the mem-bers of an organization, many of them influence individ-ual behaviors in a very tacit, informal, and subtle way.As such, they are not easily observable and imitable, andhence play an important role in enabling firms to achieveabove average innovation and adaptation performance,and maintain them over time. The well-known cases ofToyota and 3M constitute examples of companies whosevalues and norms support the development of particu-larly effective AC capabilities that have been difficult toimitate by other companies and have resulted in excep-tional innovation performance. Another example is theshared belief at Intel regarding the boundaries definingthe PC ecology, which, although not formalized, definedwhat projects would be selected for funding and furtherdevelopment (Burgelman 2002).We undertook an extensive review of the empirical

and conceptual literature on AC (Lewin et al. 2008)to evaluate the proposed AC metaroutines model by

mapping routines and practices described in case stud-ies and empirical and conceptual studies involving ACcapabilities (e.g., Zhara and George 2002, Jansen et al.2005, Lane et al. 2006, Torodova and Durisin 2007,Petersen et al. 2008) against the proposed internal andexternal AC metaroutines that constitute our model. Weconcluded that our proposed taxonomy is robust andcomprehensive, and that it includes all conceptual andoperational elements as discussed in the extant litera-ture. However, this does not imply that organizationsadopt or must adopt the entire configuration of AC rou-tines. Although this may have consequences for innova-tion performance by not realizing the full potential fromexploiting the complementarities between metaroutines,we expect that any one organization may only adoptsome elements of the proposed AC configuration. Theimplications of adopting different configurations of ACroutines, and why some combinations of metaroutinesare superior to others, are considered in the discussionsection following the description of practiced routines,and are proposed as a venue for future research.

Practiced Routines as an Expression ofMetaroutinesIn our model, metaroutines are the theoretical micro-foundations of AC, which are then expressed in variousorganizations in different or similar ways, and in dif-ferent combinations, as actual practiced routines. Prac-ticed routines take the form of rules, procedures, norms,or habits that are contextual and idiosyncratic to eachorganization. They embody codified as well as tacitknowledge, and their knowledge basis is assumed toevolve through many different mechanisms and pro-cesses including problemistic search, trial and error,improvisation, learning by doing, directed search, for-mal reflection and adaptation, and variation and selec-tion processes (e.g., Weiss and Ilgen 1985, Gersick andHackman 1990, Cohen 1991, Louis and Sutton 1991,Kilduff 1992, Postrel and Rumelt 1992, Nelson 1995,Dosi et al. 2000, Zollo and Winter 2002). Becausepracticed routines can be organizationally idiosyncratic,highly contextual, and tacit, they may not coincide withwidely accepted and standardized managerial practices.In this section, we elaborate the logic of each metarou-tine and provide examples of associated practiced rou-tines. The examples of practiced routines provided inTables 1 and 2 vary along many dimensions, fromtacit norms to explicit rules, programs, or even man-agerial practices, but, although seemingly unrelated insome cases, they share a common purpose underlyingthe corresponding metaroutine. The variety of examplesof practiced routines observed in the literature and inour own case research actually reflects the high vari-ety of how organizations can achieve the purpose ofthe metaroutines. In other words, although the prac-ticed routines are highly idiosyncratic, the taxonomy of


Table 1 Examples of Internal AC-Practiced Routines

Meta AC routines Examples of internal AC-practiced routines

Facilitating variation • Solicitation of scientists and engineers to propose and pursue innovative ideas (15%time unaccounted for at 3M, Inside Out initiative at Analog Devices, NontraditionalInnovations at Baxter International, Research Exploratory Program at IBM, 30 start-upteams selected annually at Hewlett-Packard, rotating council of peers to selectexploratory projects at Xerox)

• Open office plan chosen to foster informal interactions (IDEO)• Technology Forum and Technical Council (3M)• Brainstorming sessions organized to bring together persons with different technical or

market knowledge (IDEO)

Managing internal selection regimes • Shared sense of PC ecology boundaries to determine projects to be funded (Intel)• Seeking market signals (“make a little sell a little”; 3M)• Development of prototypes that perform at least as well as what is available on the

market (IDEO)• Autonomy of middle management to support and allocate resources to projects outside

CEO’s vision (Rotemberg and Saloner 2000)

Sharing knowledge and superior practicesacross the organization

• Central provision of information on value of specific new practices and on theirimplementation: brochures, liaisons between corporate groups, BU, and facilities(Lenox and King, 2004), and company-wide e-mails and newsletters (Emerson)

• IT-based knowledge codification system to store and manage knowledge, and retrieveit for future needs (3M)

• Visit of other company’s divisions (Jansen et al. 2005)• Cross-functional project teams (Freeman 1987)

Reflecting, updating, and replicating • Problemistic and local search (Cyert and March 1953)• Learning from good and bad experience (Banc One)• Learning from managing alliances (Zollo and Winter 2002)• Learning programs (in-house and external training) to increase the knowledge base of

the company (Daghfous 2004, Minbaeva et al. 2003)• “Copy exact” principle to leverage optimization of processes across units (Szulanski

2000; Intel)

Managing adaptive tension • Internal rate of change greater than external rate of change (GE)• One and two comparison benchmark (GE)/Comparison to industry best in class as

opposed to industry average (Massini et al. 2005)• Stretch goals—Big Hairy Audacious Goals (Collins and Porras 1997)

