Absorptive Capacity of Project Networks

Abstract

Absorptive capacity is a firm’s ability to value, assimilate, and utilize new external knowledge and apply it to commercial ends. Much of the prior research on absorptive capacity focuses on characterizing the factors that influence absorptive capacity within organizations. However, the mechanism of how related factors affect absorptive capacity across interdependent organizations in project networks remains less explored. This paper extends a simulation model of project network learning to explore the absorptive capacity of project networks where periodic external innovations exist. This model is utilized in a series of simulation experiments to untangle the effects of varying types of innovation and degrees of relational instability in a project network. We establish a measure of project network absorptive capacity and develop an argument that relational instability moderates the project network’s absorptive capacity for different types of innovation. These findings have significant implications for assessing and developing strategies to improve a project organizational network’s capacity to absorb and, hence, profit from innovation.