The Multifaceted Nature of Exploration and Exploitation: Value of Supply, Demand, and Spatial Search for Innovation

Abstract

I n this paper, exploration and exploitation are conceptualized in terms of a nonlocal-local search continuum in threedimensional supply, demand, and geographic space. Using cross-sectional data from a wide range of manufacturing industries, we develop and validate an operational measure of the exploration-exploitation concept. In line with theorybased arguments, our analysis suggests that the value of supply-side, demand-side, and spatial exploration and exploitation is contingent on the environment. While boundary-spanning supply-side search is found to be positively associated with innovation in more-dynamic environments typical of the entrepreneurial regime phase of technology evolution, such exploration appears to hurt innovation in less-dynamic environments. In a reverse fashion, while boundary-spanning demand-side search is found to be favorably associated with innovation in less-dynamic environments, it appears to harm innovation in a more-dynamic context. Interestingly, spatial boundary-spanning search seems to contribute to innovation in more-as well as less-dynamic environments. With the caveat that the substantive findings of this study are based on cross-sectional data, we discuss the implications of our work and future research directions.

Internationalising in small, incremental or larger steps?

“…Earlier, in a technological context, exploitation has been defined as improving on existing components, technological trajectories (Benner and Tushman, 2002) or product-market domains (He and Wong, 2004), whereas exploration has been defined as a shift to a different technological trajectory (Benner and Tushman, 2002) or as entering a new product-market domain (He and Wong, 2004; see also Jansen et al, 2006, andSidhu et al, 2007). We shall apply these concepts to the international domain, and argue that they can be applied to expansions within an existing cultural bloc, as opposed to entering a new cultural bloc.…”

Explorative versus exploitative alliances: evidence from the glass industry in China

“…Given limited resources, explorative and exploitative alliances may create conflicts between each other but can also act synergistically (Gupta, Smith, & Shalley, 2006;He & Wong, 2004;Lavie & Rosenkopf, 2006;Sidhu, Commandeur, & Volberda, 2007). Ancona et al(2001, p. 568) argued that firms may engage simultaneously in exploitation and exploration.…”

Novel product innovation in project-based firms: explaining innovation where interdependent firms deliver complex system-level outcomes

“…On the first point, broad search can perhaps suppress novelty, particularly in settings with low technological dynamism (Sidhu, Commandeur, & Volberda, 2007) that typifies many CoPS industries (Whitley, 2006). For instance, when a technological regime is stable, such as when a dominant design has established itself (like internal combustion engines the auto industry), benefits accrue to firms that create innovations related to that design.…”

“…For instance, when a technological regime is stable, such as when a dominant design has established itself (like internal combustion engines the auto industry), benefits accrue to firms that create innovations related to that design. The value of very new information obtained by technologically distant search (that which is not directly related to internal combustion) is reduced in terms of near-term potential to create new products that are accepted by the market place (Henderson & Clark, 1990;Sidhu et al, 2007). This perspective is related to the concept of local search, which is the theory that firms faced with problems tend to search locally for information to solve the problems, meaning that the information that is sought is located in close proximity to current knowledge sets (Helfat, 1994;Levinthal & March, 1993).…”

“…Additional empirical evidence from Dutch electrical and metal manufacturing also supports this position. A study shows that at high levels of technological dynamism, that search is a positive contributor to innovation outcomes (measured as per cent of sales from new products), but low dynamisms and extensive search results in fewer innovations (Sidhu et al, 2007). However, this does not mean that searching close to existing knowledge sets is bad for innovation necessary.…”