AC metaroutines we propose can be generalized acrossfirms. Moreover, because of complementarities that maynot exist in certain organizations, because of learningeffects and because of the heterogeneity between indi-vidual members of organizations, practiced routines varyin terms of both predictability of outcome and effective-ness for developing AC, and so it may not be possible topredict the exact performance outcomes of similar indi-vidual practiced routines implemented in different orga-nizations.Feldman and Pentland (2003) and Pentland and

Feldman (2005) refer to the ostensive and performativelevels to indicate, respectively, the abstract and narrativeaspect of routines and the specific actions of routines,which are context specific and specific to the people whoexecute them. They note that the two levels do not neces-sarily coincide. This distinction reveals some similaritieswith our notion of metaroutines and practiced routines inthe sense that metaroutines are theoretical and abstractcomponents of AC capabilities, and practiced routinesare their expression within organization. However, weposit that there is not a direct correspondence between

metaroutines and practiced routines, because practicedroutines may correspond to multiple purposes defined bydifferent metaroutines. This aspect is developed furtherin the discussion section.

Internal Absorptive Capacity RoutinesInternal absorptive capacity routines relate to themetaroutines underlying the management of varia-tion, selection, and replication activities and processes(Nelson and Winter 1982). Table 1 presents examples ofinternal AC-practiced routines. It does not intend to beexhaustive, but rather to illustrate how metaroutines canbe expressed in organizations in many different ways, asAC-practiced routines. The examples come from extantliterature on AC and the management of innovation, aswell as from our own case research.

Facilitating Variation. Facilitating variation requiresvarious processes and norms that facilitate the emer-gence as well as the exploration of new ideas at differentlevels of the organization. The 3M Company case pro-vides some insights into rules and norms conducive to


the emergence of new ideas. The company has a pol-icy that 15% of employees’ time remains unaccountedfor. Employees are encouraged to use this “free” time topursue individual projects of their choice without hav-ing to disclose or justify the project to their manager(at Google, engineers devote 20% of their time to per-sonal projects). This policy aims at fostering experimen-tation with new ideas, products, and technologies thatcould become commercially successful in the future. Inaddition to creating free time for employees to explorenew ideas, employees can be granted up to $50,000 ofseed capital to develop their new product ideas with thehelp of a venture team that they recruit.The combination and recombination of existing knowl-

edge is another source of new ideas. Combinative capa-bility is the ability to synthesize and apply current andnew knowledge (Kogut and Zander 1992). It is similar tothe “integration” concept in Grant (1996) and the “con-figuration” concept in Henderson and Clark (1990). 3Magain provides a good example of facilitating combina-tive capability. The Technology Forum is a loosely orga-nized professional network of scientists and engineers at3M. The objective is to encourage knowledge sharinginside the company to eventually lead to cross-businessinnovations. 3M complements the Technology Forumby a Technical Council, where scientists from differentunits meet periodically to discuss and share informationrelated to different technology projects. Analog Devices,Baxter International, IBM, Hewlett-Packard, and Xeroxall share variations on the idea of soliciting engineersand scientists to propose ideas that represent significantexploration challenges, but that involve combination andrecombination of external and internal knowledge.

Internal Selection Regimes. The utilization of newknowledge depends on the processes firms put in placeto select the various projects and activities to investin and to determine how to allocate resources amongthem. These mechanisms for managing internal diversity(Jacoby 2004) are referred to as the “internal selectionregimes.” In some cases, firms may develop resourceallocation processes that encourage investments in non-mainstream activities, but in other cases, overreliance onfinancial reviews may limit investments in explorationefforts, and hence limit the likelihood of firms experi-menting with new options (Cooper et al. 2001). 3M, forinstance, has a rather unique approach to project selec-tion (tracing back to the founding events of the com-pany) that ensures that projects will not be terminatedas long as a positive signal is coming from the mar-ket. This norm, known as “make a little sell a little,”reflects 3M’s belief in seeking, whenever possible, mar-ket signals for guiding decisions to continue with a newproduct or technology, enter a new market, or terminatea project.IDEO (Sutton and Hargadon 1996, Hargadon and

Sutton 1997) offers an example of a more formal routine

involving a simple rule defining the minimum require-ment for a project to be allowed to move from the proto-type stage to the next development phase. The first stepsof any new product development project at IDEO aretargeted at the development of a prototype that must per-form at least as well as what is available in the market,which constitutes a criterion for a “go/no go” decision.

Sharing Knowledge and Superior Practices Across theOrganization. There are a myriad of ways by whichorganizations transmit and share information: compa-nywide meetings, workshops, individualized seminars,brochures, and other print materials distributed acrossthe organization, formal and informal liaison structures,and processes between corporate groups, business units(BUs), and facilities. Establishing face-to-face interac-tions has been shown to be instrumental for building andmaintaining effective social innovation networks, whichin turn generate trust, respect, and commitment nec-essary for continuing interaction and knowledge shar-ing, even in globally dispersed organizations (Orlikowski2000). Lenox and King (2004) show that launchinginternal programs aimed at distributing information onthe value of new practices and on how to implementthem can play an important role in developing absorptivecapacity for fostering the adoption of these new prac-tices. Furthermore, the literature on innovation and tech-nology management (e.g., Rosenberg 1978, Wheelwrightand Clark 1982, Freeman 1987, Song et al. 1997) haslong emphasized the benefits of cross-functional teamsto facilitate knowledge and information sharing in theinnovation process.

