Exploration vs. Exploitation: An Empirical Test of the Ambidexterity Hypothesis

Abstract

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.

The evolving nature of China's regional innovation systems: Insights from an exploration–exploitation approach

“…However, there are still other studies that conceptualize the two constructs, exploration and exploitation, as independent activities and thus utilize separate measurements [56,82,83]. As Stadler et al [78] note, this conceptualization might underrate their interdependent nature, which lies at the heart of the question of how a balance can be obtained.…”

“…We take the position that both exploration and exploitation relate to forms of learning and innovation [56][57][58]. Whereas exploration includes activities for obtaining new knowledge, exploitation utilizes existing knowledge.…”

Editor, Executive and Entrepreneur

“…Note: Number of respondents is 81 from the four Nordic countries Denmark, Finland, Norway and Sweden. We deployed the median cut off (He &Wong, 2004). ** Correlation is significant at the 0.01 level (2-tailed).…”

“…Table 5 summarizes the significant correlations on the 22 industry-specific strategic items. In line with He and Wong (2004), and Cao, Gedajlovic, & Zhang (2009), we focused on firms with 50 employees or more, and divided our sample into three firm groups based on a median cut-off criterion, ranking them in descending order of explorative or exploitative factor scores. We coded firms that fell in the upper half of the explorative ranking as such, and did the same for those falling in the upper half of the exploitative rankings.…”

Properties of balance: A pendulum effect in corporate entrepreneurship

“…In this context, exploration finds resources devoted to search, discovery, experimentation, and innovation, while exploitation involves an emphasis on refinement, adaptation, selection, implementation, and efficiency (He & Wong, 2004;March, 1991;Schildt, Maula, & Keil, 2005). There are companies quite adept at exploration, such as Xerox--which, however, struggles with the exploitation of many of its breakthroughs (Cooper, 2003).…”