Balance within and Across Domains: The Performance Implications of Exploration and Exploitation in Alliances

Organization Science, Vol. 22, No. 6, pp. 1517-1538

46 Pages Posted: 29 Jan 2010 Last revised: 28 Dec 2011

See all articles by Dovev Lavie

Dovev Lavie

Bocconi University - Department of Management and Technology

Jingoo Kang

University of Pennsylvania - Management Department

Lori Rosenkopf

University of Pennsylvania - Management Department

Date Written: 2011

Abstract

Organizational research advocates that firms balance exploration and exploitation yet acknowledges inherent challenges in reconciling these opposing activities. To overcome these challenges, such research suggests that firms establish organizational separation between exploring and exploiting units or engage in temporal separation whereby they oscillate between exploration and exploitation over time. Nevertheless, these approaches entail resource allocation tradeoffs and conflicting organizational routines, which may undermine organizational performance as firms seek to balance exploration and exploitation within a discrete field of organizational activity (i.e., domain). We posit that firms can overcome such impediments and enhance their performance if they explore in one domain while exploiting in another. Studying the alliance portfolios of software firms, we demonstrate that firms do not typically benefit from balancing exploration and exploitation within the function domain (technology versus marketing and production alliances) and structure domain (new versus prior partners). Nevertheless, firms that balance exploration and exploitation across these domains by engaging in R&D alliances while collaborating with their prior partners, or alternatively by forming marketing and production alliances while seeking new partners, gain in profits and market value. Moreover, we reveal that increases in firm size that exacerbate resource allocation tradeoffs and routine rigidity reinforce the benefits of balance across domains and the costs of balance within domains. Our domain separation approach offers new insights into how firms can benefit from balancing exploration and exploitation. What matters is not simply whether firms balance exploration and exploitation in their alliance formation decisions but the means by which they achieve such balance.

Suggested Citation

Lavie, Dovev and Kang, Jingoo and Rosenkopf, Lori, Balance within and Across Domains: The Performance Implications of Exploration and Exploitation in Alliances (2011). Organization Science, Vol. 22, No. 6, pp. 1517-1538. Available at SSRN: https://ssrn.com/abstract=1543447

Dovev Lavie (Contact Author)

Bocconi University - Department of Management and Technology ( email )

Via Roentgen 1
Milan, MI 20136
Italy

Jingoo Kang

University of Pennsylvania - Management Department ( email )

The Wharton School
Philadelphia, PA 19104-6370
United States

Lori Rosenkopf

University of Pennsylvania - Management Department ( email )

The Wharton School
Philadelphia, PA 19104-6370
United States

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