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Exploring and yet failing less: Learning from exploration, exploitation and human capital in R&D

Pablo D’Este, Alberto Marzucchi and Francesco Rentocchini
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Pablo D’Este: INGENIO [CSIC-UPV], Universidad Politécnica de Valencia, Spain

SPRU Working Paper Series from SPRU - Science Policy Research Unit, University of Sussex Business School

Abstract: Exploration is both a risky activity and a key ingredient in the strategy of firms that strive for radical innovations. This paper investigates a dual facet of the exploratory component of R&D activities with regards to innovation failures: while exploration increases firms’ exposure to failure, it also provides learning opportunities to curve down innovation failures. This paper contributes to organizational learning and innovation management research by proposing that firms’ valuable learning does not automatically follow from exploration, but instead,it is conditional on reaching a threshold level of exploratory R&D activities. It is also proposed that valuable learning from exploration is enhanced when exploration is combined with other complementary sources oflearning: exploitation and human capital. Our baseline results point to an inverted U-shaped relation: investment in exploratory activities increases the rate of failure in innovation up to a point beyond which exploration is found to decrease the rate of failure. We observe this inverted U-shaped relationship both at the conception and development phases of the innovation process. We also show that firms’ commitments to exploitative R&D activities and the availability of human capital act as relevant moderators: they contribute to speed the organisational learning process enhanced by exploration and result in lowering the probability of innovation failure at the downstream and conception phases, respectively.

Keywords: innovation failure; exploration; exploitation; human capital; learning (search for similar items in EconPapers)
JEL-codes: O32 D83 D22 J24 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cse, nep-ent, nep-hrm, nep-ino, nep-knm and nep-tid
Date: 2014-10
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