Towards a Richer Specification of the Exploration/Exploitation Trade-off: Hidden Knowledge-based Aspects and Empirical Results for a Set of Large R&D-Performing Firms
AbstractIn this paper we describe a richer framework characterizing the trade-off between exploration and exploitation with respect firm performance. We devise a model that complements the notion of organizational learning as a process of inferential learning from the past with an explicit incorporation of a knowledge/information-related theory. Based on this and an international panel data set of large R&D performing firms, we can show empirically that a firm’s innovation activities affect its growth perspectives and its asset base differently, depending on the degree of exploitation/exploration. We also show that competitors’ R&D has important diverging effects on other firms which again depend on the degree of exploitation/exploration. Finally, we demonstrate the mediating role of environmental risk. We therefore argue that the trade-off between exploration and exploitation has (at least) three constituent dimensions: an internal dimension relating to performance in terms of increasing sales growth and preservation of the asset base, an external competitive dimension, and a contingency dimension relating to environmental factors such as risk. We conclude that the trade-off between exploration and exploitation can only be fully understood, if all three components are taken into account simultaneously.
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Bibliographic InfoPaper provided by Lund University, CIRCLE - Center for Innovation, Research and Competences in the Learning Economy in its series CIRCLE Electronic Working Papers with number 2012/8.
Length: 32 pages
Date of creation: 10 Apr 2012
Date of revision:
Firm performance; exploration; exploitation; innovation; growth;
Find related papers by JEL classification:
- M00 - Business Administration and Business Economics; Marketing; Accounting - - General - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-01-07 (All new papers)
- NEP-CSE-2013-01-07 (Economics of Strategic Management)
- NEP-INO-2013-01-07 (Innovation)
- NEP-KNM-2013-01-07 (Knowledge Management & Knowledge Economy)
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