Absorptive capacity refers to an organisation’s ability to acquire and internalise new knowledge. Absorptive capacity is said to be composed of two elements: prior knowledge and intensity of effort. When a firm has a large knowledge base, acquiring additional related knowledge will be easier for a firm. However, if the firm is trying to acquire and internalise knowledge for which it does not yet have pre-existing related knowledge, then it must invest a lot of its resources (i.e. increase its intensity of effort) to acquire that knowledge.
It took me some time to fully understand the concept of “absorptive capacity” until I was able to find an appropriate analogy for it:
- Pre-existing Knowledge = Muscles
- Intensity of Effort = Frequency of Exercise
- Absorptive Capacity = Strength