This paper investigates the cognitive process of how incumbent organizations exercise absorptive capacity. While absorptive capacity has attracted organizational studies in various topics such as dynamic capabilities, organizational learning, and technology and knowledge management, few empirical studies have analyzed the cognitive process underlying absorptive capacity. An in-depth case study of Nippon Gakki Ltd (Yamaha), a modern-day Yamaha Corporation and Yamaha Motor Company, reveals that the identity-based approach to absorptive capacity enables organizations to recognize, assimilate and transform external knowledge beyond the extent predicted by technological knowledge. Between 1951 and 1960, Yamaha expanded its main product class from musical instruments to motorcycles and became dominant manufacturers in both industries. During this transition, president Genichi Kawakami searched for and claimed new organizational identity. The new identity drove Yamaha’s subsequent exploration of knowledge in a wide range that could match the created identity, leading to the choice of motorcycles unfettered by a substantial gap in knowledge and seemingly economically unattractive motorcycle market at the time. These findings encourage future research on the role of managerial cognition in internal organizational dynamics of absorptive capacity as a way to understand dynamic capability.