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gaining new knowledge from its interactions with customers to better improve their relationship
with the customers (Payne, Storbacka and Frow 2008). Hence, from the organizations' point of
view, organizational learning facilitates the value-creation processes and interactions with
consumers and assists them with the design and delivery of relevant customer experiences.
As organizational learning and consumer learning are integral parts of the value co-creation
process, knowledge management within organizational processes becomes important to take
advantage of co-creation opportunities. It is suggested that the knowledge regarding consumers'
value-creating processes acquired through meaningful encounters with consumers should be
managed so that it would be transformed into skills and competence that organizations use to
gain competitive advantage (i.e. prescriptive knowledge, techniques) (Payne, Storbacka and Frow
2008; Vargo and Lusch 2008). It is this chapter's interest to elaborate on learning and knowledge
management from the organizations' perspectives, as it is consistent with the concept of absorp-
tive capacity in literature on organizational learning. It is suggested that the concept of
absorptive capacity can be used to assess the capacity of tourism organizations to co-create value
with consumers, specifi cally because it provides a framework to illustrate how tourism organi-
zations can extract knowledge from the consumers and then manage the knowledge to design
better, relevant experiences.
Absorptive capacity is understood as a higher level capacity that consists of several lower level
capabilities (Volberda, Foss and Lyles 2010). Dynamic capabilities literature formulated a process-
based concept based on the knowledge fl ow (i.e. the streams of new knowledge that are obtained,
transferred and integrated to enrich internal knowledge) during the different organizational
learning processes. Zahra and George (2002) suggest four dimensions of absorptive capacity:
acquisition, assimilation, transformation and exploitation. Assimilation capability refers to the
capacity of tourism organizations to recognize relevant information from consumers. Assimilation
is associated with organizational processes that allow analyzing and understanding of extracted
information. Transformation capability is organizations' ability to adapt the extracted information
into knowledge (i.e. internalizing the knowledge fl ow). Exploitation refers to the ability to
exploit the knowledge for the benefi t of the tourism organization. Acquisition and assimilation
capabilities are labelled potential absorptive capacity (PAC); while transformation and exploitation
capabilities are labelled realized absorptive capacity (RAC). Therefore, according to Zahra and
George (2002), the ratio between PAC to RAC refl ects the organization's effi ciency in leveraging
value from the acquired knowledge.
Another stream of literature in organizational learning suggests that PAC corresponds to
explorative learning (i.e. knowledge acquisition) and RAC corresponds to exploitative learning
(i.e. knowledge exploitation), thereby suggesting transformative learning (i.e. knowledge
transformation) as the bridge between PAC and RAC (Lichtenthaler 2009) instead of an element
within RAC. In the case of consumer co-creation, PAC describes how organizations are capable
of acquiring new ideas from consumers. That is to say, the capability to integrate consumers in
the new product development process is part of PAC, whereby organizations are able to acquire
and extract consumers' ideas through consumer-company interactions (i.e. co-extraction of
value with consumers). On the other hand, RAC refl ects the ability of the organizations to
leverage the absorbed knowledge into profi t generation. In the context of co-creation, it is the
capacity of tourism organizations to turn the co-created knowledge into co-created products/
services. Transformation is seen as a social integration mechanism to bridge between PAC and
RAC, implying that organizations that nurture information sharing and collaboration among
employees will be more effi cient in transforming knowledge into profi t.
The complementarity of the different dimensions of absorptive capacity has been emphasized
recently, due to the perceived increase in inter-organizational knowledge exchange. That is to say,
