Linking Potential Absorptive Capacity, Realized Absorptive Capacity and Project Performance: The Moderating Role of Environmental Uncertainty

Abstract

This research study builds upon the research framework of absorptive capacity’s (ACAP) by George and Zahra (2002). ACAP includes “acquisition, assimilation, transformation and exploitation” (Zahra and George, 2002). The components of acquisition and assimilation are called potential absorptive capacity (PACAP), whereas, those of transformation and exploitation are facets of realized absorptive capacity (RACAP). The theory of dynamic capabilities is used to underpin ACAP as the dynamic use of resources for acquiring, assimilating, transforming and exploiting knowledge resources for enabling competitive advantage. The proposed model has five hypotheses. H1: PACAP positively effects project performance; H2: PACAP positively effects RACAP, H3: RACAP positively effects Project Performance, H4: RACAP positively mediates the relationship between PACAP and project performance, and H5: Environmental uncertainty negatively moderates the relationship between RACAP and project performance. The relationships among variables are ascertained based on 167 responses from on-going public sector projects/schemes (2019-2020) in the Government of the Punjab using bi-variate correlations, and linear and multiple linear regression analyses. The results show that hypotheses 1 to 4 are accepted, where in hypothesis 4 RACAP has a partial mediation between PACAP and Project Performance. Simultaneously, Environmental Uncertainty does not influence the relationship between RACAP and project performance. The findings suggest that public sector may have peculiar characteristics regarding Environmental Uncertainty and its effect on knowledge processes leading to Project Performance. This is because uncertainty in the environment is not a factor which influences projects capacity to use knowledge for performance. This study adds to the body of knowledge in the area of ACAP by demonstrating that ACAP influences public sector project performance by applying the sequential model of PACAP leading to RACAP, which in turn leads to Project Performance. Practically, the main implications of this study is that public sector project teams need to emphasize the development of ACAP in project and other public sector organizations. As there is interchangeability of knowledge and experience lessons learnt x from successful projects could be applied to other projects and organizations. As the public sector is multi-valued ACAP theory could be furthered by drawing from theoretical and methodological nuances in future research