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Absorptive capability and its mediating effect on the learning and market
orientations' influences on performance

Article  in  International Journal of Technology Marketing · January 2009

DOI: 10.1504/IJTMKT.2009.026874

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Int. J. Technology Marketing, Vol. 4, Nos. 2/3, 2009 275

Absorptive capability and its mediating effect on

the learning and market orientations’ influences
on performance

David Di Zhang
Edwards School of Business
University of Saskatchewan
25 Campus Drive, Saskatoon
Saskatchewan S7N 5A7, Canada
Fax: (306) 966–2516
E-mail: [email protected]

Abstract: Prior studies have identified that learning orientation and Market
Orientation (MO) have positive influences on firm performance. In this paper,
the author argues that the firm’s absorptive capacity serves as the bridge
that facilitates the realisation of such influences. Firms must effectively
communicate with stakeholders and disseminate knowledge throughout the
firm. Without the capacity of assimilating learned knowledge and exploiting
market intelligence, firms cannot fully realise the benefits of learning- or
market-oriented corporate strategies. A mail survey was conducted to Canadian
manufacturing companies. Using Structural Equation Modelling (SEM), the
author tested a theoretical model that specifies absorptive capacity as the
mediation variable that links organisational strategic orientations, such as
learning orientation and MO, to the performance outcome indicators, such as
innovation, customer satisfaction and loyalty, and financial performance.
The results indicate that the model fits well with the data; all hypothesised path
coefficients are positive and significant.

Keywords: absorptive capability; learning orientation; market orientation;

innovation; performance; customer satisfaction and loyalty; mediation;
marketing; strategy; structural equation modelling; SEM; Canada.

Reference to this paper should be made as follows: Zhang, D.D. (2009)

‘Absorptive capability and its mediating effect on the learning and market
orientations’ influences on performance’, Int. J. Technology Marketing, Vol. 4,
Nos. 2/3, pp.275–288.

Biographical notes: Dr. David Di Zhang is an Associate Professor of

Management and Marketing at the Edwards School of Business at the
University of Saskatchewan, Canada. His current research interests include
marketing strategy, international business and entrepreneurship.

1 Introduction

Marketing and strategy scholars have long engaged in searching for critical success
factors in firm performance. One of the most prominent success factors to performance,
perhaps as far as the scholars in marketing strategies are concerned, is the concept

Copyright © 2009 Inderscience Enterprises Ltd.

276 D.D. Zhang

of Market Orientation (MO). MO refers to the guiding principle for a firm’s management
team that focuses on customers and competitors (Narver and Slater, 1990; Kohli and
Jaworski, 1990). Prior research has demonstrated that MO has robust and long lasting
positive influences on firm performance (Cano et al., 2004; Kirca et al., 2005; Zhang
et al., 2007; Zhang, 2006; Zhang et al., 2004; Sivaramakrishnan et al., 2008).
There are gaps in the extant literature, however. For example, there is a disconnection
between having the intention of becoming market-oriented and actually having the
entire firm behaving in a market-oriented fashion. There have been occasions where
firms wanted to understand their customers better, but certain circumstances may place
limitations on such understandings. There are also cases where firms have gathered
information on their customers but are unable to act upon it. Several scholars have
acknowledged the missing link between managers’ knowing of what they ought to do
and what they actually do (Gainer and Padanyi, 2005; Kirca, 2007). To this end,
Kennedy et al. (2003) ethnography provides some insight to the progress and struggle in
the implementation of MO; and Gebhardt et al.’s (2006) longitudinal case study identifies
the stages firms go through. Both studies have documented the importance of leadership
in spearheading the change and implementation process. This paper makes an effort
to illustrate that the implementation process does not stop at the cultivation of a
market-oriented organisational culture, where Gebhardt et al. (2006) left off; instead, a
market-oriented organisational culture is where further work starts. Firms must move on
to developing dynamic capabilities, such as absorptive capacity, in order to truly take
advantage of the full potential of MO.
Learning orientation has also been demonstrated to have critical influence on firm
performance (Calantone et al., 2002; Hult et al., 2004). Learning has been shown to have
positive effects on customer satisfaction and loyalty (Kohli and Jaworski, 1990), alliance
partnership (Emden et al., 2005), long-term client relationship (Santos-Vijande et al.,
2005), teamwork (Bunderson and Sutcliffe, 2003), employee self-efficacy (Martocchio
and Hertensein, 2003), and managerial decision making (Celuch et al., 2002).
Critics have argued that some of the most recent models in the stream of marketing
strategy research are still static (Baker and Sinkula, 2007; Ketchen et al., 2007).
It appears that, as the extant theories goes, once a firm has the willingness to learn,
everything else would fall into place. This study is aimed to demonstrate that possessing
a learning orientation alone is not enough. The willingness to learn must work in
conjunction with MO, which guides firms to place emphasis on learning market
intelligence. Furthermore, the full benefit of learning also depends on how much has
been absorbed, and what actions have been taken as the result of learning. Baker and
Sinkula (1999) argue that when organisations are engaged in a constant learning process,
they would try a certain strategy, learn from the experience, and take corrective actions
and modify their strategies to achieve optimal performance. Thus, a firm’s generative and
adaptive learning can shape and re-shape the firm’s strategic priorities. Learning drives
the cycle of goal formulation, execution, appraisal, and revision (Van de Ven and Poole,
1995). Therefore, the second objective of this research is to investigate the relationship
among learning orientation (the willingness to learn), MO (the focus of learning), and the
subsequent absorption process. Our data provide empirical evidence to delineate the
distinction between the predisposition of having the willingness to learn and the actual
process of absorbing knowledge.
 Absorptive capability and its mediating effect 277

