The development of absorptive capacity based innovation...

The development of absorptive capacityshybased innovation in a construction SME

Mcadam R Miller K McMacken N and Davies J

httpdxdoiorg105367000000010792217308

Title The development of absorptive capacityshybased innovation in a construction SME

Authors Mcadam R Miller K McMacken N and Davies J

Type Article

URL This version is available at httpusirsalfordacuk18391

Published Date 2010

USIR is a digital collection of the research output of the University of Salford Where copyright permits full text material held in the repository is made freely available online and can be read downloaded and copied for nonshycommercial private study or research purposes Please check the manuscript for any further copyright restrictions

For more information including our policy and submission procedure pleasecontact the Repository Team at usirsalfordacuk

231ENTREPRENEURSHIP AND INNOVATION Vol 11 No 3 2010 pp 231ndash244

The development of absorptivecapacity-based innovation in aconstruction SME

Rodney McAdam Kristel Miller Nora McMacken and John Davies

Abstract Traditionally construction has been a transaction-orientedindustry However it is changing from the designndashbidndashbuild process into abusiness based on innovation capability and performance management inwhich contracts are awarded on the basis of factors such as knowledgeintellectual capital and skills This change presents a challenge to con-struction-sector SMEs with scarce resources which must find ways toinnovate based on those attributes to ensure their future competitivenessThis paper explores how dynamic capability using an absorptive capacityframework in response to these challenges has been developed in a con-struction-based SME The paper also contributes to the literature onabsorptive capacity and innovation by showing how the construct can beoperationalized within an organization The company studied formed aKnowledge Transfer Partnership using action research over a two-yearperiod with a local university The aim was to increase its absorptivecapacity and hence its ability to meet the changing market challenges Thefindings show that absorptive capacity can be operationalized into achange management approach for improving capability-based competi-tiveness Moreover it is important for absorptive capacity constructs andlanguage to be contextualized within a given organizational setting (as inthe case of the construction-based SME in the present study)

Keywords absorptive capacity construction SMEs Knowledge TransferPartnership

Rodney McAdam is Head of the Department of Marketing Entrepreneurship and Strategy Univer-sity of Ulster Jordanstown Campus Shore Road Newtownabbey County Antrim Northern IrelandBT37 0QB UK E-mail rmcadamulsteracuk Kristel Miller and Nora McMacken are also in theDepartment of Marketing Entrepreneurship and Strategy at the University of Ulster John Davies iswith the Salford Business School University of Salford UK

Traditionally the UK construction industry has beentransaction-oriented with work being obtained bysuccessfully bidding for and completing contracts(Briscoe and Dainty 2005) However the constructionindustry is moving away from this traditional designndashbidndashbuild process to a new innovation capability andperformance-based approach in which contracts areawarded on factors such as knowledge intellectual

capital and skill (Khalfin et al 2007 Reason andBradbury 2001) As the construction industry is anincreasingly competitive environment both the firm andemployees of the firm must have the dynamic capabilityto learn quickly integrate new knowledge and transformand implement this new knowledge within the businessprocesses procedures and routines (Reason andBradbury 2001 Daghfous 2004) This approach will

232

Absorptive capacity in a construction SME

ENTREPRENEURSHIP AND INNOVATION Vol 11 No 3

increase the overall innovation and competitiveness ofthe company in construction markets where a demon-stration of innovative organizational capability is nowrequired (Mathews et al 2000)

The dynamic capability of a firm to recognize thevalue of new external information assimilate it andapply it is critical to sustaining competitive advantageand to innovating (Cohen and Levinthal 1990) espe-cially in rapidly changing market conditions such as theconstruction market for public procurement Absorptivecapacity (ACAP) is what enables an organizationeffectively to acquire use transform and implementinformation vital for the growth of a knowledge-sharingculture and to the firmrsquos operations (Cohen andLevinthal 1990) ACAP lsquohellipenhances a firmrsquos ability togain and sustain a competitive advantagersquo (Zahra andGeorge 2002 p 185) It also enables the firm to adapt tothe changing market conditions However Jones (2006)along with Zahra and George (2002) states that thestudy of ACAP in organizations is limited by a lack ofdefinition at an operational level within these organiza-tions Easterby-Smith et al (2008) conclude that there isa need for further studies in different types of organiza-tions to develop further understanding of the constructand adopt a process approach to ACAP Hence the mainaim of this paper is to explore how dynamic capabilityusing an absorptive capacity framework in response tothese challenges has been developed within a construc-tion-based SME (which specializes in public contracts)

Review of construction sector challenges forSMEs

The construction industry was traditionally an instanta-neous transaction-oriented business For decades theinflexible structure of lsquothird partyrsquo contracts inhibitedthe construction industryrsquos creative response to theneeds of its clientele (Burnes and Coram 1999) TheEgan report (1998) and the ensuing Rethinking Con-struction Initiative show that the UK constructionindustry is an increasingly competitive environment andis moving away from the traditional designndashbidndashbuildprocess to a new organizational innovation capabilityand performance-based approach in which jobs areawarded based on skill (Mathews et al 2000) Thusthere is a challenge for construction firms to find waysto improve these attributes in a systematic and sustainedmanner to ensure future competitiveness According toHari et al (2005 p 533) lsquoconstruction organisationshave been managing knowledge informally for yearsbut the challenges facing todayrsquos industry mean thatmost organisations now need a more structured coher-ent approach to knowledge managementrsquo A keycharacteristic of the UK construction industry is its

fragmented structure with a large number (99 of thetotal ndash Hari et al 2005) of competing small and me-dium-sized enterprises (SMEs) According to Reasonand Bradbury (2001) the SME sector is criticallyimportant to the overall efficiency of the UK construc-tion industry which takes up a large proportion of theeconomy In 2005 the industry employed in excess of15 million people contributing approximately 8 oftotal gross domestic product ndash GDP (Hari et al 2005)The innovation capability challenge for construction-based SMEs is increased by their inherent lack ofresources and skills (Hari et al 2005)

Between 2000 and 2007 the construction industry inNorthern Ireland (NI) was growing steadily due toincreases in economic growth In 2007 the ConstructionIndustry Training Board (CITB) forecasted that employ-ment in construction would grow by 13 in NorthernIreland over five years needing another 2620 newemployees each year to meet the demand Howeverfollowing the recent economic downturn the NorthernIreland construction workforce has plummeted (Millar2008) There was a commensurate increase in thenumber of construction workers (in excess of 300)claiming benefits from January 2008 to January 2010(CEFNIcom)

In addition to the job losses there has been a shortageof apprenticeship places as a conduit towards long-termcapacity building within SMEs (Taylor 2008 p 3)

Developing an absorptive capacityperspective and research questions

As the construction industry is extremely volatile andvaried it is essential that construction-based companiesremain competitive by having the dynamic capability torespond to such challenges (Cheng and Li 2004Mathews et al 2000) They must have the dynamiccapability to learn quickly integrate new knowledge andtransform and implement this new knowledge in theirbusiness routines and processes to increase effectivenessand competitiveness (Jones 2006 Daghfous 2004)

