Absorptive Capacity and Enterprise Modular Reconstruction
——Perspectives Based on Open Innovation
Ying-chun Song
Business School of Shandong University
No.180 West Culture Road Weihai, 264209,China
(songyingchun@sdu.edu.cn)
Abstract-Organizational structure is a key factor which
determine absorptive capacity and thus influence open
innovation, the late studies ignored this. Open innovation
requires enterprises to reconstruct the traditional hierarchy
organization, achieve the knowledge and decision-making
powers match, create a good organizational base and enhance
the absorption capacity. Enterprises modular reconstruction
whose main content is competency element modular and
organizational structure modular, not only can give full play to
core competencies and absorptive capacity embedded in each
module, effectively acquire, accumulate, absorb and integrate
the internal and external innovative resources, and can form a
modular innovation networks, and then become a effective
platform for open innovation to enhance its efficient.
Keywords-Absorptive
Capacity;
Open
Organization Reconstruction; Modularity.
I.
Innovation;
INTRODUCTION
Organizational absorptive capacity is one of the research
focuses in the study of open innovation. However, the
existing studies have not seen the organizational foundation
change brought about by the open innovation ignored
enterprises organizational change function to their absorptive
capacity. Based on the Elaboration which the absorptive
capacity is the key factor the to the open innovation success.
This paper claims that reform organization to match the
knowledge and decision-making powers is the basic
requirement to enhance the absorptive capacity. On this
basis, this paper proposes some issues such as the
organization modular reconstruction to achieve the
knowledge and the decision-making power match, enhancing
the absorptive capacity and improving the innovation
efficiency.
II.
ABSORPTIVE CAPACITY: THE KEY TO THE
OPEN INNOVATION SUCESS
In a closed innovation model[1], the enterprises obtain
technical advantages by independent research and
development, build a rigorous technical barriers, and thus
become a monopoly on the market. This innovative model
emphasis too much on self research and development,
which on one hand, leads the enterprises that cannot afford
the R&D investment to losing its competitive advantage for
barriers of new technology; on the other hand, a lot of
technology cannot turn into the enterprises core profit
because of over-exploitation or separation from market
demand.
In the open innovation model, enterprises treat external
resources as important as internal resources, integrate
resources in a larger range, constitute a new innovative
ecosystem with their business environment, and greatly
promote the innovation activities: (a) enterprises can
introduce external new ideas to increase the innovation
basic material; (b)outputting the creativity and innovation
results is a good way to increase financial returns and keep
creative capacities; (c)commercial development-oriented
open innovation provide an efficient way for the company
to measure the true value of innovation; (d) by constantly
input and output creativity, enterprises identify their core
competencies and make full use of their competitive
advantage.
The core idea of open innovation is to build a wide and
solid association with both external and internal knowledge
nodes and make full use of knowledge resources.
Absorptive capacity of enterprises is an important factor to
achieve this goal. Absorptive capacity is a dynamic
capability that how the enterprises learn and use of external
knowledge; absorptive capacity is a dynamic, continuous
feedback process, including five aspects: value cognition,
knowledge acquisition, digestion, integration, and
knowledge utilization. The stronger is the absorptive
capacity, the better for enterprises is to utilize external
resources and conduct open innovation. Further, open
innovation improves the absorptive capacity. Therefore,
enhancing absorptive capacity becomes the key to the
implementation of the open innovation.
In addition to the accumulation of relative knowledge,
the effort to develop absorptive capacity, the environment
and other factors, the conditions of their own organizational
structure and its position in the network organization are
important factors to determine the absorptive capacity of
enterprises. First, the basic structure of the enterprises whose
main content is enterprises organization form can foster the
contribution to the efficiency on the whole enterprise scale,
promote collaboration between different functions in the
pursuit of efficiency[2]. Second, if a business unit occupies a
central position in enterprises internal business network, it is
easier to contact and obtain the knowledge of other business
units, and then its level of absorptive capacity is higher[3].
Finally, different alliance structures have different effect to
the enterprises absorptive capacity: the horizontal
complementary structure mainly helps to expand the range
of knowledge, the vertical structure mainly helps to improve
the depth of knowledge[4] .
III. THE MATCH OF KNOWLEDGE AND
DECISIION-MAKING POWER: ORGANIZATION
BASIS TO ENHANCE ABSORPTIVE CAPACITY
The traditional hierarchical organization is the product of
the industrial revolution. In the knowledge economy age,
the knowledge accumulation and innovation is the
competition focus, the knowledge replace capital and
energy become the primary wealth-creating assets, just as
capital and energy replacing land and labor three hundred
years ago. The hierarchical organization born in the
industrial age is difficult to adapt to the requirements of
innovation and competition in the knowledge economy age.
