Managing exploration and exploitation for innovation: the role of knowledge network embedding and knowledge diversity

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ABSTRACT Drawing on paradox theory and contingency approaches, this study examines how knowledge network embedding and knowledge diversity affect the optimal balance between exploration and exploitation. By examining 12 years of panel data from 2009 to 2020 on Chinese advanced manufacturing firms, we found an inverted U-shaped relationship between the proportion of exploration and innovation performance. As the knowledge network embedding level increases, the optimal balance point shifts toward exploration. Conversely, as the level of knowledge diversity increases, the balance point shifts toward exploitation. We expand on current research underscoring the importance of a balanced approach to exploitation and exploration for enhancing innovation performance.