Reflecting, Updating, and Replicating. The learningliterature suggests that reflecting on and updating prod-ucts, technologies, and processes occurs as the result ofproblemistic search processes (Cyert and March 1963),in the process of learning by doing (Arrow 1962,Rosenberg 1978, Epple et al. 1991, Argote et al. 2003),through processes of codification of knowledge and pastexperience (Levitt and March 1988), retrospective sensemaking (Weick 1995), or the imitation of competitors’superior practices (Szulanski 1996; Rivkin 2000, 2001).In contrast to bottom-up, random, or informal learningprocesses, reflection routines (Zollo and Winter 2002)are intended to enable firms to formally update theircapabilities at specified intervals or as an integral stepin a process. Szulanski (2000) describes the mergerand acquisition conversion process at Banc One, whichinvolved formal expectations that during the process,problems become key checkpoints and then transformedinto specific tasks for updating the bank conversionprocess.Adopting superior routines may require replicating

practices and processes successfully implemented inother departments or BUs of an organization. At GE


for instance, Jack Welsh introduced the idea of “steal-ing and sharing” (Kerr 2000). Managing the process of“stealing and sharing,” including the process of declar-ing an idea or practice as “best in class,” became a for-mal responsibility of the chief learning officer at GEwho was responsible first for assessing the importanceand relevance of an idea and subsequently, if it wasdeemed “best in class,” for disseminating it throughoutGE. But Szulanski and Winter (2002) find that transfer-ring knowledge and replicating best practices within acompany is a challenging task that, because of informa-tion stickiness (von Hippel 1994), often results in failurewhen the receiving unit tries to apply the transferredknowledge. The argument is that most firms fail in tryingto replicate a best practice from another part of the orga-nization because they do not have a good understand-ing of what made it work the first time. To overcomethis challenge, Szulanski and Winter (2002) introducedthe principle of “copy exact,” meaning that companiesshould start by exactly replicating all routines underly-ing the best practice being transferred, and only after thepractice has shown satisfactory results should they workon improvements and adaptations. This practice is used,for example, by Intel to transfer across plants an opti-mized manufacturing process that has been implementedin one particular plant (Burgelman 2002).

Managing Adaptive Tension. Because managingadaptive tension involves some form of comparison tothe external environment (e.g., selecting a comparisongroup and placing some weight on the value of exter-nal information), this metaroutine lies at the interfacebetween internal and external AC routines (see Figure 1and Table 1). Several theoretical formulations actuallyassume that survival in the long run requires that theorganization internal rate of change must exceed the rel-evant external rate of change in the environment (Ashby1956, Anderson 1999, Lewin and Volberda 1999). Thissuggests that organizations require some stimuli or rou-tines for managing adaptive tension (creating goals andexpectations that stimulate change).Massini et al. (2005) show that the choice of a

comparison group can be very influential in mediat-ing the adaptive tension of a firm (rate and aspirationfor change). A firm can become self-referential if itdoes not compare itself to a reference group. Ceterisparibus, selecting the average of the population as acomparison group is expected to mediate organizationchange at a rate that tracks the population average rateof change (Lewin and Massini 2003). But managersmay also manage adaptive tension by imposing stretchgoals, which are intended to drive the internal rate ofchange, for example, by specifying the criteria for select-ing the reference group or by specifying a specific subsetof the population such as the most innovative compa-nies (Massini et al. 2005). Collins and Porras (1997)

describe the role of “Big Hairy Audacious Goals” tocreate energy and drive change. An example of a com-pany guideline that drives the internal rate of changecomes from Jack Welsh’s insistence that GE’s rate ofchange should exceed the rate of change in its externalenvironment. However, it was not clear how managerswere expected to comply with this rule. When combinedwith Mr. Welch’s early dictum that GE divisions mustbecome Number 1 or 2 in their sector, the imposed com-parison benchmark served to create the adaptive tensionthat mediated the rate and level of change.

External Absorptive Capacity RoutinesThe importance of the external environment for a firminnovation process is a major element of the fifth-genera-tion model of innovation proposed by Rothwell (1992)and the more recent open innovation model proposed byChesbrough (2003). Earlier conceptual research on AChas focused on the role of exploring and appropriatingnew knowledge generated in the firm external environ-ment (e.g., Zahra and George 2002). Table 2 presentsexamples of AC-practiced routines that are intended tofacilitate exploration of the external environment and tofeed the innovation and adaptation process of the orga-nization. They encompass both routines to identify andrecognize the value of new and existing knowledge inthe environment, and routines to learn from and cogen-erate new knowledge with external organizations.

Identifying and Recognizing the Value of ExternallyGenerated Knowledge. The necessity of developing ACcapabilities for identifying and recognizing the value ofexternal knowledge was noted by Cohen and Levinthal(1990), who suggested that companies have formal orinformal gatekeepers who monitor the environment. Thecentral role of these gatekeepers or boundary span-ners who serve as the interface between an organizationand its external environment was underlined by Allen(1977) and Tushman (1977). Gatekeeping is of partic-ular importance when the external information is notdirectly related to core activities of the organization andrequires contextual interpretation to be considered usefulby other members of the organization. Along the samelines, Brown and Eisenhardt (1998) introduced the con-cept of “probing” developments in the future with a widerange of low-cost probes across multiple time horizons.It is a form of constant monitoring of the external envi-ronment but with thin attention and with direct implica-tions for action (if a certain development is identified,then a program of actions is initiated). For example,Amgen used a probing strategy to explore on a con-tinuing basis when a certain process breakthrough wasdiscovered that was crucial to moving forward in stemcell therapy.


