Exploration, exploitation and innovation performance: disentangling the evolution of industry

Abstract

The evolution of industry has recently attracted the attention of scholars studying the relationships between exploration and exploitation strategies and innovation performance. Surprisingly, although extant research has already acknowledged its multidimensional character, it has only been analyzed in an aggregate fashion. In this paper, we distinguish two components of the evolution of industry, the pace of market evolution and the pace of technology evolution, and we elaborate on their different impacts in the context of exploration and exploitation strategies. More precisely, we argue that while a rapid pace of technology evolution has opposite impacts on the relationships between exploration (positive), exploitation (negative) and innovation performance, a rapid pace of market evolution positively affects both exploration and exploitation. Our findings provide substantial support for our prediction using a large panel of Spanish innovating firms for the period 2008–2012.

Keywords:

• Exploration
• exploitation
• technology evolution
• market evolution
• industry evolution

Acknowledgements

We would like the acknowledgements section to be written as follows: The support of the funders is gratefully acknowledged. Valuable comments on an earlier draft were received from participants in the EURAM 2016 Conference, ACEDE 2016 Conference, and two reviewers from this journal.

Notes

¹ The data-set, the questionnaire and the description of each variable is available at the website: http://icono.fecyt.es/PITEC/Paginas/por_que.aspx In order to avoid the identification of the firms, some variables are ‘anonymized’. López (2011) shows that the expected biases due to this anonymization are small through the comparison of regressions that use original and harmonized data alternatively.

² For building the exploration and exploitation variables, information is only available from 2008, which limits the final observation window to the period 2008–2012.

³ Innovators are firms that, in any period, have developed product innovations or process innovations or have started an innovative activity and it is still ongoing or has been abandoned.

⁴ We have used the OECD (2005)’s classification of industries to create the high-tech and low-tech groups. Additional information is available at the website: http://www.ine.es/daco/daco43/notaiat.pdf

⁵ Classification carried out in accordance with the criteria established by the European Commission Regulation (CE) Nº 800/2008 of 6 August 2008 (DOUE L214/3 of 9 of August, 2008), which defines the requirements for three categories of companies: microenterprise, comprising those which employ fewer than 10 workers, small business, which includes those which employ 10 to 49 workers and medium enterprises, those that employ between 50 and 249 workers.

⁶ Since some variables are constructed using questions that refer to a three-year period, there could be an overlapping effect. However, Raymond et al. (2010) and Clausen and Pohjola (2013) found that the effect of such an overlap is a minor issue.

⁷ As can be observed, our number of observations declines from the 23,015 showed in the descriptive statistics to 15,286, since both the independent and the moderating variables have been lagged one period.

⁸ We carried out the same analysis using total industry sales and the resulting conclusions were unchanged.

⁹ As our results indicate that the interaction effect between exploitation strategies and technology evolution has no significant effect (see Table 5), we have not included the graph.