First, knowledge is expressed as personal knowledge,
especially for individuals, the majority of knowledge come
into being under specific time and specific situation, has
significant dependence on the situation. The situation is
difficult to reproduce, so knowledge with dependence of the
situation is difficult for others to understand and
master[5].The effective flow of knowledge is difficult to
achieve through commands, especially when the
organization needs to acquire knowledge from the
employees or groups at the forefront of the market to obtain
advantages, the traditional hierarchical system is more
powerless. Second, with the increasing of tacit knowledge,
knowledge is more difficult to transfer, it is difficult to
separate knowledge from its holders, while the knowledge
workers scatter in various departments in the organization,
these factors have led to the problem that the hierarchical
organization of knowledge and power does not match even
worse.
There are two options to solve the mismatch of the
knowledge and decision power. First is decentralization
strategy, that is transferring decision-making power to the
people who have knowledge. If we do it, we will face
agency cost arising from the principal-agent relationship.
Second is centralized strategy, that is transferring
knowledge to the people with decision-making power, so
we will face information cost caused by phenomena such as
lack of information, poor information, information
overloading and information delaying. Generally speaking,
with the increasing degree of centralization, information
cost increase while the agency cost decrease; with the
increasing degree of decentralization, information cost
decrease while agency cost increase. Information cost and
agency cost constitute the total cost of organization.
According to such as the size of organization, information
technology, the speed of environmental changing,
government regulations and control technology and other
factors, enterprises should measure information cost and
agency cost on the trade-off, and re-design the
organizational structure [6]. In the knowledge economy and
information economy era, decentralization strategy is more
effective than centralized strategy. More companies choose
to decentralize the traditional hierarchical system.
In traditional hierarchical enterprises, the internal linear
command limits the execution autonomy, meticulous
division leads to workers having a narrow range of
knowledge, the formal relationship limits communication
between members. In order to facilitate and promote
organizational learning and knowledge innovation,
enterprise must transform the existing hierarchical
organization with network structure, making grass-roots
level organization into a node with considerable autonomy
in the network[7]. Under the mission, these nodes
independently choose the method of organizing activities
and maintain all forms of contact, competition and
cooperation with other nodes inside and outside the
organization. In this network organization, levels support
the orderly activities of organization, while the network
promotes members of every node in the network on
individual learning and sharing their knowledge that has
been formed. To transform traditional hierarchical system
with network structure requires enterprises to redefine their
mission, make strategy, regard internal and external
resources as the equality in its growth and development,
carefully analyze the core advantage of each department and
its contribution to the whole organization performance,
redefine the roles, responsibilities, rights, and their mutual
communication and coordination methods between each
department.
IV. ENTERPRISES MODULAR RECONSRUCTION:
STRATEGY TO ENHANCE ABSORPTIVE CAPACITY
A valuable organizational structure not only reduces and
solves the interdependence problems, but also provide the
chance for other organizations to contribute their
professional knowledge for the system establishment; it is
also able to create continuous opportunities and design a
suitable value chain for the enterprise; allow enterprise
compete with other enterprises in the eco-system as well as
maintain cooperative relationships with each other [1].
Using a modularity approach to reconstruct enterprises
network organization just fits this requirement. Modularity
as an effective method to manage complex systems is
applied in more and more occasions, to enhance the
modularity of the system becomes a general strategy to
manage complex things [8] .
A. CAPCITY FACTOR MODULARITY
The value chain is composed of many single capability
factors. The factor that affects the enterprises’ success or
not is their capacity factor and the state of their optimal
combination, rather than a specific business unit. The
advantage of business unit just is the result of the combined
effect of capacity factor, not the real source of the
enterprises value. Enterprises should pursuit the real source
of value creation from the perspective of capacity factor and
separate these elements from the value chain use a
modularity method make they become self-organization
business entities to maximize their core competencies,
achieve customer service and upgrade enterprises value[9].
The main elements of the enterprises capabilities consist of
product development, design, manufacture, distribution,
market network management, modular processing to these
capacity factors include: (a) focus on a single capacity
factor to maximum excavate the potential value of the
capacity factor through centralized strategy, make it
modularity and independent, turn it into enterprises business
element and commercialization; (b) through spin-off
strategy, by outsourcing, strategic alliances or virtual
enterprise and other forms of cooperation, operate in a
market-oriented direction, acquire or combine some related
capacity factors, rather than combine the entire enterprise,
pursuit cooperation effect, improve the enterprises
competitiveness.
