Do Firms Learn from Their Mistakes? Exploring the Effects of Knowledge Sourcing and Absorptive Capacity on Project-Level Learning

The firm’s ability to learn and create new knowledge is a crucial element for its performance. The notion that firms need to constantly renew and reconfigure its resources is articulated in Teece et al.’s (1997: 516) concept of dynamic capabilities, defined as “the firm’s ability to integrate, build and reconfigure internal and external competencies to address rapidly changing environments”. The notion of dynamic capabilities pertains to capabilities for flexibility and change in the face of new competitive forces, they are seen as “drivers behind the creation, evolution and recombination of other resources into new sources of competitive advantage” (Eisenhardt and Martin, 2000: 1107). Central to the concept of dynamic capabilities is the ability for learning and creation of new knowledge, which is essential for sustained innovation and performance. In this study, we investigate the process of learning and knowledge creation in the context of organizational problem solving, a more micro-level analysis than seen in previous studies. Specifically, we investigate the impact of knowledge sourcing and absorptive capacity on the level of learning generated from project-level problem solving situations. The key objective of this paper is to develop a more in-depth understanding of the firm’s ability to learn by investigating the effects of knowledge sourcing and absorptive capacity. We argue that firms with higher levels of knowledge sourcing and absorptive capacity will exhibit higher levels of learning and knowledge creation when faced with the task of solving problems. The main contribution of this paper is in its research design. The majority of empirical studies in the strategy and knowledge literatures have investigated issues of knowledge sourcing, absorptive capacity and learning at the level of the organization (e.g., Mowery et al., 1996; Lane and Lubatkin, 1998; Lane et al., 2001) or the business unit (e.g., Pennings and Harianto, 1992; Tsai, 2001). In this paper, we employ a unique methodology looking at the problem solving situations in organizations. Hence, we are investigating issues of learning and knowledge creation at the “communities of practice” level (Brown and Duguid, 1991), hence adopting a more micro-level approach that allows a more detailed investigation of how learning is actually generated.