Exploration, Exploitation, and Financial Performance: Analysis of S&P 500 Corporations

Strategic Management Journal, Vol. 30, No. 2, pp. 221-231

Posted: 22 Aug 2008 Last revised: 9 May 2013

See all articles by Juha Uotila

Juha Uotila

Aalto University - Institute of Strategy and Intl. Business

Markku V. J. Maula

Aalto University, Dept. of Industrial Engineering and Management, Institute of Strategy

Shaker A. Zahra

University of Minnesota - Twin Cities - Carlson School of Management

Thomas Keil

University of Zurich - Department of Business Administration

Date Written: November 1, 2008

Abstract

The literature suggests that established firms need to balance their exploration and exploitation activities in order to achieve superior performance. Yet, previous empirical research has modeled this balance as the interaction of orthogonal activities. In this paper, we show that there is a trade-off between exploration and exploitation and that the optimal balance between exploration and exploitation depends upon environmental conditions. Using a novel methodology to measure the relative exploration versus exploitation orientation, we find an inverted U-shaped relationship between the relative share of explorative orientation and financial performance. This relationship is positively moderated by the R&D intensity of the industry in which the firm operates.

Keywords: Exploration, exploitation, organizational learning, behavioral theory of the firm, performance

JEL Classification: D21, M1, O31, O32, O33

Suggested Citation

Uotila, Juha and Maula, Markku V. J. and Zahra, Shaker A. and Keil, Thomas, Exploration, Exploitation, and Financial Performance: Analysis of S&P 500 Corporations (November 1, 2008). Strategic Management Journal, Vol. 30, No. 2, pp. 221-231. Available at SSRN: https://ssrn.com/abstract=1246683

Juha Uotila (Contact Author)

Aalto University - Institute of Strategy and Intl. Business ( email )

Finland

Markku V. J. Maula

Aalto University, Dept. of Industrial Engineering and Management, Institute of Strategy ( email )

PO Box 15500
FI-00076 AALTO
Espoo
Finland

HOME PAGE: http://users.tkk.fi/u/mmaula/

Shaker A. Zahra

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States

Thomas Keil

University of Zurich - Department of Business Administration ( email )

Seilergraben 53
Zurich, CH-8001
Switzerland

HOME PAGE: http://www.business.uzh.ch/professorships/international-management/team/keil.html

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