How innovators resolve the exploitation-exploration trade-off? Evidence from the Japanese Pharmaceutical Industry

Abstract

Successful innovation calls for both exploitation of existing knowledge and exploration of new knowledge, or organizational ambidexterity, but we still know little about how organizations manage innovation by resolving the trade-off relationship between exploitation and exploration. We aim to address this research gap by examining the relationship between an organization’s degree of exploitation orientation and its subsequent degree of organizational ambidexterity. We argue that organizations’ exploitation orientation negatively influences subsequent achievement of organizational ambidexterity because exploitation precludes subsequent exploration. However, this trade-off relationship between prior exploitation and subsequent exploration is attenuated when organizations are characterized by problemistic search, deliberate learning, or by speciation. Accordingly, these organizations’ degree of exploitation orientation more positively influences subsequent achievement of organizational ambidexterity. Our empirical analyses of 32 Japanese pharmaceutical firms’ new product developments over 1991 to 2000 support the argument. Our findings show that organizations may increase their degree of organizational ambidexterity by resolving, rather than circumventing, the trade-off relationship between exploitation and exploration, thereby proposing an alternative explanation of ambidexterity antecedents.