Absorptive capacity refers to a firm’s ability to recognise the value of new, external
information, assimilate it, and apply it to commercial ends (Cohen and Levinthal, 1990).
Absorptive capacity captures not only the acquisition or assimilation of information by an
organisation but also the organisation’s ability to exploit it. Therefore, an organisation’s
absorptive capacity does not simply relate to the organisation’s direct interface with the
external environment; it details the transfers of knowledge across and within subunits
that may be quite removed from the original point of entry (Cohen and Levinthal, 1990).
This construct has been widely used in the analysis of an array of diverse and
complex organisational phenomena (Zahra and George, 2002). For example, it has
been demonstrated that absorptive capacity is instrumental in organisational learning,
particularly when repeated restructuring occurs (Bergh and Lim, 2008). Absorptive
capacity has been found to accelerate organisational learning in international venturing
(Zahra and Hayton, 2008); increase the use of interactive mode in technology sourcing
(Ouyang, 2008) and collaboration with external organisations (Muscio, 2007); enhance
organisational learning and innovation (Garcia-Morales et al., 2007); and positively
influence the acquisition of technology from both internal and external sources
(Haro-Dominguez et al., 2007). Therefore, absorptive capacity would serve as an
excellent link between organisational cultural variables, such as MO and learning
orientation, and performance outcomes.

2 Learning orientation and absorptive capacity

There have been intensive discussions in the literature about organisational learning
and what constitutes a learning organisation. Learning orientation is the firm’s propensity
and openness to learning, and therefore, is a critical antecedent to firm performance
(Calantone et al., 2002; Hult et al., 2004). Prior studies have demonstrated that
learning-oriented firms are more effective in establishing and maintaining long-term
relationships with their clients and customers (Santos-Vijande et al., 2005). At the
individual level, learning orientation has a positive influence on employee’s self-efficacy,
which is important for his/her job performance (Martocchio and Hertensein, 2003).
Leaning orientation also plays a positive role in teamwork, allowing team members
to more willingly and openly learn and collaborate with each other, and, consequently,
improve overall performance (Bunderson and Sutcliffe, 2003). At the senior management
level, learning-oriented managers are more effective at making sense of their
environment, and thus make better competitive strategy decisions (Celuch et al., 2002).
Integrated organisational learning is about not only the process of gathering the
knowledge, but also what firms do about the knowledge they have gathered (Gray and
Meister, 2003; Vera and Crossan, 2003). Thus, organisations with high levels of learning
orientation should also develop a high level of absorptive capacity in order to maximise
the benefits of learning. Researchers have demonstrated that learning about customers
and competitors leads to enhanced customer responsiveness, which, in turn, leads to
higher customer satisfaction and customer loyalty (Kohli and Jaworski, 1990). In the
context of strategic alliances, a learning-oriented firm is more capable of learning from its
past experiences thereby enhancing alliance performance and creating superior value
(Emden et al., 2005). Sinkula et al. (1997) recognised that leaning orientation affects
the acquisition and dissemination of information. They also view learning orientation
278 D.D. Zhang

