Organizational absorptive capacity and responsiveness: an empirical investigation of growth-oriented SMEs.

This study examines the relationship between firm absorptive capacity and organizational responsiveness in the context of growth-oriented small and medium-sized enterprises (SMEs). By testing the different dimensions of absorptive capacity, external knowledge acquisition and intrafirm knowledge dissemination were found to be positively related to organizational responsiveness. In addition, the relationships between absorptive capacity and organizational responsiveness were moderated by environmental dynamism and the SMEs' strategic orientation. Results demonstrate that the responsiveness of growth-oriented SMEs is expected to increase if (1) they have well-developed capabilities in external knowledge acquisition and intrafirm knowledge dissemination; (2) they have a well-developed external knowledge acquisition capability and adopt a more proactive strategy, such as being a prospector; (3) they face a turbulent environment and have a well developed internal knowledge dissemination capability. Implications and future research directions are provided.

Introduction

This study explores the question of the extent to which the prior knowledge of small and medium-sized enterprises (SMEs) has an impact on their capability to respond to the external environment. Using the definitions of absorptive capacity (Cohen & Levinthal, 1990; Leonard-Barton, 1995; Prahalad, 1995) and drawing on organizational learning theory (Huber, 1991), we posited relationships between different dimensions of absorptive capacity and organizational responsiveness and the moderating effects of strategic orientation and environmental dynamism. In the field of organization studies, an increasing number of organization theorists have recently emphasized how an organization's absorptive capacity can strongly influence its actions and outcomes. For example, the absorptive capacity concept has been widely applied in investigations on investment in research and development (Cohen & Levinthal, 1994), research productivity in the pharmaceutical industry (Cockburn & Herderson, 1998), innovation in banking services (Buzzachi et al., 1995), information technology use (Boynton et al., 1994), strategic alliances (Koza & Levin, 1998) and organizational learning (Shenkar & Li, 1999). To date, however, few insights from this perspective have diffused into conversations about organizational adaptation and responsiveness, especially in the context of SMEs. As a result, little is currently known about if, how and why absorptive capacity may affect SMEs' organizational responsiveness when confronted by environmental changes that present opportunities and threaten survival.

The emphasis on growth-oriented SMEs--those with fewer than 500 employees--not only reflects their importance in the U.S. economy but also responds to the increasing calls for more studies of entrepreneurial firms (Heneman, Tansky, & Camp, 2000). Despite the fact that 99.7% of the U.S. companies had fewer than 500 employees and 78.8% had fewer than 10 employees (USSBA, 1997), scant attention has been paid to SME research, especially SMEs' organizational responsiveness.

Our article contributes to the research of SMEs by addressing two major questions that have been neglected in the extant literature. What is the relationship between organizational absorptive capacity and responsiveness for growth-oriented SMEs? To what extent is such a relationship moderated by environmental turbulence and the strategic orientation of growth-oriented SMEs? By linking absorptive capacity to SMEs' organizational responsiveness, it is our hope that we will move closer to an understanding of why some SMEs are more responsive than others. Furthermore, explicit consideration of the relationship between absorptive capacity and organizational responsiveness will probably offer some tentative insights into the condition under which some SMEs may be more responsive than others.

This article proceeds as follows. First, we explore the concept of organizational responsiveness and identify the gaps in the extant research, especially in the context of SMEs. Next, we propose a theoretical framework linking absorptive capacity to organizational responsiveness. Then, the research hypotheses in our research model are delineated. This is followed by research methodology in which issues related to sampling, measures and model tests are discussed. We then highlight our findings in the results section. The article concludes with implications and opportunities for future research.

Theoretical Background and Hypotheses

Traditional Research on Organizational Responsiveness

An essential theme in the literature on organizational adaptation has been the attempt to identify the forces that promote and transform organizations in response to environmental change. The contingency and resource dependency literature (Thompson, 1967; Pfeffer & Salancik, 1978), the strategic change literature (Ginsberg, 1988), and the organizational learning and evolution literature (Levinthal & March, 1993; Nelson & Winter, 1982) all share a common concern with organizational adaptation. Overall, models of organizational adaptation range from deterministic ones, such as population ecology (Hannan & Freeman, 1984) and institutional theory (DiMaggio & Powell, 1983) to ones that place more emphasis on the proactive role of managers in the strategic decision-making process (Child, 1972; Daft & Weick, 1984).

Theorists who adhere to a more voluntaristic orientation advocate the primacy of strategic change and attempt to identify individual, organizational, and external factors that drive organizational responsiveness (Silverman, 1970). These arguments are largely rooted in strategy theory, social construction theory, structural contingency theory, as well as resource dependence theory. They claim that organizations are continuously constructed, sustained, and changed by strategists' definitions of the situation--"the subjective meanings and interpretations of actors impute to their worlds as they negotiate and enact their organizational surroundings" (Van de Ven & Joyce 1981, p. 25). The arguments emphasize the proactive role of strategists in monitoring and interpreting environmental changes, analyzing environmental threats and opportunities, and modifying organizations strategies to match those changes (Weick, 1979; Tushman, Newman, & Romanelli, 1988). Therefore, organizational effectiveness is a function of the match between organizational structure, process, and external environments (Hrebiniak & Joyce, 1985). Additionally, organizations not only passively react to the environmental changes but also attempt to change external constraints and maneuver the organizations into favorable positions. For example, environmental constraints can be changed and manipulated through political negotiation to fit the objectives of organizational strategists (Pfeffer & Salancik, 1978). At the macro level, Schumpeter's (1942) seminal work suggests that technological innovations are the fundamental drivers of organizational changes.

Other theorists who promote the theory of organizational inertia contend that organizations are severely limited in their ability to adapt their strategies to their external environments and therefore tend to persist in using their past strategies despite environmental changes. For example, cognitive theorists state that organizational strategists have a limited capacity to process information (Kiesler & Sproull, 1982; March and Simon, 1958; Moorman, 1995) and that they operate in organizational contexts that are often characterized by organizational and psychological pressures to persist with present strategies (Milliken & Lant, 1991). At the organizational level, organizations have a general tendency to preserve their strategies rather than radically change them (Quinn, 1980). Population ecologists also assert that organizations face both internal and external resistance and therefore their capabilities to respond to external changes are restricted.

Despite voluminous research, however, significant gaps in scholars' understanding of the organizational capability to respond to environmental change persist. Within the large body of literature, the research effort has focused almost exclusively on large, well-established firms. One particularly prominent void is in the area of organizational adaptation in the context of SMEs, especially growth-oriented SMEs. Current theories in organizational responsiveness are often developed and tested in large organizations. The question of the extent to which findings from research in organizational adaptation based upon large, well-established organizations could be extended to SMEs remains unanswered. This is problematic given that a critical component of sound theory is the delineation of those circumstances, such as organizational size and structure, which serve as boundary conditions to the theory (Klimoski, 1991). In comparison with large companies, SMEs are unfettered by bureaucracy, hierarchical thinking, and expensive existing information systems. They are often more innovative and more customer-oriented and have quick response times when it comes to implementing changes. Additionally, SMEs are also able to adapt, internalize, and crystallize information more efficiently across the entire firm (Pelham, 2000). These attributes are especially true for growth-oriented SMEs.

Organizational Absorptive Capacity and Organizational Responsiveness