Table 2 Examples of External AC-Practiced Routines

Meta AC routines Examples of external AC-practiced routines

Identifying and recognizing valueof externally generatedknowledge

• Gatekeepers (Cohen and Levinthal 1990)• Probing (Brown and Eisenhardt 1998)• Mining patent literature (Cohen et al. 2002) and industry trade magazines (IDEO)• Market research, end user surveys, informal interactions with industry actors (Kohli et al. 1993)

Learning from and with partners,suppliers, customers,competitors, and consultants

• Codevelopment relationships (Dyer and Singh 1998, Koza and Lewin 1998)• Collaborating with “lead users” (von Hippel 1984, 1986)• Collaborating with suppliers (Cisco)• R&D partnerships (Tether 2002)• Networking with outside organizations, universities, and research institutions in particular (Koch

and Strotmann 2008)• Unfiltered information from key clients to CEO (Cisco)• Open source (e.g., innocentive.com)• Occupying leadership roles in standard setting industry organizations (Rosenkopf et al. 2001)

Transferring knowledge back tothe organization

• Sharing within company knowledge acquired in interfirm relations (Rosenkopf et al. 2001)• Pacing the partner (Koza and Lewin 1998)

Learning from and with Partners, Suppliers, Cus-tomers, Competitors, and Consultants. Companies havebeen increasingly interacting with outside organizationsto learn from them or cogenerate knowledge (Rothwell1992, Chesbrough 2003). As emphasized by von Hippel(1984, 1986), companies may identify lead users of anew technology and involve them very early on in itsdevelopment process. A recent trend in that area involvesopening up firms’ innovation processes to external con-tributors, for instance, by posting innovation challengeson the Web like at innocentive.com or by adopting opensource software. More generally, close collaborations forthe development of new knowledge and new technolo-gies, often referred to as R&D partnerships (Sakakibara2003, Belderbos et al. 2004, Negassi 2004), may belaunched with universities and other scientific institu-tions but also with customers, suppliers, and competi-tors (Tether 2002). This practice involves, at least tosome extent, a mutual access to the partners’ knowledgebases, and is therefore an effective way to access knowl-edge that resides in external organizations and that isnot publicly available. In addition to accessing knowl-edge, an R&D partnership also helps both parties inapplying new knowledge in their own contexts. Suc-cess with managing such strategic alliances is facilitatedby developing stable patterns of collaboration betweenthe two partners (Zollo et al. 2002). Cisco, for exam-ple, has implemented a Web-based system for collabo-rating with suppliers. The intensity of the collaborationand mutual obligations vary with the collaborative statusof suppliers. This is not dissimilar from the networksdeveloped by large Japanese companies, especially inthe automotive and electronics industries, which havebeen important sources of innovative ideas and products.What could be a standard relation in a supply chain maybecome a source of learning if close relationships, builton mutual trust, develop over time.

Transferring Knowledge Back to the Organization.Linking external knowledge with firms’ in-house capa-bilities is a central element of absorptive capacitythat should foster innovation in firms (Becker andPeters 2000, Palmberg 2004, Koch and Strotmann2008). Consequently, being able to transfer the exter-nal knowledge back to the organization to apply it toknowledge creation activities is an important processcentral to the effectiveness of external AC routines. Welocate this metaroutine at the interface between internaland external AC routines (see Figure 1 and Table 2).Some of the internal routines for AC may facilitate thetransfer of knowledge within the organization, regard-less of whether it is coming from outside or inside thefirm’s boundaries. However, the effectiveness of externalAC routines (described in the sections above), such asthe establishment of roles for gatekeepers and boundaryspanners or participation in committees for shaping stan-dards and discussing future technologies, depends verymuch on developing knowledge-sharing processes thatimport such knowledge or information back to the orga-nization (vertically and horizontally). Rosenkopf et al.(2001) describe examples of knowledge sharing andexploitation within companies involved in interfirm rela-tions such as industry or regulatory standard-setting bod-ies. In this research, the variation in knowledge-sharingoutcomes is explained by whether the company repre-sentative was assigned to the project directly related tothe technology development affected by the standard orto a new project. When the company expert was assignedto a new project, the project impacted by the new stan-dard did not have the benefit of exploiting knowledgespillovers or tacit knowledge acquired by the expert dur-ing the standard-setting process, whereas the routine ofassigning the subject matter expert to the project orprojects affected by the new standard constituted a cru-cial link between internal and external knowledge acqui-sition. In the absence of formal or informal processes for


disseminating externally acquired knowledge or infor-mation, the behavioral attributes of individual boundaryspanners may be central in determining the effectivenessof exploiting knowledge spillovers or tacit knowledge.