Absorptive capacity (ACAP) has been defined as adynamic capability that enables a firm effectively toacquire and utilize external and internal knowledgewhich affects the firmrsquos ability to innovate and adapt toits changing environment and hence to increase itscompetitiveness (Cohen and Levinthal 1990 Zahra andGeorge 2002 Lane et al 2006) Dynamic capabilitycan be defined as lsquothe firmrsquos ability to integrate buildand reconfigure internal and external competences toaddress rapidly changing environmentsrsquo (Teece et al1997 p 509) ACAP can be described as a dynamiccapability that is based on lsquothe creation and utilisation ofknowledge that contributes to improved competitive

233ENTREPRENEURSHIP AND INNOVATION Vol 11 No 3


Figure 1 Absorptive capacity frameworkSource Adapted from Zahra and George 2002 and Jones 2006

Absorptive capacity

PACAP RACAP

Knowledgeacquisition

Gatekeepers andboundary spanners Change agents

Social integrationmechanisms

Knowledgeassimilation

Knowledgetransform-

ation

Knowledgeexploitation

Differentforms of

knowledge

Competitiveadvantage

advantagersquo (Jones 2006 p 357) Jones (2001 2006)describes absorptive capacity as the ability to learn andsolve problems where the status quo and path dependen-cies are challenged as is the situation in the constructionmarket Zahra and George (2002) in building uponCohen and Levinthalrsquos (1990) research show theimportance of ACAP in terms of achieving strategic andcompetitive advantage for the firm in that ACAPlsquohellipenhances a firmrsquos ability to gain and sustain acompetitive advantagersquo (Zahra and George 2002 p188)

In modelling ACAP using a process view (similar tothat of Easterby-Smith et al 2008) four dimensionshave been identified ndash as shown in Zahra and Georgersquos(2002) model (Figure 1) Also shown are activationtriggers (that is external ndash the change in the construc-tion marketrsquos requirements and internal ndash theorganization forming a partnership to address thechallenge at all levels) socialization mechanisms toincorporate and use new knowledge gatekeepers whohold key roles in knowledge filtering and transfer andboundary spanners who transcend organizational silosand help spread knowledge to all areas and levels of theorganization Each of the four dimensions has severalkey influencing factors (Zahra and George 2002Daghfous 2004)

(1) Acquisition is how a firm identifies and acquiresknowledge that is generated externally (Zahra andGeorge 2002) in which the key influencing factorsare prior internal knowledge prior external knowl-edge prior investments human resources andcommunication (Zahra and George 2002)

(2) Assimilation is how the firm can absorb understandanalyse process and interpret this new externalknowledge Key influencing factors are the level of

education diversity of backgrounds organizationalstructure internal communication and humanresources (Zahra and George 2002 Daghfous2004)

(3) Transformation is how the firm develops proceduresto merge the new knowledge with the knowledgethat already exists in the company Key influencingfactors are individual absorptive capacity level ofeducation diversity of backgrounds organizationalstructure organizational culture internal communi-cation and human resources (Zahra and George2002 Daghfous 2004)

(4) Exploitation is how the firm applies this newlydeveloped information to achieve the organizationrsquosobjectives (Lane and Lubatkin 1998) with keyinfluencing factors including human resourcesindividual absorptive capacity organizationalstructure bureaucracy and responsiveness (Zahraand George 2002)

The absorptive capacity of an organization dependsupon the absorptive capacity of the individuals andgroups within that organization (Lane et al 2006 Jones2006 Cohen and Levinthal 1990) Jones (2006)explores the conceptualization of these organizationallevels and boundaries by applying an lsquoagentizationrsquoapproach The accumulation and diversity of priorknowledge from individuals or agents at different levelsoften neglected in relation to structural issues in ACAPstudies (Jones 2006) improves the ability of a firm toacquire and accumulate new knowledge According toLinsu (2004) prior knowledge has a positive effect onabsorptive capacity because it helps acknowledge thevalue of new information assimilate it and apply itDaghfous (2004) states that the level of educationinfluences an individualrsquos ACAP Employees with higher

234



levels of education in a field are perceived as better atabsorbing new knowledge in a particular field Invest-ments in employee training develop the individualrsquosabsorptive capacity in the acquisition of new skills aswell as the diversity of their knowledge base (Cohen andLevinthal 1990) leading to some organizations lsquobuyinginrsquo ACAP by hiring new employees and forming alli-ances (Jones 2006 Easterby-Smith et al 2008)Diversity of backgrounds and knowledge creates moreopportunity for the new knowledge to be absorbed in thecompany by ensuring that multiple perspectives areapplied and valued Gatekeepers (Figure 1) are actorsthat serve as intermediaries between the company andthe external knowledge environment or betweensubunits within the organization (Daghfous 2004) andhence are an influencing factor in ACAP as part ofoutward-looking absorptive capacity

An organizationrsquos absorptive capacity is not simplythe sum of the individualsrsquo capabilities It is also affectedby other organizational factors (Cohen and Levinthal1990) The combination of systems capabilities (thecompanyrsquos formalized policies and procedures) coordi-nation capabilities (the relationships betweenemployees) and socialization capabilities (firmrsquos sharedideology) determines how well the company canintegrate the individual or agentrsquos absorption capabilities(Linsu 2004) Communication between the firm and theexternal knowledge environment or subunits and thedevelopment of formal and informal networks determinethe strength of the absorptive capacity within the firm(Cohen and Levinthal 1990) Inward-looking absorptivecapacity is the interaction within the subunits Bothinward-looking and outward-looking absorptive capa-bilities are needed for companies to remain effective(Cohen and Levinthal 1990) Inward outward andsubunit involvement imply the existence of boundariesthat can limit ACAP at all levels There is a need to amove beyond generic ACAP descriptors and genericstructural applications (Jones 2006) with the develop-ment of context-specific applications (Veugelers 1997Todorova and Durisin 2007 Easterby-Smith et al2008) all of which leads to the first research questionconsistent with the aim of the paper

RQ1 How can absorptive capacity theory be appliedto a construction-sector SME using appropriate toolsand techniques to operationalize the construct acrosseach of its four dimensions

In this context the term lsquooperationalizersquo refers to linkingthe theoretical ACAP framework to practical outworkingwithin the organizationrsquos activities

Although absorptive capacity is a broad frameworkwithin which to interpret market challenges in terms of

the need to acquire assimilate transform and exploitknowledge effectively in support of addressing marketchallenges (Lane et al 2006) there is a need tocontextualize the framework for a given sector andorganization (Todorova and Durisin 2007) namely aconstruction-sector SME in the current context leadingto the second research question which is developedfrom RQ1

RQ2 What approaches can be adopted tocontextualize absorptive capacity in a construction-sector SME environment leading to improvedapproaches for dynamic capability to address marketchallenges

Responses to this research question will be organization-specific but will also show the need forcontextualization rather than applying generic ap-proaches

