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Exploration, exploitation, and financial performance: analysis of S&P 500 corporations


Keil, Thomas; Uotila, Juha; Maula, Markku; Zahra, Shaker A (2009). Exploration, exploitation, and financial performance: analysis of S&P 500 corporations. Strategic Management Journal, 30(2):221-231.

Abstract

The literature suggests that established firms need to balance their exploration and exploitation activities in order to achieve superior performance. Yet, previous empirical research has modeled this balance as the interaction of orthogonal activities. In this study, we show that there is a trade-off between exploration and exploitation and that the optimal balance between exploration and exploitation depends upon environmental conditions. Using a novel methodology to measure the relative exploration versus exploitation orientation, we find an inverted U-shaped relationship between the relative share of explorative orientation and financial performance. This relationship is positively moderated by the R&D intensity of the industry in which the firm operates.

Abstract

The literature suggests that established firms need to balance their exploration and exploitation activities in order to achieve superior performance. Yet, previous empirical research has modeled this balance as the interaction of orthogonal activities. In this study, we show that there is a trade-off between exploration and exploitation and that the optimal balance between exploration and exploitation depends upon environmental conditions. Using a novel methodology to measure the relative exploration versus exploitation orientation, we find an inverted U-shaped relationship between the relative share of explorative orientation and financial performance. This relationship is positively moderated by the R&D intensity of the industry in which the firm operates.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Business Administration
Dewey Decimal Classification:330 Economics
Language:English
Date:2009
Deposited On:20 Jun 2013 14:54
Last Modified:05 Apr 2016 16:49
Publisher:Wiley-Blackwell
ISSN:0143-2095
Publisher DOI:https://doi.org/10.1002/smj.738
Other Identification Number:merlin-id:8135

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