Introduction

Absorptive capacity (ACAP) is defined as the ability of a firm to recognize the value of new,
external information, assimilate it, and apply it to commercial ends (Cohen & Levinthal, 1990,
128). ACAP is conceptually strongly related to a number of different research streams of which
the most prominent are dynamic capabilities (Zahra & George, 2002), innovation (Cohen &
Levinthal, 1990), and learning (Lane & Lubatkin, 1998).

Corporate culture is believed to be a lever by which firms can foster ACAP (Volberda et al., 2010)
as cultural values are known to affect knowledge management processes (Zhao & Anand, 2009).
Yet, by employing simplified constructs or focusing on a single industry, researchers to date fall
short of assessing the role of corporate culture in managing ACAP, which is why further studies
on this relationship are called for (Flatten, Greve et al., 2011). There are studies that are using
national culture with respect to Hofstede model as a moderator to measure ACAP (Strese et al.,
2016).

The purpose of this study is to study the relationship of absorptive capacity and firm performance
with the moderating effect of culture. It is important because studies have found out that culture
can influence firm performance both in negative as well as positive ways but In case of Pakistan,
it is has a negative influence on firms performance (Malik & Shafi, 2016). Its Theoretical
contribution is to assess the role of corporate culture in managing ACAP that has not been studied
in previous researches using adhocracy, clan model. Its Contextual contribution is towards
Universities of Pakistan, which are facing problems due to lack of implementation of Higher
education commissions initiatives. These universities lags behind. The study will help them to
understand the role of ACAP in firms performance. It will also help in understanding that how
they can take initiative to create a positive influence of culture on firms performance rather than
negative.

Literature review:

Absorptive Capacity
There are six themes that are studied until now, the relationship of absorptive capacity and
knowledge characteristics, knowledge transfer, organizational learning, innovation, corporate
scope and strategic allainces (Lane, Koka & Pathak, 2002).
The papers in this theme primarily focused on three types of knowledge characteristics: (1) the
first is the degree to which the firm is familiar with the knowledge being absorbed (e.g., Lane
&Lubatkin, 1998; Barkema & Vermeulen, 1998; Meyer-Krahmer & Meyer-Krahmer, 1998); (2)
tacitness, the extent to which the knowledge consists of implicit and non-codifiable skills or know-
how (e.g., Nonaka, 1994; Simonin, 1999; Kogut & Zander, 1993; Szulanski, 1996); and (3) the
number of interdependent technologies, routines, individuals and resources linked to a particular
knowledge or asset (Simonin, 1999).

Organizational Learning and Absorptive Capacity These studies examined the relationship
between absorptive capacity and exploitative learning (Barkema & Vermeulen, 1998; Autio et al,
2000), explorative learning (e.g. Simonin, 1999), and organizational learning factors that explain
the development of absorptive capacity in particular knowledge domains (Barkema & Vermeulen,
1998; Rosenkopf & Nerkar, 2007).

Papers in innovation theme suggest that absorptive capacity helps the speed, frequency and
magnitude of innovation and that innovation produces knowledge, which becomes part of the
firms absorptive capacity (Kim & Kogut, 1996; Helfat, 1997; Van den Bosch et al, 1999).
Absorptive Capacity and Corporate Scope theme argues that related diversification leads to better
performance because of the higher absorptive capacity involved in such a situation (e.g. Ahuja &
Katila, 2001; Barkema & Vermeulen, 1998; Kim & Kogut, 1996). Strategic allainces focuses on
dyadic alliance relationships and how the construct enables inter-organizational learning and
positive alliance outcomes such as innovation (e.g. Lane & Lubatkin, 1998; Koza & Lewin, 1998;
Ahuja & Katila, 2001; Simonin, 1999; Dyer & Singh, 1998).

