In business administration, absorptive capacity is defined as a firm's ability to recognize the value of new information, assimilate it, and apply it to commercial ends.
[1] The concept of absorptive capacity was first defined as a firm's "ability to recognize the value of new information, assimilate it, and apply it to commercial ends" by Cohen and Levinthal.
The cumulativeness of absorptive capacity and its effect on expectation formation suggest an extreme case of path dependence in which once a firm ceases investing in its absorptive capacity in a quickly moving field, it may never assimilate and exploit new information in that field, regardless of the value of that information.
[1]Absorptive capacity is also said to be a reason for companies to invest in R&D instead of simply purchasing the results post factum (e.g. patents).
They therefore encourage the hiring of diverse teams in order to have a variety of individuals working together and exposing themselves to different ways of looking at things.
[3] "Potential absorptive capacity makes the firm receptive to acquiring and assimilating external knowledge.
Managers have often problems in assessing the value of new external knowledge when it is not relevant for the current demands of key customers.
However, Zahra and George[3] argue that the concept has a too broad definition as well as no clear dimensions or scales, evidenced by the variations among different studies that have used the absorptive capacity theory.
Researches on subjects related to the development of absorptive capacity have included studies focusing on research and development,[10][11][12][13] knowledge management,[14][15] organizational structures,[10][12][16][17] human resources,[10][18][19] external interactions,[10] internal interactions,[20][21] open innovation,[22] social capital,[23] supplier integration,[24][25][26] client integration[27] and inter-organizational fit.
Today the theory involves organizational learning, industrial economics, the resource-based view of the firm and dynamic capabilities.
This theory has undergone major refinement, and today a firm's absorptive capacity is mostly conceptualized as a dynamic capability.