Abstract Increasingly, manufacturers are making radical changes in management practices and investing heavily in advanced technologies as they attempt to achieve sustainable competitive advantage. Organizations seeking to implement these changes should have an internal environment that emphasizes knowledge assimilation and sharing and creates continuous learning capability, i.e., absorptive capacity. This study reviews the construct of absorptive capacity, develops a valid and reliable instrument to measure it, and examines its impact on the organization's ability to assimilate innovative manufacturing technology and management practice. To illustrate the links, this study tests the relationships among absorptive capacity, time‐based manufacturing practices, and value to customer. Structural equation modeling, applied to a relatively large sample (n= 303), indicates strong, positive, and direct relationships between absorptive capacity and time‐based manufacturing practices, and between time‐based manufacturing practices and value to customer. The managerial implications of these empirical findings are also discussed.
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