Culture and Absorptive capacity:

Corporate culture is defined as the pattern of shared values and beliefs that help individuals
understand organizational functioning and thus provide them norms for behavior in the
organization (Deshpand & Webster Jr., 1989). Different models have been used to study culture
we have used the model developed by Robert E. Quinn and Kim S. Cameron at the University of
Michigan at Ann Arbor, there are four types of organizational culture: Clan, Adhocracy, Market,
and Hierarchy.

A characteristic leadership style for this corporate culture includes a coordinator or administrator
who aims for goals like stability, predictability, and smoothness of operations (Cameron &
Freeman, 1991; Deshpand et al., 1993; Quinn, 1988). Along the two axes of processes, ranging
from organic to mechanistic (i.e., whether an organization focuses more on flexibility and
spontaneity or on control, order, and stability), and organizational emphasis, ranging from internal
maintenance to external positioning (i.e., whether an organization depends more on integration
activities or on differentiation from competitors), they distinguish four different types of corporate
cultures based on the Jungian framework (Woodman & Pasmore, 1991): clan, adhocracy, market,
and hierarchy (Deshpand et al., 1993). The typical leadership style calls for an entrepreneurial
innovator and risk taker who places strategic emphasis on innovations, growth, and the acquisition
of new resources (Cameron & Freeman, 1991; Deshpand et al., 1993; Quinn, 1988). The
according leadership style includes a mentor or facilitator whose strategic emphasis it is to develop
human resources and to achieve high commitment of employees (Cameron & Freeman,1991;
Deshpand et al., 1993; Quinn, 1988). The according leadership style is decisive and achievement-
oriented and aims at gaining strategic goals like realizing a competitive advantage (Cameron and
Freeman, 1991; Deshpand et al., 1993; Quinn, 1988). The last type, hierarchy culture, emphasizes
order, rules, and procedures to ensure stability and uniformity as typical dominant attributes
(Cameron & Freeman, 1991).

Unsuccessful organizations often launch a change initiative without considering the need to
develop a consensual view of the current culture; to reach consensus on what change means and
does not mean; the specific changes that will be started, stopped, and enhanced; the small wins
and celebrations that are required; the measures, metrics, and milestones required for
accountability; the requisite communication system needed; and the on-going leadership demands
faced by organizations in the midst of culture change.

Most discussions of organizational culture (Cameron & Ettington, 1988; OReilly & Chatman,
1996; Schein, 1996) agree with the idea that culture is a socially constructed attribute of
organizations, which serves as the social glue binding an organization together.
Other authors point out that many organizations will show some resistance to trying out basic
reforms, even if improvement in organizational performance or fulfilment is expected from them,
either due to their reticence to taking risks, their expectations that the strategies followed at present
will bear fruit a little later or their fear of facing the mess brought about by such change. (Roldan
et al., 2012). Therefore, it is important that companies understand their organizational culture
profiles in order to integrate the quality management principles and choose most appropriate
approach for strategy development and continuous improvement. Irani et al., 2004)

Problem Statement:

Thus after studying the literature, we have devised following problem statement that, cultural
factors are one of the basic factors affecting the performance of organization. Therefore, there is
a need to identify the extent to which cultural factor influence the performance of organization
and how we can improve the absorptive capacity of organization to improve its performance.
The following objectives of the study are

1. To identify the type of culture in different organizations

2. Which culture best support absorptive capacity
3. The effect of absorptive capacity on organizational performance
Theoretical model

The theoretical model is based on the assumption that absorptive capacity increases the
organizational performance of the company and corporate culture plays important role in it, and
culture plays a moderating role where it serves as a lever for absorptive capacity and firms
performance.
 Corporate

Culture

Absorptive Firms
capacity performance

The hypothesis for the conceptual model are as follows

H1: Higher level of ACAP will have a positive effect on firm performance

H2: When the organization depicts clan or adhocracy culture then the relationship of ACAP and
Firm Performance will intensify

H3: When the organization depicts hierarchy and market culture then the relationship of ACAP
and Firm Performance will be attenuated