The Long March: The quest for valid text-based indicators of exploration and exploitation

Abstract

Since March outlined the importance of balancing exploration and exploitation in organizational learning, the exploration–exploitation paradigm has received substantial attention in the management literature. Recent studies have used computer-aided text analysis to construct measures of firms’ inclination towards exploration or exploitation, using the original set of keywords proposed by James G. March. We propose a structured series of tests to assess the validity of computer-aided text analysis-based measures and demonstrate that the approach used in prior studies is unlikely to deliver valid indicators. We demonstrate that an alternative approach, which relies on a larger library of keywords, including synonyms of the March keywords and selects only those keywords that are informative and that pass validity tests, delivers valid computer-aided text analysis indicators – both for unstructured (news articles) and structured text-bases (annual reports). Our study contributes to the literature on construct validity and has broader implications for the development of computer-aided text analysis-based indicators in strategy and organization research.