Absorptive Capacity in Joint Project Teams

Evidence from Nigerian Upstream Oil Industry

Murali Raman

, Adedapo Oluwaseyi Ojo

and Chin Wei Chong

Faculty of Management, Multimedia University, Cyberjaya, Selangor, Malaysia

Graduate School of Management, Multimedia University, Cyberjaya, Selangor, Malaysia

Keywords: Partner Knowledge, Absorptive Capacity, Joint Project Team, Ability to Utilize Knowledge.

Abstract: This study advances the multidimensional concept of absorptive capacity (ACAP) by theorizing the

individual and collective capabilities underpinning knowledge acquisition and utilization in joint project

teams in Nigerian upstream oil industry. By assuming the lowest form of engagement as the joint project

teams constituted by local employees and competent expatriate, this study demonstrates the relationship

among the dimensions of ACAP. Survey was administered to local team members of joint project teams.

The collected data (n=248) was analysed with the aid of structural equation modelling (SEM). As

hypothesized, individual ability to recognize the value of partner knowledge was significantly related to

their ability to assimilate the knowledge. The positive relationship between individual ability to assimilate

knowledge and team shared cognition was supported. Furthermore, the individual ability to assimilate

partner knowledge was found to be indirectly related to team ability to utilize the knowledge, through the

team shared cognition.

1 INTRODUCTION

Cohen and Levinthal (1990) posit absorptive

capacity (ACAP) as the internal capability ensuing

from firm engagement in R&D, which facilitates the

acquisition and utilization of external knowledge.

ACAP is simply the link between an organisation

and the external knowledge (Zhao and Anand, 2009;

Schleimer and Pedersen, 2014). Consequently,

studies have demonstrated the significance of ACAP

in inter-organisational learning through strategic

alliance (Lyles and Salk, 1996; Lane and Lubatkin,

1998; Park, 2010) and intra-organisational learning

within multinational corporations’ network

(Schleimer and Pedersen, 2014; Chang et al., 2012).

Although, the original notion on ACAP

acknowledges its multidimensional nature, however,

most of the subsequent attempts have overlooked the

underlying assumptions (Lane et al., 2006; Volberda

et al., 2010). Specifically, by equating ACAP to

prior knowledge, extant conceptualization amplifies

the knowledge asset, without recourse to the

underlying capability and process (Lewin et al.,

2011). Aside few exceptions, recent expositions on

the multi-dimensions of ACAP have been theoretical

(Zahra and George, 2002; Lane et al., 2006;

Todorova and Durusin, 2007) and most of the

empirical attempts have downplayed the significance

of individual differences, by aggregating the

phenomenon to the collective level (Jansen et al.,

2005; Lichtenthelar, 2009; Nemanich et al., 2010).

For example, Nemanich et al. (2010) investigation

on R&D project teams in the US, delineated ACAP

into the individual and collective levels; however the

underlying data originated from the key informant.

However, as noted by Volberda et al. (2010) attempt

at clarifying the micro-origin of ACAP should

emphasize the differences at the individual level.

Accordingly, there is need for clarification on the

individual perspective to ACAP dimensions, most

especially in asymmetric project team, set up to

facilitate knowledge transfer. This study aims to

address this gap by examining the pertinent

dimensions of ACAP within the joint project team

constituted by local employees and expatriate.

2 THEORETICAL

BACKGROUND

This study considers external knowledge as the

expertise embedded in the foreign partner

140

Raman M., Ojo A. and Chong C..

Absorptive Capacity in Joint Project Teams - Evidence from Nigerian Upstream Oil Industry.

DOI: 10.5220/0005031001400145

In Proceedings of the International Conference on Knowledge Management and Information Sharing (KMIS-2014), pages 140-145

ISBN: 978-989-758-050-5

 2014 SCITEPRESS (Science and Technology Publications, Lda.)

employees, but accessible to the local employees

through their engagement in joint project team.

Thus, for learning to occur the former must

demonstrate the capability to acquire the knowledge

embedded in the latter. Consistent with the dynamic

capability view, ACAP has been delineated into

potential and realized components, underpinned by

individual and their collective engagement,

respectively (Zahra and George, 2002). Furthermore,

Lane et al. (2006) expose the reification of ACAP

and posit its rejuvenation on theorization from the

original notion. To this end, they re-conceptualize

ACAP as learning capability distinct to individual

and collective levels.

