Explorative and exploitative choices in response to initiative failure: Study of entrepreneurs and managers

Abstract

Objective: The objective of the article is to investigate how cognitive framing of initiative failure affects strategic decision-making by entrepreneurs and managers in terms of exploitation and exploration. Research Design & Methods: A set of hypotheses is tested in a quasi-experimental study using a scenario-based approach and a usable sample of 59 participants. Specifi-cally, the data were analysed using two paired t-tests and a one-way multivariate analysis of variance (MANOVA). Findings: We draw on prospect theory, behavioural theory, and the threat-rigidity hypothesis to investigate the individual intention to make explorative and exploitative choices in response to initiative failure. The study finds that – under the condition of uncertainty – the experience of initiative failure increases entrepreneurs’ (decreases managers’) willingness to make risky choices and decreases entrepreneurs’ (increases managers’) willingness to make risk-avoidant choices. Implications & Recommendations: This study differentiates the notion of initiative failure from the broader notion of entrepreneurial failure, showing that it has a stimulating (discouraging) effect on further entrepreneurial (managerial) intentions in terms of attitudes to risk. The study was conducted on a relatively small sample of participants representing businesses in Poland. Contribution & Value Added: This study extends existing lines of reasoning by consid-ering initiative failure – clearly delineating it from entrepreneurial failure – and testing its effect on intentions to make strategic choices among entrepreneurs and managers. Decision-makers’ responses cannot be explained solely by the behavioural theory and individual factors, as they are also affected by the organisational context.