Zahra and George (2002) developed the constructs ofpotential absorptive capacity (PACAP that is acquisi-tion and assimilation dimensions) and realizedabsorptive capacity (RACAP that is transformation andexploitation dimensions) as shown in Figure 1 toemphasize the need to utilize and apply knowledgeeffectively as part of a process (Easterby-Smith et al2008) These constructs present a commercialization ormarket challenge to organizations as shown by Lane etal (2006) in attempting to develop absorptive capacityleading to the third research question which seeks toprogress beyond PACAP

RQ3 How can an SME use absorptive capacityconstructs to increase RACAP and hence competi-tiveness in the rapidly changing construction-sectormarket

Research methodology

The research philosophy approach methods andanalysis are outlined based on Saunders et alrsquos (2007)onion-layered approach to research and consistent withthe style of the research questions suggested by Yin(2003) First an interpretivist research philosophy waschosen ndash that of Saunders et al (2007 p 107) who seeinterpretivist philosophy as lsquohighly appropriate in thecase of business and management researchrsquo Moreoveran interpretivist research philosophy is suited to researchthat is focused on the understanding of people theirroles perceptions and capabilities

Second an inductive research approach was selectedas this is concerned with building understanding fromthe context in which the events are taking place anduses the flexible structure of qualitative data sourceswhen the researcher can be part of the research process



and when longitudinal data can be obtained ndash over atwo-year period in the current study (Saunders et al2007 Jones and Craven 2001) Easterby-Smith et al(2008) used a qualitative longitudinal approach to ACAPresearch suggesting that it was suited to the stage ofdevelopment of the construct

Third the research methods consistent with thenature of the two-year Knowledge Transfer Partnership(KTP) programme included action research partici-pant observation semi-structured interviews and focusgroups Reason and Bradbury (2001 p 1) state thatlsquoaction research is a participatory demographic processconcerned with developing practical knowing in thepursuit of worthwhile human purposes grounded in aparticipatory worldviewrsquo Hussey and Hussey (1997 p65) suggest that lsquothe main aim of action research is toenter into a situation attempt to bring about changeand to monitor the resultsrsquo The role of the KTPassociate within the firm (DComp) was as a researcherand an employee enabling a participant observerapproach to be adopted in support of action researchresulting in first-hand experience of the situation Inorder to gather information from the action researchrepeat semi-structured interviews (n = 30) were carriedout with management team members and a crosssection of staff within DComp (that is across allfunctions) in a planned manner over the 24-monthperiod of the KTP programme Focus groups (n = 24)in the form of facilitated management meetings wereheld with the associate each month when the mainagenda items reflected the aim and research questionsstated earlier Those involved included the ManagingDirector and management staff (from each of the keysubunits within the company) of the KTP partnerorganization along with the KTP associate asfacilitator of the discussions Further focus groupswere held with a cross section of staff to ensure thatperceptions from all areas and levels within the organi-zation were represented and discussed The secondarydata sources included company documents andgovernment publications relating to the constructionsector

Fourth the method of analysis involved developinginterpretive tables for each of the ACAP dimensions andinfluencing factors and then interpreting organizationalimprovements and contributions (determined from thedata sources) for each of these elements over the two-year period The KTP associatersquos participant observerrole enabled a relationship of trust and mutual exchangeto be established (Remenyi et al 1999) This develop-mental approach enabled the researchers to obtainreflective practitioner inputs as suggested by Yin(2003)

Results and discussion

Given the qualitative nature of the findings the resultsand discussion sections are combined as suggested byRemenyi et al (1999)

Knowledge Transfer Partnerships and the case SME

The KTP scheme originally known as the TeachingCompany Scheme (TCS) was established by theDepartment of Trade and Industry (DTI) in the UK toimprove the competitiveness of organizations bysupporting links between the state industry and knowl-edge base partners ndash mainly universities (Freeman andSoete 1997 Jones and Craven 2001) It is based ontwo-year partnerships between a knowledge base partnerand companies who require the development of special-ist skills and knowledge in a particular area

The KTP firm (DComp) was a construction-sectorSME The Managing Director (MD) had understood thechanging construction sector landscape and realized thatthe company lacked the in-house learning capability toadapt to and deal with emergent and future marketchallenges especially with regard to dynamic capacitydevelopment at all levels as suggested by Cheng and Li(2004) and Mathews et al (2000) The KTP pro-grammersquos aim was to increase the absorptive capacity(ACAP) of the case organization and hence its effective-ness and competitiveness in addressing thecompetitiveness challenges of the changing construc-tion-sector market The organization was a family-runSME construction business that focused on being theprincipal contractor on major government buildingcontracts with an extensive client base that includedcouncils other public authorities universities collegesand schools The company had 66 direct or full-timeemployees a number of contingent project-based self-employed staff plus unskilled labour The emphasis onpublic sector clients such as councils schools anduniversities led to most of the work being securedthrough the tender screening process which nowinvolves an evaluation of organizational capability(Davis 2008) Hence the company constantly had tolook for ways to improve capability and performance soas to remain competitive

Operationalizing the development of ACAP

In relation to RQ1 initial attempts by the key agents orKTP team (two academic researchers and a supervisorKTP associate two organizational supervisors ndash man-ager and senior manager and the Managing Director) toapply the ACAP framework in an operational manner todrive change proved to be problematic It was seen asbeing theoretical and as a summative and assessment-based approach rather than as a dynamic capability to

236



be purposively driven and developed within the organi-zation (Todorova and Durisin 2007 Jones 2006) Toaddress this challenge a series of learning-based toolsand techniques each of which contributed to someaspect of increasing individual team and organizationalACAP were adapted and trialled within the organiza-tion This approach enabled ACAP to beoperationalized whereby specific operational stepscould be implemented to increase and develop ACAP inthe individuals and groups within the organization in acumulative manner as suggested by Linsursquos (2004)study of the Hyundai Motor Company Moreover theapproaches helped in translating practice-based (orpragmatic ndash Easterby-Smith et al 2008) knowledgeacross external and internal boundaries within theorganization

Two of these tools namely the balanced scorecard(Assiri et al 2006) and the Investors in People (IiP)standard (Taylor and McAdam 2003) related to ACAPbeing identified as a dynamic capability The balancedscorecard and the learning process whereby the bal-anced scorecard was developed were used to identify

and pursue a number of initiatives at different organiza-tional levels or boundaries to improve processesprocedures and learning and growth routines withcommensurate development of performance measureswhich led to improved dynamic capability or absorptivecapacity of DComp in a similar manner to that sug-gested by Assiri et al (2006) Similarly the adaptation ofthe IiP model and its learning-based implementationprocess enabled and structured the development ofdynamic learning capabilities that included humanresources training and education RampD communicationand organizational culture and structure and encouragedemployees to act as both sources and conduits forknowledge across boundaries (in the pragmatic sense ndashEasterby-Smith et al 2008)