AC Routines, Complementarities, andCapabilities for Innovation and ImitationIn the previous sections, we have introduced and dis-cussed a taxonomy of metaroutines that make up theorganizational internal and external AC capability, andprovided examples of practiced routines that illustratethe expression of each metaroutine within organizations.These routines underlie the configuration of firms’ ACcapabilities, and we expect that the variation across con-figurations of AC capabilities will be reflected in firms’innovation performance. The enacted configuration islikely to vary along two dimensions: the actual rou-tines that are being implemented and the extent to whichinterdependencies and complementarities are achieved.Together, these factors determine whether organizationsachieve AC capabilities consistent for being innovatorsor imitators, as reflected in their innovation performance,e.g., timing and rate of change (see Figure 2).Success in early development and adoption of a new

product or innovation is expected to require more, andpossibly more complex, AC routines. First mover advan-tage would partly result from the implementation ofadequate organizational routines that support improvisa-tion, experimentation, learning by doing, trial and error,appropriation of external knowledge, and internaliza-tion of new routines. Companies that seek to be first-movers but do not practice the required AC routines aremore likely to fail, suggesting that first-mover strategiesdo not necessarily lead to first-mover advantage (e.g.,Silverberg et al. 1988, Lewin and Massini 2003). Com-panies need to develop both internal and external ACroutines because they are both at the origin of VSRprocesses that underlie innovation dynamics. Firms thatextensively practice specific routines to manage bothinternal and external VSR processes can be consideredto have a high level of AC. Because external AC rou-tines are by definition relatively more observable com-pared to internal ones, they are more likely to be imi-tated and adopted by competitors. Moreover, similarlyto Zahra and George’s (2002) idea that organizations donot really develop AC if they only acquire and assimi-late external knowledge but do not transform and exploitit, we argue that if complementarities between inter-nal and external AC routines are absent, external ACroutines alone are not worth much. Only if the com-pany is capable of transferring the knowledge back tothe organization and integrating it with knowledge cre-ation activities and internal AC routines are external ACroutines useful. This also implies that innovators canbe less concerned about imitators because imitation of

mainly explicit external AC routines is likely to missunobservable, complementary internal processes that arecrucial to realizing the full benefit from adoption of new(external) routines (Rivkin 2000). For example, severalcompanies have implemented well-described practicedroutines at 3M and Toyota, such as 15% of unaccountedfor time and worker councils practicing kaizen. But imi-tating companies were unable to implement the unob-servable internal routines and social mechanisms thatenhance complementarities between seemingly indepen-dent bundles of practiced routines, and therefore they didnot achieve comparable results in terms of innovativeperformance. In other words, successful adoption of anew practice or innovation may not only require a certainconfiguration of AC routines, but also socially enablingmechanisms that are firm specific, idiosyncratic, and notreadily observable by competitors.Developing superior AC capabilities (i.e., a bundle

of routines reinforced by firm-specific socially enablingmechanisms) also implies that these firms are morelikely to learn how to manage interdependencies andcomplementarities between internal and external rou-tines. This learning process differentiates and protectsearly successful adopters from imitators while a newpractice becomes more standardized and diffuses toother firms. Developing AC is path dependent and tech-nology specific (Pavitt 2002). In our framework (see alsoLewin and Massini 2003), the distinction between fastand late followers (or early adopters and imitators) andtheir underlying AC capabilities implies that the for-mer still need to invest heavily in developing AC, espe-cially in the event of paradigmatic shifts in the currentlyadopted technologies, and the latter are likely to havedeveloped lower levels of AC capabilities. Therefore,the learning rate does affect the dynamics of imitation(Lieberman and Asaba 2006), but it is the AC capabili-ties that mediate the learning rate in the first place.2

Massini and Pettigrew (2003) have shown in the caseof organizational innovations that incomplete systemsof routines will result only in incremental perform-ance improvements, whereas a complete system of rou-tines will result in exceptional performance. Similarly,in a study on external and internal/contextual learning,Bresman (2010) shows that vicarious learning activities(learning from external experienced others) contributesto team performance only if complemented with suffi-cient internal learning activities. But if companies mustbe aware of the complementarities between and amonginternal and external AC metaroutines, it remains anempirical question to test and reveal which comple-mentarities are more effective in terms of increasingperformance.Complementarities between metaroutines may also be

illustrated by practiced routines mapping on more thanone metaroutine. This may occur in various ways. For


Figure 2 A Model of Absorptive Capacity and Innovation Performance

Innovativeperformance

Incentiveand rewardstructures

Pastexperience

Organizationstructure

Keypeople

Nationalinnovation

systems andinstitutionalstructure

Industry/R&D

intensity

FIRM

ENVIRONMENT

AC capabilities

Configuration ofinternal and externalroutines

Complementarities

example, the IDEO approach to new product develop-ment and the requirement that a prototype must performat least as well as what is available in the market notonly constitutes a selection criterion, it also forces engi-neers to learn about available technologies. Moreover,alternative solutions developed as part of the effort tocome up with a prototype that satisfies the minimumrequirement provide knowledge about technological pos-sibilities and limitations that often prove useful later inthe project or for other projects. In other words, althoughthe rule is primarily targeted at selecting innovative ideasthat will be pushed forward, another consequence of thispracticed routine is that the routine serves other purposesat the same time, i.e., facilitating variation and iden-tifying and recognizing the value of externally gener-ated knowledge. Another example comes from routinesimplemented by companies in technology-based indus-tries that are making regular use of patent search strate-gies (Cohen et al. 2002) not only in support of theirapplications for patents, but also as a way to monitorand scan patent applications (and scientific publications)by competitors, research institutes, and universities asa source of information on technological developmentsin their and related fields, and to learn about their rela-tive position in the development of technological inno-vations. This indicates the dual role of the patent searchroutine. On the one hand, it helps with identifyingexternally generated knowledge. On the other hand, itcontributes to managing adaptive tension by informingabout the intensity and direction of innovation by com-petitors and other actors in the environment.There are a number of factors that are likely to mod-