Thus, we define ACAP as the ability to

recognize the value of partner’s knowledge and

assimilate it, and the shared cognition underpinning

the team ability to utilize this knowledge in the joint

project team (Nemanich et al., 2010; Ojo et al.,

2014). The ensuing dimensions are individual

abilities to (i) recognize the value of knowledge,

which is the capability to search for, identify, and

accurately evaluate the value of the knowledge and

(ii) assimilate, which is the capability to learn,

interpret and develop a deep understanding on it the

knowledge. The other two dimensions are team (iii)

shared cognition, which is the mechanism through

which the team reaches a common understanding on

the individually acquired and embedded knowledge

and (iv) ability to utilize knowledge, which is the

capability of the team to apply the knowledge

embedded in the foreign partner practice in the

execution of the joint project. The pertinent

hypotheses are presented as follow.

2.1 Individual Absorptive Capacity

Lane et al. (2006) describe exploratory learning as

individual’s ability to recognize and assimilate

knowledge. An individual develops awareness on

the value of new knowledge from his extant mental

model. Thus, the ability to recognize the value of

external knowledge is the precursor to the extent to

which an individual can explore the related cognitive

map for assimilation (Huber, 1991; Todorova and

Durisin, 2007). With the aid of such map, an

individual is more likely to incline his knowledge

search effort to the areas that are most valuable to

the project (Tripsas and Gavetti, 2000), thereby

making assimilation easier. An individual, who is

competent in evaluating the value of new

knowledge, is expected to have substantial ability

for assimilating such knowledge in that his/her

attention will be directed to deepening

understanding on the specific valuable knowledge

(Lettl et al., 2008). Recent empirical investigation

on US-based research teams, found that members

ability to evaluate external knowledge is predictor of

the ability to assimilate the knowledge (Nemanich et

al., 2010). Thus, it is hypothesized that;

H1. Individual ability to recognize the value of

foreign partner knowledge is positively

related to individual ability to assimilate the

knowledge in the joint project team.

2.2 Individual and Team Absorptive

Capacity

On the demarcation between potential and realized

absorptive capacity, Zahra and George (2002) argue

that an organisation will only be able to exploit the

knowledge which has been absorbed. The absorption

of knowledge requires that the individual members

demonstrate the ability for its acquisition and

assimilation. Thus, a link is suggested from the

capability to assimilate knowledge to the capability

to utilize knowledge, thereby the integration of

individually assimilated knowledge is expected to

facilitate the collective utilization of the knowledge.

Highly intuitive individuals are likely to possess the

ability to assimilate knowledge, because they would

be able to engage in the collective interpretation

process (Crossan et al., 1999). Group learning

scholars (Laughlin, 1978; McGrath and Kravitz,

1982) suggest that the aggregation of individually

embedded knowledge is a necessary precondition for

team effectiveness in knowledge intensive work

domain, especially when creativity and problem

solving skills are required. Lane et al. (2006) assert

that the extent of knowledge assimilated by

individual is likely to impact on team’s outcome in

knowledge utilization. Accordingly, the team offers

the platform to facilitate the identification, retrieval

and exploitation of individually embedded

knowledge. Thus a positive relationship is suggested

between individual ability to assimilate knowledge

and the ability to collectively utilize the knowledge

at the joint team level. Therefore, it is hypothesized

that:

H2. Individual ability to assimilate foreign

partner knowledge is positively related to the

team ability to utilize the knowledge in the

joint project team.

2.3 The Role of Shared Cognition in

Absorptive Capacity

Consistent with the dominance of boundary

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141

spanning behaviour in few individuals, not every

member of the joint project would possess the ability

to recognize the value of partner’s knowledge and

assimilate it (Rogers, 1976; Cohen and Levinthal,

1990). According to Rogers the absorption of

external knowledge through boundary spanners’

depends on their cognitive abilities, while their

influencing skills determine the spread of such

knowledge across the organisational level. To

buttress the need for shared understanding among

team members, Lane and Lubatkin (1998) suggest

relative absorptive capacity as the extent to which

partnering firms are similar in terms of knowledge

base, dominant logic, and organisational structure.

On situated context, Walsh and Ungson (1991)

argue the need for shared understanding, which is

facilitated by the creation of common language and

continuous social engagement. Klimoski and

Mohammed (1994) acknowledge the influence of

shared mental models on collective cognition and

behavioural action underlying the utilization of

external knowledge. Theorists (Weick, 1995; Senge,

2006) in sense-making posit that individual action

within a group is conditioned on others actions.

According to Hollingshead (2001) team-level

cognitive system pulls together individuals cognitive

abilities to enhance collective task performance.