The balanced scorecard and Investors in People wereused in an integrated manner to operationalize absorp-tive capacity Figure 2 shows that for each of the fourdimensions of ACAP there was an initial evaluationfollowed by an iterative process using the action learn-ing methodology suggested by Jones (2006) whichinvolved the KTP team applying the balanced scorecard

Absorptive capacitydimension assessment

Assessment in relationto key influencing factors

Use of adapted balanced scorecardand IiP principles to establish

processes proceduresand routines


performance measuresfor processes procedures

and routines

KTP programme

Dynamic revaluation ofprocesses procedures and

routines (see Figure 3)

Figure 2 Operational learning loop for ACAP-based improvement



Figure 3 Dynamic learning loop for ACAP-based improvement

What assumptions are being madeabout the market people technologyperformance measurement or other

pertinent factors

Are these assumptions still viableIf not what new assumptions need

to be added

What are the implicationsin terms of changing processes

procedures or routines

Compare external approachesand adapt changes to procedures

processes and routines usingthis external knowledge

and IiP learning processes to increase ACAP levels foreach of the influencing factors of the respective ACAPdimension

This action led to an evaluation for each of the influ-encing factors and ultimately a re-evaluation of theoverall ACAP dimension This learning loop was used bythe action research team to increase and evaluate ACAP inrelation to all four dimensions (Figure 1) and in relation toeach of the influencing factors for each ACAP dimensionand also to reflect on the overall process

However while initial trialling of this approach(Figure 2) led to new or improved routines beyond thestatus quo for each of the ACAP dimensions there was alack of inbuilt learning-to-learn elements within theroutines which meant that a new status quo or pathdependency was quickly established (Lane et al 2006)prompting the establishment of new core rigidities(Leonard-Barton 2002) Thus through the actionlearning methodology a corollary lsquolearning-to-learnrsquoroutine was developed (Figures 2 and 3) to enable thefirm to lsquobreak out of existing path dependenciesrsquo (Jones2006 Cohen and Levinthal 1990)

Figure 3 shows that this learning loop ensures that theunderlying assumptions of the market and environmentare continually questioned in relation to change actions(in a similar manner to that of double-loop learning) ndashconsistent with Burgoyne (1990 p 23 quoted by Jones2006) who states that the importance of lsquolearningchanging adapting forecasting anticipating andcreating changersquo within learning routines isoperationalized which in turn ensures that the shape ofthe operational process procedure or routine is continu-ally changed in line with market and organizationalrequirements This approach required that all internalagents involved had to have a knowledge of changingexternal markets which was aided by the translationprocesses within the balanced scorecard The establish-

ment of this lsquoroutine for developing a routinersquo as shownin Figure 3 and as part of Figure 2 enabled the KTPteam plus the employees involved in each respectiveroutine to operationalize the development of new orimproved processes procedures and routines across theorganization to contribute to all four dimensions ofACAP in helping to make a contribution towardsaddressing RQ1

Contextualizing and developing absorptivecapacity with the case SME

The operationalizing process for ACAP within DCompas shown in Figures 2 and 3 required that each of thefour dimensions of ACAP and the associated influencingfactors should be contextualized in terms of resultantorganizational improvements in seeking to address RQ2Tables 1ndash3 have been developed to summarize theACAP improvements within DComp for the acquisitionassimilation and transformation dimensions of ACAPThe fourth dimension namely exploitation is illustratedlater through a study of a specific process improvement

Acquisition

Prior internal knowledge According to Zahra andGeorge (2002 p 191) lsquothe breadth and depth of knowl-edge exposure positively influence a firmrsquos propensity toexplore new and related knowledgersquo The project natureof the construction industry is essentially a lsquolearning bydoingrsquo process DComp goes through the iterativeprocess of working ndash learning ndash building on a succes-sion of projects The acquisition of knowledge andexperience of individuals within DComp is relativelyhigh due to the strong skills and experience base inwhich employee retention and training levels are high(Zahra and George 2002)

238



Table 1 Acquisition dimension ACAP influencing factors and improvements

ACAP influencing Subfactor Contextualization and improvementsfactor (where appropriate)

Prior internal Learning by doing Experience DComp has applied its experience of many distinct project types includingknowledge education commercial office buildings healthcare housing sports heritage and

conservation worksPeople DComp employees are well qualified and have considerable experience which isleveraged within its business processes

Past experience Environmental scanning As the construction industry is continuously changing DCompscans the environment for innovative products and processes which make a significantcontribution to the whole life-cycle cost of a proposed projectInteractions with customers Constantly interacting with clients to obtain feedback and toimprove quality projects on time and to budgetAlliances with other firms Establishment of joint improvement teams with clients todevelop more market-facing activities

Prior external Gatekeepers position The key agents use their influence and networks to promote the organizationknowledge in knowledge net- Managing Director ndash Associate of the Chartered Institute of Building Regional Economic

works relationships in Development Group personal contacts accountants solicitor planners surveyorsknowledge networks architects Construction Employers Federation KTP associate ndash fellow KTP associates

network and training courses Access to universityrsquos knowledge and expertise

Prior investments Research and Investment in ISO 90012000 ISO 14000 ISO 18000 Quality Environmental and Safetydevelopment Standards has led to improved practices and capability in procurement RampD using a

previous KTPInvestment in Training and development plans for all staff in requisite skills have led to multiskilling andindividual ACAP improved effectiveness of the workforce

Human resources Motivate continuous Continual improvement of the workforce through provision of adequate training tolearning improve competence and through Investors in People and the balanced scorecard with

specified improvement measures and targets

Cross-functional Communication Deployment of project management software linking all staff and an open-plan office forcommunication among departments engineers to encourage communication among the different departments Multi-level

teams devolving the balanced scorecard

The quarterly local management committee (LMC)meetings represented a key learning mechanism forabsorbing new knowledge into the organization andreflecting on progress and problems that had proveduseful for discussing new management ideas associatedwith the KTP project (Jones and Craven 2001) Thesemeetings along with those of the management teamsubunit balanced scorecard teams and Kaizen cross-functional improvement teams became key forums forassessing the effectiveness of acquiring new knowledgewithin DComp

Prior external knowledge The ACAP of DComp wasalso affected by the ability to form networks andrelationships with stakeholders (Zahra and George2002) and to leverage these networks in key businessprocesses (for example the bidding process) whichwould ultimately contribute to increased competitive-ness DComp established relationships with publicsector clients at multiple levels within the company (forexample engineers with the corresponding engineersand managers with the corresponding managers) Thenetworks utilized were both formal (for exampleprofessional bodies institutes of building and surveying)and informal (contacts within current and past alliances

local knowledge of the management team) whichimpacted positively on the acquisition of new knowl-edge (Daghfous 2004)

Acquisition of new information was also influencedby the ability of DComp to respond to environmentalcues The factors that drive DComp include marketopportunities and needs As the construction industry iscontinuously changing DComp needed to developroutines to scan the environment constantly for innova-tive products and processes that made a significantcontribution to the whole life-cycle cost of a project andhelped gain competitive advantage Methods of scan-ning that were developed from the KTP project includedbenchmarking comparisons analysis of markets andgovernment spending trends Engineers acting asgatekeepers for each of the organizational subunits andtheir boundaries (Jones 2006) have also been trained tolook for new building materials and processes to reducecosts and improve environmental performance (forexample use of recyclable and heat-retaining materials)