erate the development of AC capabilities and the rela-tionship between AC capabilities and timing and successof adoption of a new technology or new business prac-tices, such as formal organization structures, past expe-rience, the presence of key people in the organization,

the incentive structure for information and knowledgesharing, transfer, and utilization, and the institutionalenvironment in which firms operate. All else equal, theeffectiveness of AC capabilities is contingent on organi-zational forms (Van den Bosch et al. 1999) that facilitatethe integration of internal and external AC metaroutinesto achieve and benefit from potential interdependenciesand complementarities among these routines. Highlyhierarchical structures generate a level of complexityand rigidity that hamper the flexibility and resiliencenecessary to create or adopt innovations, develop ACroutines, and successfully develop and manage comple-mentarities. Highly skilled employees and people withhigh learning capabilities may therefore be necessary butnot sufficient for developing AC capabilities, especiallywhen there are impediments, such as hierarchical orga-nizational structure, bureaucracy, and decision processessuch as the selection regime that prevent the emergenceof social enabling mechanisms and hamper the develop-ment of innovative and flexible organizations.Zahra and George (2002) noted the role of past expe-

rience in developing potential AC because it involvespath-dependent search capabilities for acquiring andassimilating externally generated knowledge. In ourmodel, however, path dependence affects internal andexternal AC routines because these routines develop,evolve, and adapt over time as a direct result of pastefforts and experience, and explicit reflection and adap-tation processes. More generally, what companies havedone in the past determines the variety and form of ACroutines they are able to develop and the effect theyhave on innovation performance. Discovering the rou-tines that underlie AC offers a new avenue to investigatethe path dependence of AC that Cohen and Levinthal(1990) pointed out when they argued that the devel-opment of absorptive capacity is highly dependent onprevious R&D investment realized by firms. Zollo and


Winter (2002) posit that organizational routines evolveas a result of firms specifically activating a reflectingprocess on their past experience followed by a specificupdating process of the affected routines or processes.The learning process by which firms gradually improveor change their AC routines should also partially accountfor the path dependence in the development of the ACroutines required to successfully adopt a new practiceor an innovation. This path dependence is largely unob-servable and inimitable, with direct consequences forthe ability of late adopters to match the AC capabili-ties and success of early adopters. In other words, suc-cess in the adoption of new practices is path dependentbecause successful early adopters continuously learn andfurther develop their absorptive capacity capabilities. Asa result, they have an advantage in leading the way inthe diffusion of innovations and new practices.One additional factor in the development and adap-

tation of AC routines and consequent early successfuladoption of a new technology or new practice may beassociated with actions of a key figure in the organi-zation, a “smart guy” informal or formal leader whoinspires and supports innovative behavior and the devel-opment of internal and external AC capabilities at theorganizational and individual levels. In some cases, thisidea champion may sense the emergence of the newpractice ahead of other managers or competitors andchampion its experimentation and further diffusion in thecompany.Formal stretch goals and challenging incentive and

reward structures related to innovation rates and otherperformance measures further increase the likelihood ofstimulating, developing, and adopting innovations morefrequently and more intensively than in firms with fewer,less demanding, or non-innovation-related incentives.Incentives may be necessary to motivate people to createa general attitude toward knowledge sharing and trans-fer (Minbaeva et al. 2003), make use of the knowledgethey absorb (Baldwin et al. 1991), develop a culture ofasking for solutions and help with problem solving (Har-gadon and Sutton 1997), and even penalizing (negativeincentives) individuals for not conforming to knowledge-sharing expectations.Finally, other factors affecting the development and

impact of AC capabilities are nation-state institutionalconfigurations, country culture, and socioeconomic con-ditions (Lewin et al. 2003, Lewin and Kim 2004).Specific national contexts, characterized by institu-tional, cultural, historical features, as well as indus-trial groups and their institutionalized practices, affectthe adoption and implementation of new technologiesand organizational routines. Technological opportunities,appropriability regimes and mechanisms, and spillovereffects tend to vary across industries (Pavitt 1984) andcountries (Malerba and Orsenigo 1996). The configu-ration of organizations and institutions in public and

private sectors (firms, banks, universities, governments,etc.), formal structures with explicit goals and pur-poses, and the sets of habits, routines, rules, norms,and legal statutes that regulate the relations and inter-actions between actors (people, organizations, etc.) andthe structure of incentives for promoting and protect-ing R&D and new intellectual property, all consti-tute national innovation systems (Freeman 1987, 1995;Lundvall 1992; Nelson 1993; Whitley 2002), whichinfluence the rate and direction of technological learn-ing in a country (Patel and Pavitt 1991) and the devel-opment of AC capabilities within a specific nationalor technological environment. For example, the successof the Japanese innovation system in the 1980s hasled innovation and management scholars to analyze andunderstand its features and characteristics (institutionsand practices; e.g., Freeman 1987) to be adopted andadapted in Western environments in the attempt to nar-row the productivity and innovation gap. R&D inten-sity and other industry-specific factors are also likely tomoderate the relationship. Ceteris paribus, to success-fully innovate and sustain innovation advantage, firmsin R&D-intensive environments may adopt higher lev-els of new technological and organizational innovations(Massini et al. 2002), and indeed need more elaboratedabsorptive capacity routines than firms in non-R&D-intensive environment.To summarize, the timing and success in adoption of

