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

Torben Schubert () and Peter Neuhaeusler ()
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Peter Neuhaeusler: ISI-Fraunhofer, Germany, Postal: Fraunhofer Institute for Systems and Innovation Research, Breslauer Str. 48, 76139 Karlsruhe, Germany

No 2012/8, Papers in Innovation Studies from Lund University, CIRCLE - Centre for Innovation Research

Abstract: In 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.

Keywords: Firm performance; exploration; exploitation; innovation; growth (search for similar items in EconPapers)
JEL-codes: M00 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2012-04-10
New Economics Papers: this item is included in nep-cse, nep-ino and nep-knm
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:lucirc:2012_008

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