as a predisposition whereby learning is more likely to occur. As learning occurs,

the organisation’s absorptive capacity determines how much of the learned knowledge
is retained and shared, and perhaps more importantly, acted upon. Based on these
prior findings, it is hypothesised that absorptive capacity mediates learning orientation’s
influence on firm performance.

H1 Absorptive capacity mediates learning orientation’s influence on (a) innovation;

(b) customer satisfaction and loyalty; and (c) financial performance.

3 Market orientation and absorptive capacity

MO has been a dominant theme in marketing strategy research for over two decades.
MO refers to the kind of organisational culture where the firm focuses on customers
and competitors, and various functional departments within the firm take coordinated
responsive actions (Narver and Slater, 1990). Recent meta-analyses on the MO literature
suggest that there have been over 200 published studies on this subject; theories
and empirical evidence generally support that MO has a robust positive influence on
firm performance (Kirca et al., 2005; Cano et al., 2004). Slater and Narver (1995)
state that market-oriented firms are inherently learning organisations. Market-oriented
organisational culture is a precondition for organisational learning. MO and learning have
a synergetic impact on firm performance (Santos-Vijande et al., 2005). Market-oriented
organisations learn a lot about their markets and customers, but unless they absorb
what has been learned and put knowledge into action, market intelligence, per se,
is unlikely to be effective. When a strong customer-oriented organisational culture
supports organisation’s learning, the whole system is more effective in improving
firm performance (Yilmaz et al., 2005). The extant literature has well documented the
positive association between MO and organisational learning (Lee and Tsai, 2005;
Liu et al., 2003) and their interaction also have a positive influence on firm performance
(Baker and Sinkula, 2002; Farrell, 2000). These findings lead to our second hypothesis,
that absorptive capacity mediates MO’s positive influence on firm performance.

H2 Absorptive capacity mediates MO’s influence on (a) innovation; (b) customer

satisfaction and loyalty; and (c) financial performance.

4 Multifaceted performance

It should be pointed out that this proposed research project would treat organisational
performance as a multifaceted construct. The financial aspects of performance, such as
sales revenue, Return on Investment (ROI) and Return on Assets (ROA), are presumably
an important goal for entrepreneurs, senior management, and investors. Accordingly,
financial performance has typically been included as an important aspect of performance
indicator in prior studies.
However, many strategic decisions may not immediately have apparent impact on
financial performance of the firm in the same year. Thus, some seminal works in
marketing strategy would specify attitudinal measures, such as customer satisfaction and
 Absorptive capability and its mediating effect 279

loyalty, as the indicator for performance outcomes; they argue that customer satisfaction
and loyalty would have long-lasting impact on the firm’s financial performance
(Kohli and Jaworski, 1990). Kirca et al. (2005) suggest that empirical evidence on the
direct link between MO and financial performance is somewhat mixed, but MO has a
powerful impact on customer satisfaction and loyalty. Firms that achieve high customer
satisfaction tend to enjoy high economic returns (Anderson et al., 1994). Customer
loyalty and customer satisfaction are inextricably linked; customer satisfaction is
sequentially linked to customer loyalty, customer retention, and profitability (Rust and
Zahorik, 1993).
Innovation often contributes to a firm’s financial performance, and it could be a
performance indicator by itself. Firm’s capacity to innovate has been treated as an
organisational outcome in its own right. The conventional meaning of ‘innovation’ in
marketing often refers to new products. More recently, the spotlight also shines on
innovative services, technologies, and organisational processes (Damanpour, 1991).
Both technical innovations and administrative innovations have influences on financial
performance (Han et al., 1998). Prior studies have revealed that MO’s influence is
partially mediated through such innovations (Matear et al., 2002). Product innovation,
in particular, is likely to lead to a better fit between company product line and
market needs (Zott, 2003), and thus enhance customer-related performance indicators.
Innovations help the adopting organisation to accommodate uncertainties in the
competitive environment, and thus enhance firm’s financial performance (Damanpour
and Evan, 1984; Ettlie and Bridges, 1982). Accordingly, innovation will also be included
as a dimension of firm’s overall performance.
In summary, Figure 1 depicts the theoretical framework that incorporates all the
hypotheses we have presented.