B. ORGANIZATION STRUCTURE MODULARITY
Organizational structure modularity divides an
organization into several relatively independent modular
units, discards their original administrative relations, make
market mechanism whose transaction relies on contract. If a
module needs some kind of product or service, after the
information given by the coordination center, many modular
organization in the market will put forward their own
bidding for its selection, based on their skills, transactions
record, the difficult of the products or services to obtain,
competitive dynamics and other factors. When a capacity
factor module has no longer an advantage within the range
of the organization's integrate resources, the organization
will seek both inside and outside the enterprise for new
module to replace it.
In general, the organizational structure modularity
contains horizontal modular (functional unit modularity)
and vertical structure (business unit modularity). Functional
unit modularity manage business functions activities
through outsourcing and other means, which on the surface
is a function recombinant, its deeper significance is the
integration between the enterprise and market. Business unit
modularity is to re-optimize and combine the gene of
various capacity factors to form a capacity genome with
strong competitive advantages, which will make the
enterprises get more centralized and unique in the aspects as
knowledge accumulation and innovation, resource
aggregation, information processing, product production,
customer service and value creation and thus redefine or
innovate the business model.
Completing organization structure modularity, dynamical
adjustment on the capacity factor can be done the same as
building-block, so that enterprises can focus on the business
with great market potential, find profit leverage and come
out the effective strategies to create more economic value.
Meanwhile, the authority order coordination under the
original hierarchical system is replaced by market
mechanisms, the units within the enterprise transform from
"was organized" to "self-organization", begin to dig and use
their internal tacit knowledge, initiatively seek exchange
and interaction knowledge and information with the outside,
accumulate and innovate knowledge continuously. That is
to say, each module manages as self-organizing,
self-innovation and self-development need not external
commands and becomes self-survival and self-evolution
economic entities, an active promoter and practitioner of the
open innovation.
V. MODULARITY INNOVATION NETWORK:
EFFECTIVE PLATFORM OF THE OPEN INNOVATION
After have achieved capacity factor and organizational
structure modularity, different enterprises begin to connect
with each other, and gradually form an open inter-enterprise
value and innovative modularity network. Based on
modularity innovation network, the information exchanges
and transfers become more smoothly in innovation
activities, and knowledge sharing and innovation become
more efficient and the enterprises absorption capacity will
be greatly enhanced. First, each internal capability factor
operate modularity, and then make their core competencies
more refined, deeper, and stronger, and break the physical
boundaries of space and enterprise organizations through
communication with the external market, make full use of
the core strengths of other modular units to expand and
strengthen its core competencies. Second, the modularity
network will help companies more efficiently capture
external information, and it is an effective organization for
enterprises acquire a variety of knowledge resources. With
the support of modularity network, enterprises entire
business originally done by a single enterprises is now
divided into several parts which will be done by the
modules in the network, since each modular having
different core competencies directly face to market, it is
very sensitive to variety of information relevant to its
operations, the breadth and depth of information gathering
are increased considerably, and can efficiently make
accurate judgments on the source and processing methods
of information. Third, the loosely coupled features of the
modularity innovation network can effectively reduce the
risk of opportunism, and realize the network overall
performance under the conditions of ensuring all nodes
interest, it can not only improves specific innovation system
flexibility and scalability [10], but also upgrade the
reusability of each innovation nodes, since as an
independent node the modularity organization often can be
embedded multiple open innovation network.
VI.
CONCLUSION
The absorption capacity is the critical factor to success
for the open innovation. To achieve the match of the
knowledge and decision-making power is the organizational
foundation to enhance the absorptive capacity. The
enterprises make modular reconfiguration of the traditional
hierarchical organizational structure whose main content is
ability element and organization structure can realize the
match of the knowledge and the decision-making power,
enhance absorptive capacity and make full use of the core
competencies embedded in each modularity, help
enterprises to integrate into the open modular innovation
network to improve the enterprises open innovation
efficiency.
ACKNOWLEDGMENT
The writing of this paper got my husband Dr.Jun Liang's
support, and the discussion with him let me got much
inspirations, he helped me polish the words in the text,
without his support, this paper could not be completed
successfully. At the same time, I also got my graduate
students Peng Jiang, Feng-qi Li and Na Zhou and other
fellow students various forms of help and support, they are
always well complete the work which I handed to them and
their excellent make me feel very proud. I want o express
my sincere gratitude to them.
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