Thus, the collective capability is critical to the

application of individually assimilated knowledge,

whereby project is executed as individuals’

knowledge are interpreted and integrated in reaching

consensus decision and solving relevant problem at

the team level (Knight et al., 1999).

The main determinants of effective learning

interaction within the group are the extent of

similarity in individual representation, interpretation

of knowledge and the mechanisms through which

meanings are construed (Nahapiet and Ghoshal,

1998). Through shared understanding, the learners

are able to connect with the sources and their

embedded knowledge (Kankanhalli et al., 2012).

Nemanich et al. (2010) consider shared cognition as

the collective assimilating capability, through which

individually assimilated knowledge are integrated to

generate shared understanding. Like shared

cognition, the ability to apply knowledge is also

team level capability, which is the extent to which

the team can utilize the absorbed knowledge in

enhancing collective performance. Based on the

above, the following hypotheses are suggested:

H3. Individual ability to assimilate foreign

partner knowledge is positively related to

shared cognition in joint project team.

H4. Shared cognition mediates the effect of

individual ability to assimilate foreign

partner knowledge on team ability to utilize

the knowledge in joint project team.

H5. Shared cognition is positively related to the

team ability to utilize foreign partner

knowledge in the joint project team.

3 METHOD

The data was collected between October, 2012 and

February, 2013, from local team members engaged

in joint projects with expatriate from competent

foreign partners in Nigerian upstream oil and gas

industry. In order to reduce dependence and

facilitate capability building, the Nigerian content

act of 2010 mandates foreign firms in the industry to

engage substantial locals’ through direct recruitment

or joint ventures. Thus, the lowest unit of

engagement is assumed as the joint project teams,

constituted by both local and foreign experts. The

managements’ consent on employees’ participations

in the survey was obtained from 35, out of a total of

52 companies identified from the department of

petroleum resources (DPR) database. Accordingly,

with the assistance of the human resources

departments in the former, the lead local team

members and two (2) other members suggested by

the lead were selected as respondents. The

purposeful selection of respondents is essential,

given that ACAP is theoretically associated with

boundary spanning behaviour, which is dominant in

few individuals (Cohen and Levinthal, 1990; Zahra

and George, 2002). Thus, the selected respondents

were involved in the coordination of other team

members and interface with members from foreign

partners (Cross and Prusak, 2002). The final analysis

was based on 248 questionnaires, which represents

62% of the total administered 400 questionnaires.

All the constructs were measured with scales

adopted/adapted from extant literature, and

assessment based on the five-point Likert scale

(ranging from 1 = strongly disagreed to 5 = strongly

agreed). The preliminary questionnaire was pilot

tested with 35 respondents. Based on their

comments, the relevant questions were rephrased in

order to improve clarity. The ability to recognize

knowledge was measured with three items (α = .77)

and ability to assimilate knowledge with three items

(α = .85) adapted from Nemanich et al. (2010) and,

Pedrosa and Jasmand (2011). Furthermore, shared

cognition (α = .79) was measured with four items

and ability to utilize knowledge (α = .81) was

measured with three items, all adapted from

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Nemanich et al. (2010). The final sentence of a

caption must end with a period.

Table 1: CFA on Latent Variables.

Constructs and items Std.

Est.

Ability to Recognize (CR = 0.80; AVE = 0.58)

I was able to develop awareness on partner

tools, practice, and knowledge.

0.67

I was able to keep track of partner tools,

practice, or knowledge by consulting other

sources of information.

0.74

I was able to identify partner tools or practice

with the most significant value to the project

performance.

0.75

Ability to Assimilate (CR = 0.87, AVE=0.68)

I was able to learn the use of partner tools or

practice.

0.89

I was capable at understanding the tools,

practice, or knowledge embedded in the

partner.

0.89

I was adept at interpreting the use of tools,

practice, or knowledge embedded in the

partner.

0.67

Shared Cognition (CR = 0.77, AVE=0.46)

Our team was very competent in integrating

different views.

0.69

Our team was able to achieve an amicable

resolution of conflict and disagreement.

0.65

Our team was able to communicate collective

view across members.

0.65

Our team was able to take appropriate action

based on the collective view.

0.79

Ability to Utilize (CR = 0.78, AVE=0.54 )

Our team had the capability to effectively

apply partner knowledge.

0.67

Our team was able to enhance project

delivery by applying partner knowledge.

0.81

Our team had the capability to maximally

exploit partner knowledge.