Prior investments DComp has increased investment inindividual ACAP Regular training courses have beenprovided to leverage and maximize its talents skills andabilities allowing it to achieve and maintain satisfactory



Table 2 Assimilation dimension ACAP influencing factors and improvements

ACAP influencing Subfactor (where Contextualization and improvementsfactor appropriate)

Levels of education DComp employs staff with a high level of education and enables them to apply theirlearning to encourage the absorption of new knowledge in key areas including accountsquantity surveying health and safety management buying management skilled andsemi-skilled trades and administration

Diversity of backgrounds The diversity of backgrounds is used to increase the possibility that new knowledge willbe related to knowledge already within DComp There is a variety of perspectives fromwhich to process acquired knowledge such as new associations and linkages

Human resources There is now planned continual improvement of the workforce through provision oftraining and development to improve capability across all areas and at all levels of thecompany Training is planned managed and monitored through a coordinated SkillsDevelopment Programme produced with the assistance of the Construction IndustryTraining Board (CITB) and the local government funding agency consistent with IiPprocedures

Cross-functional The development and devolving of the balanced scorecard and IiP approaches have ledcommunication to improved communications in assimilating knowledge with a wider range of inputs in

decision making However communication could improve among departments byemploying a knowledge-sharing approach

Organizational structure The structure is flat and flexible giving employees a level of empowerment in acceptingnew knowledge into their routines and practices across the organization as a whole

performance levels as measured using an adaptation ofthe balanced scorecard (for example project manage-ment surveys quality safety and environmental issues)This approach has helped in attracting and retaining aknowledgeable and skilled workforce as suggested byAssiri et al (2006)

Cohen and Levinthal (1990) state that the ACAP of anorganization is influenced by its investment in RampDand the higher the RampD the higher the absorptivecapacity leading to improved capability to acquire newknowledge The company has made significant invest-ment in increasing its capability by obtaining ISO90012000 ISO 14000 and ISO 18000 accreditationswhich help in improving the internal effectiveness of theorganization and in enhancing its market reputation asshown by Mathews et al (2000)

Human resources Human resource management(HRM) on the project sites depends on project managersand supervisors (traditionally called lsquoforemenrsquo) toimplement the required processes and procedures(Briscoe and Dainty 2005) However the educationalcontractual and procurement practices of the construc-tion industry encourage management to adopt ajob-centred culture (Loosemore et al 2003) as opposedto dynamic capability development which does not fitwith the changing environment in which they operate

Cross-functional communication Daghfous (2004 p24) states that lsquoan organisational structure allowing themaximum amount of communication between variousdepartments improves a firmrsquos Absorptive CapacityrsquoDue to the widespread and varied locations of thebuilding contracts undertaken by DComp there was a

lack of effective communication between the know-ledge-producing and knowledge-using sites similar tothat found by Davenport and Prusak (1998) DComprsquosstructure however is flat and flexible ndash which hasenabled rapid communication in times of crisis (forexample preparation for impending deadlines projectcompletions to meet customer deadlines) The KTPprogramme has led to the top-down managerial styleadopted by DComp being modified by devolvingbalanced scorecards to team level and improving thecapability of managers in all areas of the company Thedevelopment of cross-functional routines (Figures 2 and3) helped to increase the permeability of subunitboundaries as suggested by Easterby-Smith et al(2008)

Assimilation

Level of education and diversity of backgroundsAccording to Daghfous (2004) level of educationaffects the assimilation of knowledge that has beenacquired by an organization There were personnel withdiffering levels of education throughout the companywith a diversity of backgrounds (for example technicalspecialists such as quantity surveyors and buyers) whowere regularly involved to improve the absorption ofnew knowledge through critique and consensus Thisapplication of diversity enabled new knowledge to berelated to knowledge already existing within the firmresulting in improvements and innovations (Daghfous2004) ACAP levels held within DComp are dependenton the individuals within the firm (Daghfous 2004) Thecompany now encourages part-time study and offersspecific training for individuals at all levels Applying

240



Table 3 Transformation dimension ACAP influencing factors and improvements


Individual Systems capabilities Formalized and interlinked policies procedures and routines for health and safetyabsorptive quality environmental and human resource management are used by teams to meetcapacity client requirements (including industry regulators)

Coordination Relationship protocols were established between members in groups and with clientscapabilities and were used to provide opportunities and to help employees reach their potential by

linking and transforming knowledgeSocialization The open-plan office and new project management software were used by all key groupscapabilities within the organization and allowed for sharing communication and learning with clients

leading to improved working routines and participation in decision making

Level of education DComp employees were encouraged (via the balanced scorecard and IiP) to use andleverage their relatively high levels of education in key areas to improve the effectivenessof routines for transforming knowledge (for example improved client-facing procurementsurveying costing and project management routines)

Diversity of The diversity of backgrounds was helpful in debating multiple perspectives in problembackgrounds solving using Kaizen routines with client participation

Human resources The IiP approach was used to improve the following routines and approaches to ensurethat assimilated knowledge was effectively transformed (a) selection training anddevelopment (b) training to enable individuals to achieve and maintain satisfactoryperformance levels in their jobs (c) resources and routines to give all categories ofemployees the opportunity for self-development and growth

Internal Improved communication of new procedures routines and practices led to the effectivecommunication development of client-driven performance measurement in all areas and at all levels of

the company using the balanced scorecard and IiP

Organizational Informal networks and cross-functional teams were used by employees to develop newstructure procedures and routines to meet client needs

Organizational culture Improved organizational culture by empowering and involving employees led to improvedknowledge sharing and decision making at all levels of DComp by developing participa-tion-based routines through balanced scorecards and IiP

IiP helped in developing and implementing training anddevelopment routines (Figures 2 and 3) to assimilate thenew knowledge acquired by teams and individuals Italso helped retain staff and establish recognition andreward schemes such as social integration mechanisms(Figure 1) which in turn strengthened the assimilationprocess

Human resources Recruitment processes and proce-dures were developed to enhance absorptive capacity byemploying the most appropriate people and adding tothe firmrsquos core competencies (Jones 2006) Over thetwo-year period of the KTP programme recruitmentwas initially difficult This was followed by an improvedsituation due to the construction sector moving intorecession In DComp internal recruitment took placethrough promotions and transfers Internal recruitmenttends to be for office-based workers that is administra-tive and managerial roles providing motivation for staffExternal recruitment was improved by more effectivetargeting of individuals bringing new skills ideas andexperiences to the company (Easterby-Smith et al2008) thereby enhancing both the acquisition andassimilation of knowledge within DComp