Figure 1 Hypothesised framework

280 D.D. Zhang

4.1 Method
This paper hypothesises several differences in terms of the strategic orientations of the
firms, their absorptive capacity, and the performance of these firms. A cross-sectional
survey based method is well suited for testing these hypotheses. Data on a large
number of organisations can be collected systematically via this method. Furthermore,
the survey method is the least susceptible to researcher biases in data collection, analysis
and interpretation.
A mail survey was conducted to collect information about Canadian manufacturing
companies. A sample of 2200 companies with Standard Industry Codes (SIC) ranging
between 2000 and 3999 were selected from approximately 100 000 Canadian companies
listed in Profile Canada’s database. The owners of the businesses or senior managers of
these selected companies were contacted by mail, informed of the nature of the study, and
asked to complete and return a survey questionnaire in a self-addressed, stamped, return
envelope. Follow-up reminder postcards were sent two weeks after the initial mail out.
Out of the 2200 packets mailed, 198 returned as undeliverable. One hundred sixty-three
respondents returned the survey. Two responses were deleted due to a large proportion
of missing data. The survey therefore yielded 161 usable responses, representing an
8% response rate. A t-test comparing the respondents’ company profiles with that of the
overall sample revealed no statistically significant difference. A mean comparison test
between earlier respondents and later respondent did not reveal any significant difference
between the two groups on any of the major variables measured. Hence, we believe that
nonresponse bias is not a major concern in this data.

5 Construct measurement

MO was measured following Narver and Slater’s (1990) cultural perspective. We used a
12-item, seven-point Likert-type scale to capture the respondent’s perceptions on his/her
company’s customer orientation, competitor orientation, and interfunctional coordination.
These 12 items demonstrated good reliability, with a standardised item alpha coefficient
of 0.86. All relevant items measured in the questionnaire are listed in the Appendix.
Learning orientation was measured with a four-item, seven-point Likert-type scale
based on the work of Sinkula et al. (1997). These four items exhibited good internal
reliability (Cronbach’s alpha = 0.89).
Absorptive capacity was measured with a seven-item, seven-point Likert scale based
on the work of Cohen and Levinthal (1990) and Szulanski (1996). These seven items
demonstrated good reliability, with a standardised item coefficient alpha of 0.8462.
Innovation was measured with a three-item, seven-point semantic differential scale
based on the work of Naman and Slevin’s (1993) study on innovation in the context
of firms’ entrepreneurial behaviours. Each end of the scales was anchored by extreme
behaviour that exemplifies innovativeness. These three items also demonstrated good
reliability, with a standardised item coefficient alpha of 0.777.
Customer satisfaction and loyalty was measured with a six-item, seven-point
Likert-type scale designed to capture the extent of the firm’s customer satisfaction
and customer loyalty. Therefore, it was considered appropriate to use a firm’s customer
 Absorptive capability and its mediating effect 281

satisfaction and customer loyalty as indicators for the firm’s overall performance.
The six indicators for customer-related firm performance demonstrated good reliability
(Cronbach’s alpha = 0.87).
Financial performance was measured by asking the respondent to relatively assess
their company’s ROI, ROA, and sales revenue, compared to major competitors in their
respective industry on a three-item, seven-point Likert type scale – the same measure
used by Jaworski and Kohli (1993). These three items demonstrated an excellent
reliability, with a standardised item coefficient alpha of 0.9011.
Table 1 reports the descriptive statistics (means and standard deviations) of the
measured constructs, when an index score is created for each construct by averaging
the several items that were intended to capture the same underlying construct, and the
interconstruct correlations.