0.72

4 ANALYSES AND RESULTS

Following Anderson and Gerbing’s (1988) two step

technique, the overall measurement model for the 4

factors was assessed in a single CFA procedure. All

the items loaded on their specified factors.

Accordingly, the second step of the technique was

initiated. This involved the transposition of the

measurement model into the structural model, by

replacing the covariance paths (i.e. double edged

arrows) associated with the endogenous variable

with the hypothesized structural paths (i.e. single

edged arrows). The cut-off criterion for the selected

goodness of fit indices are χ

/ d.f. < 3; CFI > .90;

TLI > .90; RMSEA < .08 (Joreskog and Sorbom,

1986; Kline, 2005). The computed goodness-of-fit

indices from the AMOS 18 package revealed a good

fit to data (i.e. χ

/ d.f. = 1.944; RMSEA = .062; CFI

= .957, TLI = .942). Therefore, the model was

employed in testing the hypothesized effects.

A significant path was obtained from individual

ability to recognize the value of partner knowledge

to individual ability to assimilate the knowledge (β=

.612, p < 0.001), thus H1 was supported. The

relationship between individual ability to assimilate

partner knowledge and team ability to utilize the

knowledge was not significant (β = 0.119; p = ns),

thus H2 was not supported. The individual ability to

assimilate partner knowledge was found to be

significantly related to shared cognition (β = 0.275;

p < 0.001), thus H3 was supported. The outcome of

bootstrapping supported the significant mediating

(i.e. indirect) effect of shared cognition (β = 0.184; p

< 0.001). Thus, as hypothesized in H4, there is no

direct relationship between individual ability to

assimilate and team ability to utilize knowledge, but

both are indirectly linked through shared cognition.

Furthermore, in support of H5, shared cognition was

found to be significantly related to team ability to

utilize knowledge (β = 0.668; p < 0.001).

5 DISCUSSION

Following Zahra and George (2002) notion on

potential and realized ACAP, the abilities to

recognize value and assimilate knowledge were

found to be dominant at the individual level, while

the hypotheses on team’s shared cognition and

ability to utilize knowledge were supported.

However, contrary to Nemanich et al. (2010)

individual ability to assimilate knowledge was found

not to be directly associated with team ability to

utilize knowledge. Rather the indirect effect through

shared cognition was supported. Thus, the present

findings affirm shared cognition as the mechanism

through which individual potential are aggregated to

be collectively realized at the team level. Zahra and

George (2002) posited that the organisation is better

positioned to exploit the knowledge, which has been

assimilated by the members. Thus, the development

of deeper understanding on new concept is

underscored by individual assimilating ability,

which could impact on interaction with others.

Individuals with good awareness on a concept are

most likely to engage with others in deliberating

within the area of competency, thereby better

equipped to contribute in project execution. Crossan

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et al. (1999) contend that the assimilating ability of

individual is predicated on intuitive skills, which

could also facilitate engagement in collective

interpretation process. Accordingly, acquisition of

deeper understanding by team members could

aggregate to value exploitation at the collective

level, when there is a mechanism to support

collective interpretation. Furthermore, studies on

group learning suggest that the aggregation of

individually embedded knowledge is a necessary

precondition for team effectiveness in knowledge

intensive work domain, especially when creativity

and problem solving skills are required (Nahapiet

and Ghoshal, 1998). Thus, collective cognitive

capability through shared cognition ability is critical

to the application of individually assimilated

knowledge at the joint team level.

6 CONCLUSIONS AND FURTHER

WORK

Consistent with recent conceptualization of ACAP

as multidimensional construct (Zahra and George,

2002; Lane, et al. 2006; Todorova and Durisin,

2007; Nemanich, et al. 2010) the present findings

demonstrate the specific level corresponding to each

dimension. Nevertheless, further to the clarification

of the individual and team abilities underlying

knowledge acquisition and utilization in joint project

teams, this study also offers opportunities for further

research. Future studies should attempt to clarify the

effects of relevant antecedents on both the individual

and collective components of ACAP. There is also

need for study to investigate the mechanisms

through which individual components are linked to

the collective components. The impact of cultural

differences on ACAP within joint project is another

important area for future studies. Furthermore,

subsequent studies are expected to address some of

the limitations of this study. The use of longitudinal

design is recommended, so as to capture the

underlying temporal and causal effects of ACAP.

Also, the attendant weakness of the self-reported

survey could be minimized by incorporating data

from other sources. For example, future studies

should consider the perspective of the foreign team

members on the ACAP dimensions. Finally, the

validated model should be extended to other

contexts, in order to ascertain the generalization of

the findings.

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