Cross-functional communication Communication wasencouraged among departments within DComp toincrease social integration mechanisms and to lower thebarriers to assimilating newly acquired knowledge Thisapproach included the development of boundary-spanning skills for leaders of the cross-functional teamsdesigning the new and improved routines IiP encour-aged peoplersquos involvement and empowerment withmore employees (albeit a limited number) playing a rolein decision making by using devolved balanced score-cards

Organization structure Through the KTP project bothformal and informal networks were established toencourage the assimilation of knowledge throughout thecompany and to overcome the limitations of the existinghierarchical organizational structure Monthly teammeetings involving the key change agents (Jones 2006)and management meetings were established encourag-ing employees to contribute to both operational andstrategic issues (Daghfous 2004)

In summary the development of PACAP (Figure 1)within DComp led to the development of processesprocedures and routines to operationalize and improve



dynamic capability which was enabled by using adaptedlearning-based processes from the balanced scorecardand IiP as shown in Figures 2 and 3 The challenge atthis stage of the KTP programme was to convert PACAPinto RACAP (RQ3) by improving the transformationand exploitation of the more effectively acquired andassimilated knowledge (Figure 1)

Transformation

Individual absorptive capacity Individual absorptivecapacity impacts on the firmrsquos capability to develop andrefine routines that allow for the combining of existingknowledge with newly acquired and assimilated knowl-edge to increase competitiveness (Zahra and George2002) Hence multifunctional teams were used withinthe organization to communicate effectively create ashared ideology and create formalized procedures andpolicies that were client-focused for improving commu-nication and knowledge sharing (Linsu 2004)Management meetings and team meetings were estab-lished to improve communication and to set upformalized procedures using the operational loopsshown in Figures 2 and 3

Level of education The relatively high levels of educa-tion within the firm helped in combining existingknowledge and skills with newly acquired knowledge(Todorova and Durisin 2007) DComp has employeeswith varying levels of education from skilled tradespeo-ple to those with academic qualifications Thisinvestment in training and development enabled indi-viduals and teams to transform newly acquired andassimilated knowledge to meet the strategic goals of theorganization The high level of transformed knowledge(for example in the incorporation of new designpractices) within the company led to improved competi-tiveness in the new construction market as originallysuggested by Egan (1998) and the Rethinking Construc-tion initiative

Human resources DComprsquos implementation of theInvestors in People standard helped to establish routinesto motivate continuous learning within the company byfocusing on developing and training staff within aculture of continuous improvement as incorporatedwithin the tenets of the balanced scorecard and IiP inwhich dynamic capability is continually increased(Figures 2 and 3) The new and modified routines weresupported by a comprehensive training and developmentplan across all areas and levels of the company

In the UK it has been increasingly difficult to recruitgraduates in the construction sector due to competitionfrom more attractive industries poor public image and

recruitment policies (Millar 2005) The industry isattempting to close this skills gap positioning itself as acareer choice for young people by offering apprentice-ships and construction-based university degrees DCompnow contacts universities directly for new recruits andalso takes on a number of apprentices and placementstudents each year to enable it to keep abreast of newtechnologies techniques and materials thereforeincreasing the potential to leverage and develop routinesto increase dynamic capability and hence competitive-ness (Zahra and George 2002)

Internal communication Fosfuri and Tribo (2008)suggest that efficient internal communication enhancessocial integration mechanisms which improve informa-tion sharing and efficiency in the transformation ofacquired and assimilated knowledge Thanks to the KTPproject communication has improved through manage-ment and team meetings and the quarterly LMCmeetings Moreover key agents such as subunit leadershave formed professional linkages to their peers outsidethe company in a lsquocommunity of practicersquo format Thesemeetings and networks helped to identify core compe-tencies and established structured approaches to linkprocedures so as to increase the overall capability of theorganization Communication issues at internal organi-zational boundaries (lateral and vertical) were alleviatedby designing and implementing cross-functional rou-tines based on Easterby-Smith et alrsquos (2008) pragmatic(shared routines) boundary classification

Organizational structure and culture The applicationof Investors in People encouraged all employees tobecome involved and empowered within a series of neworganizational routines through using developed bal-anced scorecards and Kaizen techniques (Colenso2002) According to Daghfous (2004 p 24) lsquowhenemployees are empowered a knowledge-sharing cultureis encouragedrsquo This ultimately led to increased innova-tion in terms of new or modified products and serviceswithin DComp

Exploitation

The exploitation dimension of ACAP inquires into thefirmrsquos application or use of transformed knowledge toachieve the organizationrsquos objectives (Lane andLubatkin 1998) The key influencing factors are similarto those of the transformation stage (Zahra and George2002)

To probe the development of the exploitation ofACAP within DComp and to contribute further to RQ3a key cross-functional business process which inter-faced directly with the external market and whichinvolved all four dimensions of ACAP was considered

242



as an example of improved dynamic capability withinthe company ndash namely the tendering process (that is togain access to the lsquoselect listsrsquo by demonstrating organi-zational capability) The KTP associate investigatedboth the process of environmental scanning or searchingfor new tenders and the preparation of tender docu-ments

Construction companies must seek out jobs that areadvertised in local newspapers construction journalsand linked Websites These are known as lsquoselect listrsquoadvertisements Applying for a job involves eithercompleting a capability-based questionnaire or sendingout an information pack containing the informationrequested All companies regardless of status mustfollow the same procedure There is no standard replyas applications can differ significantly for each contractA great deal of care and attention must be spent on eachapplication as they are aimed at communicating to theclient that DComp is the most appropriate company withsufficient capability to meet the clientrsquos current andanticipated needs efficiently and economically Thetender document must give the client confidence in theorganizationrsquos capability to fulfil his or her needs(Preece et al 2003) DComp introduced an element ofpassive marketing by ensuring that it was listed on allpublic sector approved contractors lists (for exampleConstructionline and health trusts) and by emphasizingits newly developed absorptive capacity interpreted interms of approved or select list language Client groups(or gatekeepers see Zahra and George 2002) such asgovernment bodies public services and large corpora-tions have lists of approved contractors as well aspreferred and priority contractors DComp used itsabsorptive capacity KTP programme to address thecriteria on these lists

Exploitation-based targets were set and measuredeach month using the balanced scorecard at a corporatelevel and at team levels (based on specific skill group-ings for example surveying) The resulting quality ofthe job applications has improved and the value of theapplications has also increased Moreover cycle time forthis process has been reduced by 25 across all bidlevels The value of the contracts applied for has in-creased by approximately pound1 million and the number ofapplications made has reduced by 25 reflecting acapability-targeted approach as suggested by Briscoeand Dainty (2005) over the two-year period of the KTPprogramme The number of successful applications hasrisen by an average of 30

At a corporate level the absorptive capacity-basedKTP project with new and improved processes proce-dures and routines across all four dimensions of ACAPhelped make a substantial improvement to the competi-tive position of DComp Contracts Ltd with an increase

in turnover from pound57 million in 2006 to a predicted pound10million in 2008 based on the last management accounts

