Examining Absorptive Capacity in Supply Chains: Linking Responsive Strategy and Firm Performance

• Author: David D. Dobrzykowski,Paul C. Hong,James J. Roh,Rudolf Leuschner
• Date: 01 October 2015
• Published date: 01 October 2015
• DOI: http://doi.org/10.1111/jscm.12085

EXAMINING ABSORPTIVE CAPACITY IN SUPPLY CHAINS:

LINKING RESPONSIVE STRATEGY AND FIRM

PERFORMANCE

DAVID D. DOBRZYKOWSKI AND RUDOLF LEUSCHNER

Rutgers University

PAUL C. HONG

University of Toledo

JAMES J. ROH

Rowan University

Information management is a core supply chain activity that is increasing

in importance as firms strive to become more responsive to growing cus-

tomer demand for innovative products. However, effective processing of

information from customers and suppliers remains a struggle for most

firms. Absorptive capacity provides a useful view of information process-

ing activities, but the current understanding of how firms use it to

improve performance and why some firms seem to develop it while others

do not remains unclear. This study is grounded in information processing

theory, and examines the role of absorptive capacity in linking a firm’s

responsive strategy and performance. We test a structural equation model

on data from 711 manufacturing firms, and validate our results on a sec-

ond sample of 677 firms. Our study makes three major contributions by

providing evidence that: (1) absorptive capacity is motivated by a firm’s

responsive strategy; (2) it fully mediates the relationship between respon-

sive strategy and firm performance, indicating that absorptive capacity is a

necessary competence for firms that aim to deliver innovative products to

customers; and (3) the relationship between responsive strategy and

absorptive capacity is U-shaped, indicating that when firms attempt to

blend efficient and responsive strategies, their ability to develop absorp-

tive capacity is diminished.

Keywords: absorptive capacity; information processing theory; organizational learn-

ing; knowledge acquisition; new product development; structural equation modeling

INTRODUCTION

Supply chains have been theorized as networks of

firms consisting of three distinct flows: product, infor-

mation, and finances (Carter, Rogers & Choi, 2015;

Ketchen, Crook & Craighead, 2014). The focus of this

research is on information. While, information has

never been so readily available to aid management in

making decisions (Ellram & Cooper, 2014), the ability

to make sense of and use information has become a

dire bottleneck (Bendoly, 2016; Chen, Chiang &

Storey, 2012). Information processing is critical

because performance is not driven by obtaining infor-

mation alone, but rather it results from how effec-

tively information is also dealt with and applied in

decision-making (Mason-Jones & Towill, 1997; Mc-

Afee, 2003). Moreover, information processing has

increased in importance as firms face amplified pres-

sure to respond to customer demands for innovative

products (Azadegan, Dooley, Carter & Cater, 2008).

Given that much of the information needed to

improve performance resides outside the boundaries

of the firm with customers and suppliers, absorptive

October 2015 3

capacity has emerged as an important concept in sup-

ply chain management which captures the accumula-

tion of a firm’s information processing activities

(Azadegan, 2011; S

aenz, Revilla & Knoppen, 2013).

Absorptive capacity is defined as the degree to which

a firm acquires, assimilates, transforms, and applies

information to improve performance (Zahra &

George, 2002). For example, as firms increasingly

involve their suppliers in their product development

efforts (McGinnis & Vallopra, 1999a,b, 2001; Zsidisin

& Smith, 2005), absorptive capacity enables organiza-

tions to achieve greater responsiveness (Fisher, 1997;

Lee, 2002) by acquiring and applying information

across firm boundaries (Rebolledo, Halley & Nagati,

2009; S

aenz et al., 2013). As a focal construct, absorp-

tive capacity is an important phenomenon which

SCM scholars have identified as warranting a better

understanding (e.g., Azadegan, 2011; Bellingkrodt &

Wallenburg, 2013; S

aenz et al., 2013). While absorp-

tive capacity is thought to be a particularly important

organizational attribute for responsiveness, there is lit-

tle empirical evidence regarding appropriate structural

linkages involving the construct (Liao, Welsch & Sto-

ica, 2003). Furthermore, little is known about how

firms develop absorptive capacity, or why some firms

demonstrate this competence while others do not

(Azadegan, 2011; S

aenz et al., 2013). In this study,

we examine absorptive capacity as an organizational

design that enables a firm to capture outside informa-

tion, disseminate it, and use it to create value (Gal-

braith, 1973, 1974). Our research model explains

links among responsive strategy, absorptive capacity,

and firm performance, and investigates how firms

develop absorptive capacity by examining the curvilin-

ear effect of responsive strategy.

