An Investigation of Resource Allocation Mechanism for Exploration and Exploitation Under Limited Resource

Abstract

Previous studies emphasized the importance of balancing exploitation and exploration to achieve sustainable success in organizations in terms of organizational learning and adaptation. These studies also attach great importance to the antecedent and moderate, mediating, and control variables of innovation ambidexterity. However, only few researchers addressed the mechanisms or criteria of resource allocation for establishing a balance between exploitation and exploration. Previous studies showed that the allocation proportion of enterprise resources is associated with performance gap between the targeted performance and actual performance. These studies also showed that exploitative innovation and exploratory innovation can increase the level of knowledge and promote performance development. On the basis of the behavioral theory of the firm and resource-based view, this article investigates that resource allocation is affected by the relative performance rather than absolute levels of performance and how firm performance evolves from the creativity revelation processes through knowledge by balancing exploration and exploitation for established firms. A simulation is conducted. The result shows that exploratory innovation-oriented firms have better long-term performance than exploitative innovation-oriented firms. For exploratory innovation-oriented firms, the more sensitive on the performance gap, the better long-term performance, but for exploitative innovation-oriented firms, the less sensitive on the performance gap, the better long-term performance.