Exploitation and Exploration in the Presence of Interorganizational Information Sharing

Abstract

When involved in an uncertain and competitive business environment, firms are faced with two contradictory pressures: differentiate from competitors for competitive advantages vs. conform to industrial norms to gain legitimacy. Building on and extending James G. March’s work on exploitation/exploration and organizational learning, this study enriches our understandings of this differentiation-conformance dilemma. Using a mixed-method design, we investigate how interorganizational information sharing influences firms’ performance using both a computational model and an illustrative case study. The computational model helps unfold the underlying dynamic and adaptive learning mechanism. Our results suggest that information sharing within an industry can significantly improve the performance of the whole industry. This positive effect of information sharing is especially salient in the presence of learning cost, because it helps a firm overcome the success trap. Our case study on the Chinese photovoltaic industry supports and lends external validity to these findings. When engaged in a highly uncertain new area, firms need to pay attention to the industrial norms by imitating and updating timely to the leading experiences and legitimate technological trajectories. Lead firms and industrial associations play a key role in spreading information and shaping legitimate technologies, which greatly improves the performance of the whole industry.