an innovation is determined by the configuration of rou-tines constituting firm AC and their complementarities,and is moderated by firm organization structure, pastexperience, the presence of key individuals, the designof incentive and reward structures, and environmentalfactors including industry sector, R&D intensity, andnational systems of innovation (Lundvall 1992, Nelson1993, Freeman 1995, Edquist 1997). Another importantcontribution of this framework is the explicit introduc-tion of path dependence and learning in the relationshipbetween AC routines and the adoption of new businesspractices. Early adopters of a new management prac-tice or new process or product are more likely to alsoreflect on their capabilities and routines and update thembased on their previous experience (Zollo and Winter2002). Massini et al. (2005) show that early adopters(innovators) are more likely to compare their experi-ence with those of other early adopters and, therefore,this learning process is more likely to continue advanc-ing the competition for further innovations while ear-lier innovations or management practices become morestandardized and diffuse to become industry acceptedpractice. Conversely, firms that recognize and adopt thebenefits of a new practice later in its diffusion cycle areless likely to have configured and developed absorptivecapacity routines, especially the external ones, neces-sary for matching or leapfrogging the early adopters. Inother words, the observation of Massini et al. (2005)


that early adopters (innovators) are the source of varia-tion in the population and later adopters (imitators) arethe source of decreased variation is very likely mediatedby different configurations of AC routines. However, allelse equal, maintaining an early mover advantage overtime requires uncovering and managing complementar-ities among AC routines and updating the mix of rou-tines of the organization as new knowledge is createdor becomes available over time. The complexity of ACnot only results from more complex individual routinespracticed by firms, but also from complementarities thatmay exist among different routines (e.g., Narduzzo et al.2000; Rivkin 2000, 2001). Therefore, uncovering theunderlying internal and external routines of AC enablesinvestigation of the roles played by both the level of ACand the complexity of AC in influencing the adoption ofa new business practice. Previous studies have pointedto the importance of complementarities in the combina-tion of activities undertaken by a firm as an explanationof observed performance heterogeneity (Milgrom andRoberts 1990, 1995; Ichniowski et al. 1997; Massini andPettigrew 2003) and the difficulty in imitating superiorcapabilities of competitors (Levinthal 1997, Teece et al.1997, Rivkin 2000, Lenox et al. 2006). More empiricalresearch is needed to discover and document the rangeof practiced routines underlying the metaroutines out-lined in this paper. It is likely that further research intopracticed routines underlying AC capabilities will iden-tify configurations of interrelated routines, consisting ofcombinations that are substitutable, and others that arecomplementary and must be executed together to achieveparticular AC-mediated outcomes.

Summary and ConclusionsThe original conception of AC has been defined andapplied to technologically intensive business environ-ments (Cohen and Levinthal 1989, 1990; Mowery et al.1996; Veugelers 1997; Cockburn and Henderson 1998;Lane and Lubatkin 1998), but it has been appliedincreasingly to less technologically intensive businesseswithout considering whether those aspects of AC cru-cial to high-tech firms were relevant or not to thoseenvironments and studies. AC has also emerged as animportant moderating or mediating capability in researchon joint ventures and alliances (e.g., Koza and Lewin1998), ambidextrous organizations (e.g., Rorthaermeland Alexandre 2009), and balancing exploitation andexploration (e.g., Andriopoulos and Lewis 2009). How-ever, little attention has been drawn to the routine struc-ture underlying AC, which integrates the characteristicsof routines (tacit, informal, firm specific, and idiosyn-cratic) and further elaborates the construct of AC. Thispaper therefore seeks to refine our understanding ofabsorptive capacity by providing a routine-based model

of AC that distinguishes between processes and capa-bilities underlying internal knowledge creation, transfor-mation, exploitation, and assimilation, and external ACroutines for the acquisition, transformation, exploitation,and assimilation of external knowledge, and by inte-grating research on absorptive capacity, organizationalroutines, and innovation and imitation. In theories ofstrategic adaptation, survival, and competitive advan-tage, attributions are consistently made that superiorperformance results from unique resources and capa-bilities or superior regimes of routines (Lewin et al.2004). This paper advances the idea of metaroutines andtheir expression in practiced routines as a new approachfor explicating and researching AC. It identifies anddescribes the metaroutines that constitute AC and pro-vides examples of practiced AC routines. Uncoveringthe configuration of metaroutines that constitute the ACcapability of an organization and their expression in theform of practiced routines is a necessary step for schol-ars to operationalize the construct of AC and for study-ing the mediating role of AC in determining the timingand success of creating and assimilating new knowledge.As the many examples of practiced routines illustrate,it is feasible to undertake both clinical field studies andsurvey methods intended to create a mapping betweenthe proposed metaroutines that underlie AC capabilitiesand firm-specific practiced routines. This would createthe basis for identifying clusters of routines along eachmetaroutine as well as for discovering complementaritiesbetween clusters of practiced routines.Similar to the importance of balancing exploration

