How R&D Affects Absorptive Capacity - Cameron Gordon
Cameron Gordon
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How R&D Affects Absorptive Capacity<br>New-to-world innovations are only the visible tip of the research iceberg.
Cameron Gordon<br>Jun 20, 2026
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One of the misconceptions I occasionally hear raised in Australian policy is the view that because only a small amount of research results in new-to-world innovation that pure research is a secondary priority to the broader issue of diffusion.
This is surprising, because pure research has always been central to diffusion. In particular, research is intimately linked to absorptive capacity, the ability of firms to assimilate external information and apply it to their existing processes.<br>The economist and Nobel Prize winner Herbert Simon in Administrative Behavior, first published in 1947, has a great section on the misconception that pure research is solely about discovering new knowledge, often shared by the researchers themselves.<br>In any given research laboratory, only a tiny fraction of the new knowledge acquired by the research staff is knowledge created by that laboratory; most of it is knowledge created by research elsewhere. We can think of a research scientist as a person who keeps one eye on Nature and the other on the literature of his or her field.<br>It is probably true, and certainly widely suspected, that in any field of research a large fraction of the less distinguished laboratories could vanish without seriously reducing the rate at which new knowledge is created. Does that mean that these dispensable laboratories (dispensable in terms of the creation of knowledge) do not pay their way? The conclusion does not follow if the main function of a laboratory is not the creation of knowledge but the acquisition of knowledge. In military parlance, we would label such laboratories intelligence units rather than research units. They are units of the organization that are specialized for the function of learning from the outside world (and perhaps sometimes creating new knowledge themselves).<br>Simon, Herbert. Administrative Behavior, 4th Edition (p. 234).
It is worth thinking about what is required to discover a truly new-to-world idea. First, the researcher must review the existing stock of knowledge to understand which approaches have been applied previously to the problem at hand. This is done by reviewing literature, reimplementing existing methods, and by consulting with experts or colleagues. This will frequently uncover a research gap: either an existing method has not been applied to new data or problem, or a recent advance shows promise in a different application. It is common that the core techniques and theory applied to cutting edge advances are both well established and surprisingly old.<br>The ground-breaking first paper in diffusion (in the machine learning context, in which networks are trained to iteratively denoise a signal, creating powerful generative models), Deep Unsupervised Learning using Nonequilibrium Thermodynamics was published in 2015. But the core mathematical technique stems back to a 1908 paper on Brownian motion by Paul Langevin. The new-to-world feature of the research was the application of existing theory to a new domain, which was made possible by advances in cognate areas in generative modeling and computation.<br>This paper not an outlier for needing to step back in history: most research involves an incremental accretion of existing ideas to the contemporary problem that the researcher is trying to solve. The discovery of new research, which can then be published and communicated to a scientific audience, is only the visible output of a long and arduous process working through, digesting, and modifying what is already known. The objective of new discovery is what drives this review through the scientifically known; diffusion of the research frontier is a byproduct of this process; the discovery is only the visible shimmer of the frontier expanding outwards.<br>Hopefully, it should be clear how this relates to the diffusion of innovations and absorptive capacity within a firm. In order for a firm to assimilate an idea discovered at the research frontier it is necessary for the firm to first become aware of it and to be able to apply it within their processes. This is greatly facilitated by having research functions within the organisation whose role is to review new and existing advances, and to observe how these may relate to the products, tasks, and objectives within the business. The research function increases the likelihood that the firm will be aware of new beneficial frontier innovations discovered externally, and reduces the probability of missing potential improvements that result from well-established technologies.<br>This helps to highlight why pure research has been a feature of strategies designed to accelerate innovation diffusion since at least Vannevar Bush in 1945. It also highlights how low and declining public and private...