The KTP project has led to the introduction of moreefficient management procedures a new measurementsystem with tangible data the establishment of newcomplaints and quality procedures recognition of theneed for more control over finances and the introductionof job costing procedures appraisal procedures and newinvoice systems These activities that are associated withthe changes in the organization have ultimately aggre-gated to improve the absorptive capacity of DComp andits exploitation potential

The Office for National Statistics shows that therewas a substantial drop in the value of construction sectoroutput over the last 12 months Orders in the 12 monthsto November 2008 fell 14 compared with the previous12 months Performance output within DComp hasincreased over the same period The authors recognizethat ultimately long-term performance data will beneeded to show sustainable positive trends or otherwisehowever the initial results are encouraging and reflect amovement from PACAP to RACAP (RQ3) consistentwith the aim of the KTP programme

Conclusions

It is concluded that operationalizing absorptive capacityrequires interventions at individual group and firmlevels and that tools and techniques such as the balancedscorecard (Assiri et al 2006) and Investors in People(Taylor and McAdam 2003) and their associatedlearning processes can be adapted to ensure thatchanged or new routines contribute effectively to all thedimensions of ACAP Routines such as those associatedwith IiP ISO the balanced scorecard KTP recruitmenttraining and Kaizen techniques are the processes orroutines that supportstimulate the practices necessary toidentify potential and to realize PACAP

It was found that these routines needed to havelsquolearning-to-learnrsquo loops (Jones 2006 Figures 2 and 3)to ensure that they were continuously driven by chang-ing market and organizational requirements thus alsoensuring they were both strategic and operational (Lin etal 2002 Todorova and Durisin 2007) and involvedwith the acquisition assimilation transformation andexploitation of knowledge to increase capability andcompetitiveness

The influencing factors developed by Zahra andGeorge (2002) for each of the ACAP dimensions helpedin contextualizing how the SME could develop im-proved approaches in all of these areas Thiscontextualization and disaggregation of ACAP enabledmeaningful and specific improvements to be made andtargeted as shown in Tables 1ndash3 This approach



coupled with the operationalization routines (Figures 2and 3) enabled the SME to move from a theoreticalunderstanding of ACAP at a macro level to using theconstruct to develop specific improvements at indi-vidual group and firm levels which Jones (2006) andTodorova and Durisin (2007) have identified as an areafor development

The application and development of absorptivecapacity within the SME also demonstrated the linkbetween PACAP and RACAP as found by Zahra andGeorge (2002) The longitudinal nature of the research(two years) showed that capability building in terms ofacquisition and assimilation ultimately led to trans-formed routines and improved competencies whichresulted in increased organizational capability andcompetitiveness (Lane et al 2006) in terms of inclu-sions on select lists and successful bids for DComp

Consistent with Jones (2006) and Easterby-Smith etal (2008) it is suggested that further studies of organi-zational applications of ACAP should be developedusing longitudinal and qualitative data especially inSMEs where rapid responses to market changes areessential to ensure sustained competitiveness

ReferencesAssiri A Zairi M and Riyad E (2006) lsquoHow to profit from the

balanced scorecard an implementation roadmaprsquo IndustrialManagement and Data Systems Vol 106 No 7 pp 937ndash953

Briscoe G and Dainty A (2005) lsquoConstruction supply chainintegration an elusive goalrsquo Supply Chain Management AnInternational Journal Vol 10 No 4 pp 319ndash326

Burnes B and Coram R (1999) lsquoBarriers to partnerships inthe public sector the case of the UK construction industryrsquoSupply Chain Management An International Journal Vol 4No 1 pp 43ndash53

Carlile P R (2002) lsquoA pragmatic view of knowledge andboundaries boundary objects in new product developmentrsquoOrganization Science Vol 13 No 4 pp 442ndash455

Cheng E and Li H (2004) lsquoA learning culture for strategicpartnering in constructionrsquo Construction Innovation Vol 4 pp53ndash65

Cohen W M and Levinthal D A (1990) lsquoAbsorptive capacitya new perspective on learning and innovationrsquo AdministrativeScience Quarterly Vol 35 No 1 pp 128ndash152

Colenso M (2002) lsquoKaizen strategies for improving teamperformance how to accelerate team development andenhance team productivitycontributions by associates of theEurope Japan Centrersquo Measuring Business Excellence Vol6 No 1 pp 60ndash70

Daghfous A (2004) lsquoAbsorptive capacity and the implementa-tion of knowledge-intensive best practicesrsquo SAM AdvancedManagement Journal Vol 69 No 2 pp 21ndash27

Davenport T H and Prusak L (1998) Working KnowledgeHow Organisations Manage What They Know HarvardBusiness School Press Boston MA

Easterby-Smith M et al (2008) lsquoAbsorptive capacity a processperspectiversquo Management Learning Vol 39 No 5 pp 483ndash501

Egan J (1998) Rethinking Construction Department of theEnvironment Transport and the Regions London

Fosfuri A and Tribo J (2008) lsquoExploring the antecedents ofpotential Absorptive Capacity and its impact on innovationperformancersquo Omega Vol 36 No 2 pp 173ndash187

Freeman C and Soete L (1997) The Economics of IndustrialInnovation Pinter London

Hari S Egbu C and Kumar B (2005) lsquoA knowledge captureawareness tool an empirical study on small and mediumenterprises in the construction industryrsquo EngineeringConstruction and Architectural Management Vol 12 No 6 pp533ndash543

Hussey J and Hussey R (1997) Business Research APractical Guide for Undergraduate and PostgraduateStudents Macmillan Business Basingstoke

Jones O (2006) lsquoDeveloping absorptive capacity in matureorganisations the change agents rolersquo ManagementLearning Vol 37 No 3 pp 355ndash376

Jones O and Craven M (2001) lsquoExpanding capabilities in amature manufacturing firm absorptive capacity and the TCSrsquoInternational Small Business Journal Vol 19 No 3 pp 39ndash55

Kaplan R and Norton D (1996) The Balanced ScorecardTranslating Strategy Into Action Harvard Business SchoolPublishing Corporation NY

Kaplan R and Norton D (2001) The Strategy-FocusedOrganisation How Balanced Scorecard Companies Thrive inthe New Business Environment Harvard Business SchoolPublishing Corporation NY

Khalfin M McDermott P and Swan W (2007) lsquoBuilding trustin construction projectsrsquo Supply Chain Management AnInternational Journal Vol 12 No 6 pp 385ndash391

Lane P Koka B and Pathak S (2006) lsquoThe reification ofAbsorptive Capacity a critical review and rejuvenation of theconstructrsquo Academy of Management Review Vol 31 No 4 pp833ndash863

Lane P and Lubatkin M (1998) lsquoRelative absorptive capacityand interorganisational learningrsquo Strategic ManagementJournal Vol 19 No 5 pp 461ndash478

Leonard-Barton D (2002) lsquoCore capabilities and core rigiditiesa paradox in managing new product developmentrsquo StrategicManagement Journal Vol 13 pp 111ndash137