and exploitation activities (March 1991), understand-ing the importance and nature of internal and exter-nal AC routines and balancing them represents a cru-cial dynamic capability (Teece et al. 1997, Eisenhartand Martin 2000, Winter 2003) that is central forsustained competitive advantage. Lewin and Massini(2003), Greve et al. (2004), and Massini et al. (2005)argue that firms that define the performance frontierare sources of innovative practices and technologicalinnovations. Lewin and Massini (2003) also argue thatfirms that are early in adopting new practices and thatadopt them successfully have superior absorptive capac-ity capabilities. This would result from better practicedroutines for managing both internal and external VSRprocesses. However, very few firms in the populationhave the strategies and organizational capabilities forconsistently balancing exploration and exploitation. Sim-ilarly, it can be expected that most firms do not developthe AC capabilities that mediate the balancing of explo-ration and exploitation. But understanding the complex-ities associated with coordinating interdependencies andachieving complementarities between and among inter-nal and external AC routines remains to be explored.In fact, AC may enable or restrict the level of explo-ration adaptation (Lewin et al. 1999). For example, an


organization may have enacted a highly effective set ofroutines for stimulating variation (new ideas), but thedesign of the routines constituting the selection regimeroutines may actually discourage variation by the wayselection decisions are made. In our formulation of aroutine-based theory of absorptive capacity, two con-ditions seem to determine overall effectiveness of AC.The first is the extent to which organizations developorganizational processes that address all of the pro-posed internal and external metaroutines. The secondinvolves finding complementarities between configura-tions of metaroutines that leverage the effectiveness ofindividual practiced routines. Therefore, a major empir-ical research agenda involves identifying the variouscombinations of metaroutines and practiced routines thatdefine the Pareto frontier of absorptive capacity. Whichof the metaroutines and practiced routines are more rele-vant for knowledge creation and innovation is also likelyto depend on specific technological, organizational, andindustrial settings. The summaries of practiced routinesprovided in this paper (Tables 2 and 3) are not intendedto be exhaustive, but rather to provide support to ourtheoretical conceptualization of internal and external(meta)routines and to indicate avenues for future empir-ical research on AC routines.

AcknowledgmentsThis paper has benefited from the comments and sugges-tions of many individuals, and seminar presentations. Theauthors acknowledge the presentation of an early draft of thismanuscript at the 2006 Organization Science Winter Confer-ence, the 2008 Academy of Management Annual Meeting, theCopenhagen Business School Mini Conference on “Organizingfor Internal and External Knowledge Creation and Innovation:Looking Within or Searching Beyond?” and the CopenhagenBusiness School, October 30–31, 2008. They also acknowl-edge Richard Burton, Ronnie Chatterji, and three very help-ful anonymous referees, and the deft editorial guidance ofLinda Argote. Arie Lewin acknowledges the support of theNational Science Foundation (Grant 0522359), and CarinePeeters acknowledges the financial support of the BelgianNational Funds for Scientific Research and the Federal Scien-tific Research Policy. The usual disclaimer applies.

Endnotes1In this paper, “internal routines” strictly refers to processesthat occur within the boundaries of the firm. These inter-nal routines include knowledge creation, selection of inno-vation projects, learning, and transferring knowledge withinthe organizational boundaries. For large diversified companiesincluding multinational enterprises, the internal routines alsoencompass the added complexity of managing, learning, andsharing ideas across the various business units that could bedispersed over different geographic locations. Similarly, “exter-nal AC routines” refers to processes and practices for acquiringand assimilating knowledge from the external environment.2Cohen and Levinthal (1990, p. 130) discuss learning capa-bilities and problem-solving skills, arguing that they are “so

similar that there is little reason to differentiate their modesof development.” They maintain that what differs is the con-tent of what is learned: problem solving leads to creation ofnew knowledge and learning capabilities to assimilate existingknowledge. In any case, they are both fundamental to devel-oping knowledge and, therefore, to AC. In our framework,this distinction may reflect differences between innovators andearly adopters. Both may have high levels of AC routines andcapabilities, but the former are more likely to have problem-solving skills, whereas the latter have incremental learningcapabilities.

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Arie Y. Lewin is a professor of strategy and internationalbusiness at the Fuqua School of Business, Duke University,and is a director of the Center for International Business Edu-cation and Research. His research interests center on strategicrenewal of organizations, encompassing studies of adaptationand selection as coevolutionary systems, emergence of neworganizational forms, and adaptive capabilities that distinguishbetween innovating and imitating organizations. He is the leadPI for the multiyear International Offshoring Research Networkproject that focuses on companies in transition to globalizingtheir organizations, business functions, processes, and services.

Silvia Massini is a senior lecturer in economics and technol-ogy management at Manchester Business School and a memberof the Manchester Institute of Innovation Research. She holds aPh.D. in economics from the University of Rome La Sapienza.Her main research interests focus on technological and orga-nizational innovation processes, routines and capabilities forinnovation, and offshoring and global sourcing, with a focuson knowledge intensive and innovation business services.

Carine Peeters is a professor of international business andstrategy at ULB–Solvay Brussels School of Economics andManagement. After receiving a Ph.D. in management sciencefrom the same school, she spent two years at Duke Universityas a senior researcher. Her research on the globalization of ser-vices centers on the learning process, development of organiza-tional capabilities, and evolution of firm boundaries associatedwith diffusion of global sourcing practices.

Microfoundations of Internal and External Absorptive Capacity Routines

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