Institutional Exploitation and Exploration: Socio-Spatial Distance of New Partner Selection

Abstract

Concepts of exploration and exploitation are widely used to interpret organizational behavior, typically classifying any new relationship as exploration and the continuation of an existing relationship as exploitation. This delineation from the organizational perspective, however, fails to differentiate between the relative socio-spatial distances of the two prospective partners. Arguably, these differences matter for the relative novelty of information that a new partner brings, not only to the organizational entities involved in the relationship, but to the institutional fields within which they are embedded. Conceptualizing novelty along a continuum of institutional distance across field boundaries, I develop a more robust theory of partner selection that distinguishes two types of organizational exploration: institutional exploitation, the initiation of a new relationship for the ego organization that involves the replication of past partner choices of others within the ego’s field, and institutional exploration, the formation of a relationship with a new organization that exists outside of the ego’s field. I test this theory using a novel, longitudinal dataset of U.S.-based foundations’ transnational grantee choices. I find that objective market- and firm-level uncertainty lead to institutional exploitation in new investment relationships. However, my analysis shows that exploitation is tempered by subjective perceptions of uncertainty rooted in the particular norms of an organization’s institutional environment. Larger professionalized foundations often see novelty as opportunity, embracing institutional exploration and the selection of new partners from outside the field, while their less well-endowed peers view it as risk, resorting to institutional exploitation in an effort to form new partnerships that feel safer. Furthermore, foundations that respond to unique personal environments, such as family foundations and corporate foundations, engage in greater degrees of institutional exploration. These findings encourage the utility of including more nuanced degrees of exploration in future studies of partner selection.