Absorptive capacity is crucial for firms to innovate. It's about how well a company can learn from new information and use it for business. The more a firm knows about a topic, the better it can absorb new knowledge. This ability is influenced by both individual and organizational factors. Investing in research and development helps firms build absorptive capacity, which leads to better innovation. Lack of early investment in a specific area can limit future growth in that field. Absorptive capacity also affects other innovative activities like basic research and joining R&D partnerships.