Performance implications of incremental transition and discontinuous jump between exploration and exploitation

Research Summary Literature suggests that firms may approximate ambidexterity over time by alternating between periods of exploration and exploitation. We theorize and empirically test performance implications of two types of temporal transition between exploration and exploitation and their boundary conditions. We find that a discontinuous jump has a negative effect on firm performance while an incremental transition has a positive effect. We also find that the role of firm resources and particularly that of non‐scale‐free resources is critical in shaping the performance effects of the two types of temporal transition. Our findings indicate that the two types of temporal transition have distinct advantages and disadvantages. Managerial Summary Firms need to make use of old ideas and search for new ideas to remain competitive. We argue that firms take different approaches to achieve this goal. We find that firms that alternate between old and new ideas in an incremental and continuous manner perform better than firms that switch abruptly between old and new ideas. We also find that the performance effects of the two approaches are more pronounced for firms with limited resources. This finding warns managers of the danger of an abrupt and discontinuous jump between old and new ideas, especially for firms with limited resources.