Heterogeneity of optimal balance between exploration and exploitation:the moderating roles of firm technological capability and industry alliance network position

Abstract

ABSTRACT Although existing ambidexterity literature suggests that firms need to find the optimal balance between exploration and exploitation for superior performance, few studies have empirically examined the heterogeneity of this balance according to firm-specific conditions. Building upon the capability and social network literature, we contend that firms’ technological capability and network position within industry alliances determine the optimal balance between exploration and exploitation. Analysing 7-year panel data in the worldwide semiconductor industry from 1994 to 2000, we find support for the following hypotheses: 1) the proportion of exploration has an inverted U-shaped relationship with innovation performance; 2) as firm technological capability increases, the optimal point between exploration and exploitation moves towards the exploration side; 3) as network centrality within industry alliances increases, the optimal point moves towards the exploitation side. The results offer theoretical insights into the ambidexterity literature as well as managerial implications for firms making resource allocation decisions.