Lin C Tan B and Chang S (2002) lsquoThe critical factors fortechnology Absorptive Capacityrsquo Industrial Management andData Systems Vol 102 No 6 pp 300ndash308

Linsu K (2004) lsquoCrisis construction and organisational learningcapability building in catching up at Hyundai Motorrsquo Organisa-tion Science Vol 9 No 4 pp 506ndash521

Loosemore M Dainty A and Lindard H (2003) HumanResource Management in Construction Projects Strategicand Operational Approaches Spon Press London

Mathews J et al (2000) lsquoQuality relationships partnering in theconstruction supply chainrsquo International Journal of Qualityand Reliability Management Vol 17 No 5 pp 493ndash506

Millar R (2005) lsquoConstruction jobs fall 70 in Northern IrelandrsquoWebsite httpwwwcontractjournalcom

Preece C Moodley K and Smith P (2003) ConstructionBusiness Development Meeting New Challenges SeekingOpportunity Butterworth-Heinemann London

Reason P and Bradbury H (2001) Handbook of ActionResearch Sage London

Remenyi D et al (1999) Research in Business and Manage-ment Sage London

Riley M and Brown D (2001) lsquoCase study of the application ofBPR in an SME contractorrsquo Knowledge and ProcessManagement Vol 8 No 1 pp 17ndash28

Saunders M Lewis P and Thornhill A (2007) ResearchMethods for Business Students 4 ed Prentice Hall UpperSaddle River NJ

Simon A Sohal A and Brown A (1996) lsquoGenerative andcase study research in quality management Part 1 Theoreti-cal considerationsrsquo International Journal of Quality andReliability Management Vol 13 No 2 pp 75ndash87

Taylor A (2008) lsquoDecline in job vacancies fastest for sevenyearsrsquo Financial Times 3 September p 3

Taylor J and McAdam R (2003) lsquoA longitudinal study ofbusiness improvement models cross purposes or congruityrsquoManaging Service Quality Vol 13 No 5 pp 382ndash398

244



Teece D J Pisano G and Shuen A (1997) lsquoDynamiccapabilities and strategic managementrsquo Strategic Manage-ment Journal Vol 18 pp 509ndash533

Todorova G and Durisin B (2007) lsquoAbsorptive capacityvaluing a reconceptualisationrsquo Academy of ManagementReview Vol 32 No 3 pp 774ndash786

Veugelers R (1997) lsquoInternal R and D expenditures and

external technology sourcingrsquo Research Policy Vol 26 No 3pp 303ndash315

Yin R K (2003) Case Study Research Design and Methods 3ed Sage London

Zahra S and George G (2002) lsquoAbsorptive capacity a reviewreconceptualisation and extensionrsquo Academy of Manage-ment Review Vol 27 No 2 pp 185ndash203

231ENTREPRENEURSHIP AND INNOVATION Vol 11 No 3 2010 pp 231ndash244

The development of absorptivecapacity-based innovation in aconstruction SME

Rodney McAdam Kristel Miller Nora McMacken and John Davies

Abstract Traditionally construction has been a transaction-orientedindustry However it is changing from the designndashbidndashbuild process into abusiness based on innovation capability and performance management inwhich contracts are awarded on the basis of factors such as knowledgeintellectual capital and skills This change presents a challenge to con-struction-sector SMEs with scarce resources which must find ways toinnovate based on those attributes to ensure their future competitivenessThis paper explores how dynamic capability using an absorptive capacityframework in response to these challenges has been developed in a con-struction-based SME The paper also contributes to the literature onabsorptive capacity and innovation by showing how the construct can beoperationalized within an organization The company studied formed aKnowledge Transfer Partnership using action research over a two-yearperiod with a local university The aim was to increase its absorptivecapacity and hence its ability to meet the changing market challenges Thefindings show that absorptive capacity can be operationalized into achange management approach for improving capability-based competi-tiveness Moreover it is important for absorptive capacity constructs andlanguage to be contextualized within a given organizational setting (as inthe case of the construction-based SME in the present study)

Keywords absorptive capacity construction SMEs Knowledge TransferPartnership

Rodney McAdam is Head of the Department of Marketing Entrepreneurship and Strategy Univer-sity of Ulster Jordanstown Campus Shore Road Newtownabbey County Antrim Northern IrelandBT37 0QB UK E-mail rmcadamulsteracuk Kristel Miller and Nora McMacken are also in theDepartment of Marketing Entrepreneurship and Strategy at the University of Ulster John Davies iswith the Salford Business School University of Salford UK

Traditionally the UK construction industry has beentransaction-oriented with work being obtained bysuccessfully bidding for and completing contracts(Briscoe and Dainty 2005) However the constructionindustry is moving away from this traditional designndashbidndashbuild process to a new innovation capability andperformance-based approach in which contracts areawarded on factors such as knowledge intellectual

capital and skill (Khalfin et al 2007 Reason andBradbury 2001) As the construction industry is anincreasingly competitive environment both the firm andemployees of the firm must have the dynamic capabilityto learn quickly integrate new knowledge and transformand implement this new knowledge within the businessprocesses procedures and routines (Reason andBradbury 2001 Daghfous 2004) This approach will

232
















Absorptive capacity

PACAP RACAP





Knowledgetransform-

ation


Differentforms of

knowledge










234




























236













and routines

KTP programme








pertinent factors


to be added












Acquisition


238





































Assimilation


240
























Transformation








Exploitation



242










Conclusions














































244









232
















Absorptive capacity

PACAP RACAP





Knowledgetransform-

ation


Differentforms of

knowledge










234




























236













and routines

KTP programme








pertinent factors


to be added












Acquisition


238





































Assimilation


240
























Transformation








Exploitation



242










Conclusions














































244












Absorptive capacity

PACAP RACAP





Knowledgetransform-

ation


Differentforms of

knowledge










234




























236













and routines

KTP programme








pertinent factors


to be added












Acquisition


238





































Assimilation


240
























Transformation








Exploitation



242










Conclusions














































244









234




























236













and routines

KTP programme








pertinent factors


to be added












Acquisition


238





































Assimilation


240
























Transformation








Exploitation



242










Conclusions














































244





















236













and routines

KTP programme








pertinent factors


to be added












Acquisition


238





































Assimilation


240
























Transformation








Exploitation



242










Conclusions














































244









236













and routines

KTP programme








pertinent factors


to be added












Acquisition


238





































Assimilation


240
























Transformation








Exploitation



242










Conclusions














































244













pertinent factors


to be added












Acquisition


238





































Assimilation


240
























Transformation








Exploitation



242










Conclusions














































244









238





































Assimilation


240
























Transformation








Exploitation



242










Conclusions














































244
























Assimilation


240
























Transformation








Exploitation



242










Conclusions














































244









240
























Transformation








Exploitation



242










Conclusions














































244












Transformation








Exploitation



242










Conclusions














































244









242










Conclusions














































244



















































244









244









Date post:	22-Mar-2020
Category:	Documents
Upload:	others
View:	0 times
Download:	0 times

The development of absorptive capacity based innovation...

Documents