Scandinavian Working Papers in Economics

Papers in Innovation Studies,
Lund University, CIRCLE - Center for Innovation, Research and Competences in the Learning Economy

No 2012/8: 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 ()
Additional contact information
Torben Schubert: CIRCLE, Lund University, Postal: CIRCLE, Lund University, PO Box 117, SE-22100 Lund, Sweden
Peter Neuhaeusler: ISI-Fraunhofer, Germany, Postal: Fraunhofer Institute for Systems and Innovation Research, Breslauer Str. 48, 76139 Karlsruhe, Germany

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

JEL-codes: M00

32 pages, April 10, 2012

Full text files

201208_Torben.pdf PDF-file 

Download statistics

Questions (including download problems) about the papers in this series should be directed to Torben Schubert ()
Report other problems with accessing this service to Sune Karlsson ().

This page generated on 2018-01-23 23:35:07.