The Problem & The Question
Almost 20 years later after publication, we’re looking at some research today that’s been cited over 5000 times. If you want to be citation 5001, you can access the article here.
This piece is cited so much given the existential nature of its research question—how can an organizational unit gain knowledge from other units to learn, to innovate, and to improve performance?
We know that this is a critical question because we see knowledge wasted every day. It just isn’t easy to share knowledge across organizational unit boundaries.
Theory & Practice
Professor Tsai leads with some global logic. Namely, units may want to grab learnings from another unit, but may not be able to access it. Or, maybe worse, they get the knowledge from a sister unit but don’t have the capacity to absorb and internalize the expertise or knowledge. Put in terms that a 6-year-old can understand—organizations need external access and the internal wherewithal or capacity to learn from their units to the left and right.
When a unit occupies a central part of an organizational network, it’s kinda like a hub. Knowledge is circulating from all directions all about you and your work unit for no other reason than you’re in the center. This is much better than a unit stuck on the edge of a network. Sometimes knowledge and learning makes it out your way, sometimes it doesn’t.
A unit’s absorptive capacity means that it has the means to do something with all this knowledge swirling around you or your business unit. Professor Tsai argues that R&D expenses are an indicator of how well we learn since R&D, after all, is all about innovation and discovery. And absorptive capacity seems to be the critical factor for the following reason.
You can be in the center of the network and have all this access to great ideas, but if you or your business unit doesn’t have the internal capacity to leverage this information, it’s all a waste. It’s kinda like noise. Absorptive capacity allows a unit to take knowledge and transform it into its own needs and into unit specific learning. Put simply, owning the central space in your organizational network isn’t enough. You need the internal capacity to do something with knowledge.
Look at this through your own individual lens. In your Facebook or LinkedIn network, you may occupy a central position and that’s good. But if you have a lot of stuff going on and don’t set up routines or quiet periods, you’ll never be able to really capitalize on your network position.
The Samples and Measures—
This professor looked at two firms in two different industries: petrochemical and food manufacturing. He surveyed business unit leaders to determine their position in the network. To gauge absorptive capacity, he captured the R&D levels at the organizational unit level. Then he looked at some outcomes—innovation levels and performance.
We Now Open the Kimono!
Less is more here. Researcher Tsai found that if a business unit occupied a central position within a network, it produced more innovation. Again, centrality equated to shared learning, knowledge transfer, and information exchange. Interestingly, centrality, alone, contributed to innovation levels but not profitability, or organizational performance.
Now, absorptive capacity, or R&D investment, seemed like the heavy hitter. Specifically, the greater the investment in R&D, the higher the levels of innovation and the more improved the business performance within the organizational unit.
What’s neat is when you put them together you get an interaction effect. Centrality only matters when you or the organizational unit has the capacity to absorb it. Without that capability, centrality is pretty much wasted.
So, one of the main takeaways is simply this. If you or your organizational unit wants to jockey for a better position in the network, you should also be investing in R&D or the capacity to leverage your new found network hub. Otherwise, it’s just information passing right on over you and you’d be wasting your central position. Don’t do that. That’s being a dumb bunny.
Thank the Kimono when you get promoted even faster given your knowledge.