The theorized model is tested using data from two

collection periods of the International Manufacturing

Strategy Survey (IMSS). The model is tested using data

from the IMSS IV, containing 711 firms, and is then

replicated on a second sample of 677 firms collected

4 years later during the IMSS V. Our results reveal

three primary contributions involving responsiveness,

absorptive capacity, and firm performance. First,

absorptive capacity is shown to be motivated by a

firm’s responsive strategy. Second, absorptive capacity

fully mediates the relationship between responsive

strategy and firm performance, showing that absorp-

tive capacity is a necessary competence for firms that

aim to deliver innovative products to customers.

Third, we reveal a U-shaped relationship between

responsive strategy and absorptive capacity, indicating

that when firms attempt to blend efficient and respon-

sive strategies, their ability to develop absorptive

capacity is diminished. Lastly, a secondary contribu-

tion is made from a methodological perspective: we

were able to operationalize absorptive capacity in a

manner consistent with Zahra and George (2002), as

a second-order construct consisting of four-first-order

dimensions.

The remainder of the paper is structured as follows.

In the next section we develop the main constructs of

the study. We pay specific attention to absorptive

capacity, complementing its use in recent extant stud-

ies (Azadegan, 2011; S

aenz et al., 2013). We next

develop and introduce the study’s hypotheses. This is

followed by a description of our study’s methodology

and presentation of the results. The paper ends with a

discussion of the implications for theory and practice,

limitations, and suggestions for future research.

RESPONSIVE STRATEGY, ABSORPTIVE

CAPACITY, AND FIRM PERFORMANCE

In this section, we will define the three major con-

structs in our study, responsive strategy (RS), absorp-

tive capacity (AC), and firm performance (FP). The

origins of RS have been traced to Fisher (1997), who

identified this strategy as the right fit for products that

are highly innovative and therefore must operate in

an uncertain environment. This concept was further

refined by Lee (2002) to include flexibility to the cus-

tomers’ requirements. As market dynamics have

increased for most firms and product clockspeed has

increased, the reliance on responsiveness for a com-

petitive advantage has grown (Peng, Verghese, Shah &

Schroeder, 2013). Responsive strategy is defined in

this research as the degree to which a firm’s business

strategy reflects the importance of (1) new product

frequency; (2) more innovative products; and (3) a

wide product range in winning orders from customers

(Chaffee, 1985; Fisher, 1997; Gunasekaran, Lai &

Cheng, 2008; Kim & Lee, 2010; Randall, Morgan &

Morton, 2003; Roh, Hong & Park, 2008; Storey,

Emberson & Reade, 2005).

Cohen and Levinthal (1990, p. 128) first introduced

AC, arguing that “[...] the ability of a firm to recog-

nize the value of new, external information, assimilate

it, and apply it to commercial ends is critical to its

innovative capabilities.” They and others suggested

that AC can serve to explain a firm’s resource alloca-

tion decisions for innovation activity (Cohen & Len-

vinthal, 1990; Daft & Lengel, 1986; Lane & Lubatkin,

1998). Zahra and George (2002) extended this con-

ceptualization to include acquisition, assimilation,

transformation, and application of information. In a

supply chain sense, AC is important because the most

relevant information for a firm resides outside its

boundaries, which not only makes information acqui-

sition more difficult, but requires effective dissemina-

tion and application of that information (Lane &

Lubatkin, 1998). Absorptive capacity is particularly

useful for firms managing a RS given the uncertainty

Volume 51, Number 4

Journal of Supply Chain Management

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