Exploratory Innovation, Exploitative Innovation, and
Performance: Effects of Organizational Antecedents
and Environmental Moderators
Justin J.P. Jansen, Frans A.J. Van den Bosch
and Henk W. Volberda
ERIM REPORT SERIES RESEARCH IN MANAGEMENT
ERIM Report Series reference number ERS-2006-038-STR
Publication July 2006
Number of pages 32
Persistent paper URL
Email address corresponding author jjansen@rsm.nl
Address Erasmus Research Institute of Management (ERIM)
RSM Erasmus University / Erasmus School of Economics
Erasmus Universiteit Rotterdam
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3000 DR Rotterdam, The Netherlands
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ABSTRACT AND KEYWORDS
Abstract
Research on exploration and exploitation is burgeoning, yet our understanding of the
antecedents and consequences of both activities remains rather unclear. We advance the
growing body of literature by focusing on the apparent differences of exploration and exploitation
and examining implications for using formal (i.e. centralization and formalization) and informal
(i.e. connectedness) coordination mechanisms. This study further examines how environmental
aspects (i.e. dynamism and competitiveness) moderate the effectiveness of exploratory and
exploitative innovation. Results indicate that centralization negatively affects exploratory
innovation while formalization positively influences exploitative innovation. Interestingly,
connectedness within units appears to be an important antecedent of both exploratory and
exploitative innovation. Furthermore, our findings reveal that pursuing exploratory innovation is
more effective in dynamic environments whereas pursuing exploitative innovation is more
beneficial to a unit’s financial performance in more competitive environments. Through this richer
explanation and empirical assessment, we contribute to a greater clarity and better
understanding of how ambidextrous organizations coordinate the development of exploratory
and exploitative innovation in organizational units and successfully respond to multiple
environmental conditions.
Free Keywords
Exploratory and Exploitative Innovation, Coordination Mechanisms, Environment, Performance
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The electronic versions of the papers in the ERIM report Series contain bibliographic metadata
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Inspec Classification scheme (ICS), ICS Webpage
EXPLORATORY INNOVATION, EXPLOITATIVE INNOVATION, AND PERFORMANCE:
E
FFECTS OF ORGANIZATIONAL ANTECEDENTS AND ENVIRONMENTAL
MODERATORS
J
USTIN J.P. JANSEN*
F
RANS A.J. VAN DEN BOSCH
H
ENK W. VOLBERDA
Department of Strategic Management and Business Environment
RSM Erasmus University
Erasmus University Rotterdam
P.O. Box 1738
3000 DR Rotterdam, The Netherlands
Tel: +31 (0)10 408 97 82
Fax: +31 (0)10 408 90 13
E-mail:
jjansen@rsm.nl
www.strategyaterasmus.nl
www.erasmusinnovatiemonitor.nl/
Final version April 24, 2006
Accepted for Publication in
Management Science
* We would like to thank the departmental editor, John Boudreau, the associate editor, and two
anonymous reviewers of Management Science for their valuable comments. Moreover, suggestions
from Dania Dialdin, Ernst Verwaal, Raymond van Wijk, and Ed Zajac were helpful for improving
earlier versions of this manuscript. We thank Ad Druijts for enabling data collection at the financial
services firm. The Erasmus Research Institute of Management (ERIM) has supported this research
1
E
XPLORATORY INNOVATION, EXPLOITATIVE INNOVATION, AND PERFORMANCE:
E
FFECTS OF ORGANIZATIONAL ANTECEDENTS AND ENVIRONMENTAL MODERATORS
A
BSTRACT
Research on exploration and exploitation is burgeoning, yet our understanding of the antecedents and
consequences of both activities remains rather unclear. We advance the growing body of literature by
focusing on the apparent differences of exploration and exploitation and examining implications for
using formal (i.e. centralization and formalization) and informal (i.e. connectedness) coordination
mechanisms. This study further examines how environmental aspects (i.e. dynamism and
competitiveness) moderate the effectiveness of exploratory and exploitative innovation. Results indicate
that centralization negatively affects exploratory innovation while formalization positively influences
exploitative innovation. Interestingly, connectedness within units appears to be an important antecedent
of both exploratory and exploitative innovation. Furthermore, our findings reveal that pursuing
exploratory innovation is more effective in dynamic environments whereas pursuing exploitative
innovation is more beneficial to a unit’s financial performance in more competitive environments.
Through this richer explanation and empirical assessment, we contribute to a greater clarity and better
understanding of how ambidextrous organizations coordinate the development of exploratory and
exploitative innovation in organizational units and successfully respond to multiple environmental
conditions.
2
As competition intensifies and the pace of change accelerates, firms need to renew themselves by
both exploiting existing competencies and exploring new ones (Floyd and Lane 2000). The notion of
exploration and exploitation (March 1991) has emerged as an underlying theme in research on
organizational learning and strategy (Levinthal and March 1993, Vera and Crossan 2004), innovation
(Danneels 2002, Lee et al. 2003, Rothaermel and Deeds 2004), and entrepreneurship (Shane and
Venkataraman 2000). Various literatures have argued that organizations need to become ambidextrous
(Gibson and Birkinshaw 2004, He and Wong 2004) and develop exploratory and exploitative
innovation simultaneously in different organizational units (e.g. Benner and Tushman 2003, Tushman
and O’Reilly 1996). Units that engage in exploratory innovation pursue new knowledge and develop
new products and services for emerging customers or markets. Units pursuing exploitative innovation
build upon existing knowledge and extend existing products and services for existing customers
(Benner and Tushman 2003, p. 243). While the importance of pursuing both types of innovation has
often been highlighted, much more remains to be understood how ambidextrous organizations
coordinate the development of exploratory and exploitative innovation in organizational units.
First, there is little systematic evidence whether units adopt different coordination mechanisms to
develop exploratory and exploitative innovation. Although previous research has asserted that
organizational antecedents differentially influence exploratory and exploitative innovation (e.g. Benner
and Tushman 2003, Hill and Rothaermel 2003), empirical studies examining such relationships with
radical and incremental types of innovation produced mixed results (Cardinal 2001, Damanpour 1991,
Ettlie et al. 1984, Dewar and Dutton 1986). Thus, it appears that the central tenet of units using diverse
coordination mechanisms for exploratory and exploitative innovation remains unproven. The mixed
findings may stem from the fact that previous studies have used the firm or business unit as unit of
analysis, ignoring the fact that ambidextrous organizations might differentiate coordination mechanisms
at the organizational unit-level. Moreover, prior research has tended to focus on formal hierarchical
structure, thereby ignoring the increasing importance of informal social relations in coordinating the
development of exploratory and exploitative innovation (Subramaniam and Youndt 2005). Cardinal
(2001), for instance, argued that in addition to formal controls, informal social relations determine the
extent to which exploratory and exploitative innovation can be developed. Yet, the impact of formal
3