Exploration and exploitation within and across intra-organisational domains and their reactions to firm-level failure

Abstract

This study examines the evolution of exploration and exploitation within intra-organisational domains, specifically, the technological and market knowledge domains in high-technology firms. It simultaneously tests the interaction between exploration and exploitation across domains. Furthermore, this paper examines the impact of firm-level failure experience on exploration and exploitation within each domain. Based on longitudinal analysis of crossnational panel data on drug development initiatives obtained from 191 biopharmaceutical firms from 1990 to 2008, we find a negative relationship between firms' innovation experience and exploration orientation within domains. Technological exploration and market exploration are competing with each other. We further find that failure experience stimulates technological search but not market search. This work contributes to the exploration and exploitation literature by extending domain separation to the internal context of an organisation theoretically and empirically. It further contributes by using performance feedback theory to explore the impact of failure on exploration and exploitation.

Technological area experience, experience diversity and innovation

“…We therefore supplement the existing literature by adding empirical research on the consequences that experience has on future rates of failure. This is in line with recent work on the importance of failure in the context of knowledge development (Madsen and Desai 2010;Muehlfeld, Rao Sahib, and Van Witteloostuijn 2012;Su and McNamara 2012). We also contribute to the already existing work on drug development which has received substantially less attention than drug discovery (Cockburn and Henderson 2001), even though the costs of development are substantially higher than those of discovery.…”

Outbound open innovation in bio-pharmaceutical out-licensing

“…Similarly, failure may trigger reflection, and hence improvements in a firm's organizational adaptation and reliability, which are associated with organizational success (Carmeli and Schaubroeck, 2008;Madsen and Desai, 2010). In the bio-pharmaceutical industry it has been found that failure experience stimulates search for new technologies but not new markets (Su and McNamara, 2012). At the same time, there is also evidence of bias against supporting failure with future resource commitments.…”

nnovative practices in corporate social responsibility: a narrative research study exploring how apparel industry managers describe the operational practices associated with corporate social responsibility within their organizations

“…Considering the conflicting pressures imposed by inertia and absorptive capacity, and firms' inherent tendencies to specialize in either exploration or exploitation within each domain, firms may counter their tendencies to explore in one domain by exploiting in another (Lavie & Rosenkopf, 2006, p. 804). Su and McNamara (2012) contended that "balancing exploration and exploitation has been the core of the strategic renewal of the firm" (p. 129). Su and McNamara (2012) "investigate the domain separation of exploration and exploitation in the internal context of an organization" (p. 130).…”

“…Su and McNamara (2012) contended that "balancing exploration and exploitation has been the core of the strategic renewal of the firm" (p. 129). Su and McNamara (2012) "investigate the domain separation of exploration and exploitation in the internal context of an organization" (p. 130). Su and McNamara (2012) described exploration as firms that "tend to pursue more knowledge that is new to the firms now than they did in the past" and "firms focusing on exploitation act in reverse fashion, pursuing less knowledge that is new to the firms now than they did in the past" (p. 131).…”

“…Su and McNamara (2012) "investigate the domain separation of exploration and exploitation in the internal context of an organization" (p. 130). Su and McNamara (2012) described exploration as firms that "tend to pursue more knowledge that is new to the firms now than they did in the past" and "firms focusing on exploitation act in reverse fashion, pursuing less knowledge that is new to the firms now than they did in the past" (p. 131). Mom, Van Den Bosch, and Volberda (2007) Their study illustrated that top-down knowledge inflows of managers relate to their exploitative activities, and bottom-up knowledge inflows of managers related to their exploration activities (p. 26).. Sirén, Kohtamaki, and Kuckertz (2012) attempted to understand the mediation construct between opportunity-seeking (exploration) and advantage-seeking (exploitation) strategies and profit performance (p. 18).…”