EXERCISING OPPORTUNITIES FOR CROSS-INDUSTRY INNOVATION: HOW TO SUPPORT ABSORPTIVE CAPACITY IN DISTANT KNOWLEDGE PROCESSING

Abstract

Organisational-level cognitive distance between the source of knowledge and the applying firm is positively related to radical innovation, but hinders processing of distant knowledge as it is constrained by the firms absorptive capacity. We examine how determinants of absorptive capacity foster processing of distant knowledge from other industries. Using survey data from 125 firms across industrial sectors, structural equation modelling indicates that the relationship between a firms potential absorptive capacity and its cross-industry innovation outcomes and performance is fostered by collaborative learning activities and deliberate integration mechanisms. There is a direct negative effect of potential absorptive capacity on cross-industry innovation outcomes. Our results extend research on absorptive capacity to the context of cross-industry innovation. They reveal that although firms may have high levels of potential absorptive capacity, they may fail to exercise opportunities for cross-industry innovation. We provide means for managers to enhance absorptive capacity when moving beyond industry boundaries.