Driving Performance Via Exploration In Changing Environments: Evidence From Formula One Racing

Abstract

This is the published version of the paper.This version of the publication may differ from the final published version. Permanent repository link Full terms and conditions of use: http://pubsonline.informs.org/page/terms-and-conditionsThis article may be used only for the purposes of research, teaching, and/or private study. Commercial use or systematic downloading (by robots or other automatic processes) is prohibited without explicit Publisher approval, unless otherwise noted. For more information, contact permissions@informs.org.The Publisher does not warrant or guarantee the article's accuracy, completeness, merchantability, fitness for a particular purpose, or non-infringement. Descriptions of, or references to, products or publications, or inclusion of an advertisement in this article, neither constitutes nor implies a guarantee, endorsement, or support of claims made of that product, publication, or service. Copyright © 2015, INFORMS Please scroll down for article-it is on subsequent pagesINFORMS is the largest professional society in the world for professionals in the fields of operations research, management science, and analytics. For more information on INFORMS, its publications, membership, or meetings visit http://www.informs.org ntil recently, scholars have customarily lumped multiple dimensions of environmental change into single constructs, and usually ascertained that the more the context changes, the more value firms derive from higher levels of exploration. In sync with more recent studies focusing on specific dimensions of change, in this paper we borrow theoretical elements from systems theory to examine the possibility that the reward to developing innovative product components may itself be eroded by implicit and yet burgeoning costs to fit the new component technology into existing architectures, thereby dampening system performance. Specifically, we theoretically assess how varying magnitudes of industry regulatory changes affect the optimum level of firm exploration, and propose-counterintuitively vis-à-vis past literature-that the more radical (i.e., competence destroying), as opposed to incremental (i.e., competence enhancing), these changes are, the more the optimum intensity of firm exploration recedes. Based on quantitative as well as qualitative empirical analyses from the Formula One racing industry, we precisely trace the observed performance outcomes back to the underlying logic of our theory, stressing that impaired capabilities to integrate the new component in the architecture redesign and time-based cognitive limitations both operate to inhibit the otherwise positive relationship between firm exploration and performance. In the end, we offer new insights to theory and practice. Organization Science

Expert leaders in a fast-moving environment

“…This relationship is embodied in F1; regulation is unambiguously associated with innovation and performance (Jenkins, 2004;Jenkins, Pasternak, & West, 2007;Khanna, Kartik, Varma, & Lane. 2003;Jenkins 2010;Aversa, 2013;Marino, Aversa, Mesquita & Anand, 2013), and regulatory compliance produces a level playing field for all competing teams. Indeed, rule changes are sometimes made with the intention of curtailing the dominance of one team, for example, with Ferrari and Michael Schumacher in 2003 (Hoisl 2011).…”

Exploration, exploitation, and variability: Competition for primacy revisited

“…First, many competitive situations require relatively rapid results (D'Aveni, 1994;Eisenhardt, 1989). Second, business environments can change, either radically and thus in effect resetting the search process, or incrementally through constant turbulence, which may also increase the benefits of exploitation relative to exploration (Posen and Levinthal, 2012;Marino et al, 2015).…”