Abstract
Performance comparisons play a key role in driving firm behavior in organizational learning models. However, in some industry contexts, conventional measures of performance such as profitability or revenues do not facilitate accurate comparisons between firms. We argue that novel performance indicators are essential to understand the dynamics of firm behavior in such contexts. We introduce a new measure of performance feedback based on conversion ability, defined as a firm-level ability to turn new ideas into successful products. We employ this measure to analyze decisions to develop products in new versus existing market segments (i.e. exploration vs. exploitation) in the biotechnology industry. Our results suggest that managerial assessments of conversion ability are a key input to decision- making when new product development is lengthy, costly and risky.
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