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While exploration and exploitation represent two fundamentally different approaches to organizational learning, recent literature has increasingly indicated the need for firms to achieve a balance between the two. This balanced view is embedded in the concept of ambidextrous organizations. However, there is little direct evidence of the positive effect of ambidexterity on firm performance. This paper seeks to test the ambidexterity hypothesis by examining how exploration and exploitation can jointly influence firm performance in the context of firms' approach to technological innovation. Based on a sample of 206 manufacturing firms, we find evidence consistent with the ambidexterity hypothesis by showing that (1) the interaction between explorative and exploitative innovation strategies is positively related to sales growth rate, and (2) the relative imbalance between explorative and exploitative innovation strategies is negatively related to sales growth rate.
Key words: technological innovation; innovation strategy; ambidextrous organization
1. Introduction
A central concern of corporate strategy has to do with making choices about how much to invest in different types of activities. Two broad types of qualitatively different learning activities between which firms divide attention and resources-exploration and exploitation-have been proposed in the literature. Exploration implies firm behaviors characterized by search, discovery, experimentation, risk taking and innovation, while exploitation implies firm behaviors characterized by refinement, implementation, efficiency, production and selection (Cheng and Van de Yen 1996, March 1991).
The conceptual distinction between exploration and exploitation has been used as an analytical construct, explicitly or implicitly, in a wide range of management research areas, including strategic management (e.g., Winter and Szulanski 2001), organization theory (e.g., Holmqvist 2004, Van den Bosch et al. 1999), and managerial economics (e.g., Ghemawat and Ricart i Costa 1993). These studies have shown that exploration and exploitation require substantially different structures, processes, strategies, capabilities, and cultures to pursue and may have different impacts on firm adaptation and performance. In general, exploration is associated with organic structures, loosely coupled systems, path breaking, improvisation, autonomy and chaos, and emerging markets and technologies. Exploitation is associated with mechanistic structures, tightly coupled systems, path dependence, routinization, control and bureaucracy, and stable markets and technologies (Ancona et al. 2001, Brown and Eisenhardt 1998, Lewin et al. 1999). The returns associated with exploration are more variable and distant in time, while the...