Table 1 Descriptive statistics and correlations

Standard
Construct Mean deviation 1 2 3 4 5 6
1 Market orientation 5.21 0.82 Corr. 1.00
Sig.
2 Learning orientation 5.10 1.56 Corr. .41 1.00
Sig. .00
3 Absorptive capacity 5.05 1.03 Corr. .31 .64 1.00
Sig. .00 .00
4 Innovation 4.17 1.43 Corr. .27 .10 .19 1.00
Sig. .00 .19 .02
5 Customer satisfaction 5.83 0.72 Corr. .31 .42 .41 .01 1.00
and loyalty Sig. .00 .00 .00 .86
6 Financial 4.79 1.15 Corr. .18 .34 .26 –.02 .31 1.00
performance Sig. .02 .00 .00 .77 .00

Using Structural Equation Modelling (SEM), we constructed a model that replicates

the theoretically hypothesised framework that was depicted in Figure 1, which
specifies absorptive capacity as the mediation variable that links organisational strategic
orientations, such as learning orientation and MO, to the performance outcome indicators,
such as innovation, customer satisfaction and loyalty, and financial performance.
Numerous scholars have advocated the benefits of employing SEM, which provides
a comprehensive means for assessing and modifying theoretical models (Anderson and
Gerbing, 1982; Bentler, 1983; Joreskog, 1978). SEM has been commonly used in
marketing and strategic management research (Shook et al., 2004). Figure 2 shows
the simplified version of the tested model, showing only the latent variables and the
relationships among them.
The results of the SEM model indicate a good fit with our data, signified with an
acceptable error term (RMSEA = 0.08). The path coefficients support our hypotheses.
For example, both MO (standardised regression weight β = 0.153, p = 0.023) and
learning orientation (β = 0.815, p < 0.001) have positive and significant influence on
absorptive capacity. In turn, absorptive capacity has positive and significant influences
on innovation (β = 0.236, p = 0.045), customer satisfaction and loyalty (β = 0.491,
282 D.D. Zhang

p < 0.001), as well as financial performance (β = 0.368, p < 0.001). The comparative
fit index (CFI = 0.965) and the normed fit index (NFI = 0.935) are both above the
acceptable level.

Figure 2 Tested model

5.1 Implications
The theoretical contribution of this paper is to ground the previously considered ‘robust’
theories of learning and MOs to a contextual base. This is not to say that learning and
MOs are not positive factors for firm performance. Rather, this paper seeks to investigate
how to facilitate the realisation of the benefits of learning and MOs. As hypothesised
and supported by our data, the positive benefits of learning and MOs on performance
indicators are fully mediated through the firm’s absorptive capacity. Accordingly,
the author demonstrates the urgency that managers should make substantial investment
in corporate dynamic capabilities, such as absorptive capacity, which emphasises on the
assimilation and exploitation of knowledge and market intelligence already learned.
Prior studies in marketing strategy research have often measured static constructs
and tested the correlations among them. More recent theories posit more dynamic
learning processes (Baker and Sinkula, 2007), and multi-staged implementation
processes (Gebhardt et al., 2006). Our paper makes an attempt in extending such
theories by investigating the constructs that are more dynamic and seeking to
understand the processes of the implementation and absorption of well established
competitive strategies, such as MO and learning orientation. The potential theoretical
contribution from this paper is that we can better understand not just whether firms listen
to their customers or what strategic decisions they have made, but also how much
they retain market information, and more importantly, how they have acted upon it.
 Absorptive capability and its mediating effect 283

