Protective capacity and absorptive capacity Managing the balance between retention and creation of knowledge-based resources

Purpose - In order to understand the pros and cons of an open organization regarding the flow of knowledge between firms, this paper introduces the concept of "protective capacity". The purpose of the paper is to elaborate the concept of "protective capacity" especially in relation to absorptive capacity, by presenting a number of propositions. Design/methodology/approach - Literature on mainly interfirm relationships, absorptive capacity and resources-based theory are reviewed and combined. Findings - Protective capacity is defined as the "capacity to sustain, or to reduce the speed of depreciation of knowledge-based resources by preventing knowledge from being identified, imitated, and/or acquired by direct or indirect competitors". Owing to the strong moderating factor of organizational openness, it is argued that protective capacity is inversely related to absorptive capacity. A number of propositions that can explain and moderate the inverse relationship between protective capacity and absorptive capacity are elaborated and discussed. These propositions concern organizational openness, knowledge management practices, realized and potential absorptive capacity, and dyadic relationships. Originality/value - Acquiring external knowledge is a key feature of knowledge management. In order for a firm to absorb external knowledge, it is generally argued that it has to be open towards the environment. However, according to resource-based theory, firms have to safeguard their knowledge by, for example, having a secluded organization, thereby enhancing the uncertainty associated with tacit knowledge in order to sustain their competitive advantages. Whereas numerous studies have discussed the capacity to absorb knowledge, few studies have analyzed the capacity to protect knowledge.