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The growing attention to organizational innovation in manufacturing firms reflects the sustainable competitive advantage fostered by superior dynamic capabilities. Knowledge-based competition has magnified the importance of learning alliances as a fast and effective way to develop such capabilities. To achieve a competitive advantage, firms need better quality, improved efficiency, innovation, and customer experience. This requires a constant search for new tools and management opportunities that would provide these competencies. Supply chain management, total quality management, business process reengineering, enterprise resource planning, customer relationship management, e-commerce, and knowledge management are some of these tools. Many firms, however, are prevented from adopting them by cultural factors (Buch and Rivers, 2001), organizational inertia (Welsch, Liao and Stoica, 2001), or a lack of absorptive capacity (Boer, Bosch and Volberda, 1999).
Successful managing of internal operations and supply chains is a key challenge to organizations. They will not succeed if they implement business practices in an arbitrary and uncoordinated manner, expending scarce resources on unproductive initiatives. In this context, Carillo and Gaimon (2000) found that firms should not invest in process change until they have sufficient relevant knowledge. However, learning-before-doing is typically undervalued, so firms tend to underinvest in the development of absorptive capacity (Cohen and Levinthal, 1994). Absorptive capacity is what enables the firm to effectively acquire and utilize external as well as internal knowledge, which, in turn, affects the firm's ability to innovate and adapt to its changing environment and be competitive. It gives the firm the ability to be proactive and build various competences, as opposed to reacting, to the industry's dynamism.
Absorptive Capacity Defined
To understand organizational innovation and best practices from an absorptive capacity perspective, it is necessary to define the term. There have been many attempts to define it. Zahra and George (2002) defined it as a set of organizational routines and processes by which firms acquire, assimilate, transform, and exploit knowledge to produce a dynamic organizational capability. Absorptive capacity has also been defined as the capacity to learn and solve problems (Kim, 1997) and as the firm's ability to identify, assimilate, and exploit outside knowledge (Cohen and Levinthal, 1990). Acquiring absorptive capacity consists of building (1) the firm's ability to access external knowledge, which requires a knowledge-sharing culture, and (2) the firm's ability...