Furthermore, this research investigates the dynamic processes of how companies

come to making the decisions. In other words, this research looks at firms’
organisational culture and strategic formulation through a learning perspective, hence
creating new knowledge of the dynamic nature of the interactions among industry
environment, organisational factors, managerial decisions, and the various dimensions of
performance outcome.
The potential managerial implication from this research is that it would benchmark
the best practices, so that practitioners can learn from the experience of others by
understanding what the other managers have gone through, what their critical success
factor have been, and what the pitfalls might be to avoid.
Essentially, we consider absorptive capacity as a dynamic capability of the firm,
which emphasises on the dissemination, assimilation, and exploitation of knowledge.
Simply put, all stakeholders of the firm must effectively and efficiently communicate
with each other and put knowledge to use. Our data suggest that cultivating an
organisational absorptive capacity would magnify the benefits of learning and generating
market intelligence.
Our study is not without limitations, however. Knowledge utilisation and
application takes time. Cross-sectional data and one-time survey research method are
inherently limited in their power of detecting time-delayed effects or dynamic feedback
relationships. Future longitudinal studies would reveal the processes of knowledge
absorption and exploitation. It should also be noted that our sample is drawn from one
industry in one country, namely, the Canadian manufacturing industry. Therefore, caution
must be exercised when making inferences. Perhaps larger scale future studies that draw
participants from multiple industries and from multiple countries would help to improve
the generalisability of the findings.
Limited by the scope of this study, we have focused on only a handful constructs.
We have only examined the market and learning orientations, a limited representation of
an organisation’s culture, as the firm’s resources. We are fully aware that these factors
would have to work in conjunction with other types of organisational resources. In future
studies, it would be infinitely more interesting to investigate how organisational culture
interacts with financial resources and human capital. In terms of performance outcome,
as we argued, multiple indicators should be considered simultaneously to assess the
firm’s overall performance. That does not mean that our list of indicators is exhaustive.
Other indicators, such as market share, or environmental sustainability, or internal
stakeholder satisfaction, are also important.
Perhaps our largest trade-off is between the desires of seeking a comprehensive
theory on the one hand, and the practicality of doing one thing at a time, on the other.
We chose to focus on the construct of absorptive capacity in this paper. This by no means
implies that absorptive capacity is the only thing that matters. Rather, we have used
our data and model to demonstrate that absorptive capacity is one of the important
dynamic capabilities that would help the firms to realise the potential benefits of
learning-oriented and market-oriented organisational cultures. It is our goal to discover
additional knowledge on the topic of technology marketing in future studies.
284 D.D. Zhang

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Appendix
Questionnaire
Market orientation
1 Our principal business goal is to satisfy the needs of our customers.
2 We use customers as an important source of service ideas.
3 We constantly monitor our level of commitment to our customers.
4 Our strategy for competitive advantage is based on our understanding of our
customers’ needs.
5 We measure customer satisfaction systematically.
6 We regularly share information within our company concerning
competitor’s strategies.
7 We respond rapidly to competitive actions that threaten us.
8 Our company regularly scans competitors’ strengths and weaknesses.
9 In our company, information is shared among various functional areas.
10 In our company, many resources are shared among various functional areas.
11 In our company, all functional areas have integrated strategies.
12 In our company, all functions contribute to customer value.

Learning orientation
1 The basic values of this company include learning as the key to improvement.
2 The sense around here is that employee learning is an investment, not an expense.
3 Our culture makes employee learning a top priority.
4 Our company places a high value on open-mindedness.

Absorptive capacity
1 Our company has a vision of what it is trying to achieve through the assimilation of
new knowledge.
2 Our company has a clear articulation of roles and responsibilities related to utilising
new knowledge.
3 We have the necessary skills to utilise new knowledge.
4 We have the technical skills to take advantage of new knowledge.
5 We have the managerial competence to take advantage of new knowledge.
6 It is well known who can best exploit new knowledge within the company.
7 It is well known who can solve problems associated with the utilisation of newly
acquired knowledge.
 288 D.D. Zhang

Innovation
1 In general, the top managers of our company favour strong emphasis on R&D,
technological leadership, and innovation.
2 Our company has marketed many new lines of products/services in the past
five years.
3 The changes in our product/services, if any, have been usually quite dramatic.

Customer satisfaction and loyalty

1 Our customers are satisfied with their relationship with us.
2 Our customers are not satisfied with the products our company offers them.
3 Our customers are satisfied with the service our company provides them.
4 Our customers would repeat their purchases with our firm rather than a competitor.
5 Our customers would not recommend our company to others.
6 Our customers rely on us as their supplier.

Financial performance
1 Over the last three years, relative to major competitors, our company’s overall sales
revenue has been…(Much lower …to… much higher)
2 Over the last three years, relative to major competitors, our company’s overall
Return on Investment (ROI) has been…(Much lower …to… much higher)
3 Over the last three years, relative to major competitors, our company’s overall
Return on Assets (ROA) has been…(Much lower …to… much higher)

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