Exploration and exploitation strategies, profit performance, and the mediating role of strategic learning: Escaping the exploitation trap

Abstract

This study focuses on the role of strategic learning as a mediating construct between opportunity-seeking (exploration) and advantage-seeking (exploitation) strategies and profi t performance. Prior studies argue that the effect of these core elements of strategic entrepreneurship (exploration and exploitation) cannot be fully captured through their direct effects on profi t performance, but that this relationship consists of mediating factors. This study proposes that the process of strategic learning, through its intraorganizational elements that enable the dissemination, interpretation, and implementation of strategic knowledge, enables fi rms to capitalize on the benefi ts of both exploration and exploitation strategies. Results from 206Finnish software fi rms indicate that strategic learning fully mediates the relationship between exploration, exploitation, and profi t performance. The result contributes by stressing the importance of strategic learning processes, especially in conjunction with entrepreneurial exploration strategies. Furthermore, the study demonstrates that the effect from exploration to strategic learning is moderated by the level of exploitation. This moderation effect suggests that the strategic learning is limited, being a path dependent capability that favors exploitation over exploration when stretched. However, strategic learning effectively allows both types of strategies to improve profi t performance. Copyright © 2012 Strategic Management Society. INTRODUCTIONThe strategic entrepreneurship literature integrates entrepreneurship and strategic management research to study the antecedents, effects, and mechanisms of opportunity-seeking (exploration strategy) and advantage-seeking (exploitation strategy) behaviors, suggesting the existence of positive performance effects derived from the balanced application of these strategies (Hitt et al., 2011;Hitt et al., 2001;Ireland, Hitt, and Sirmon, 2003;March, 1991;O'Reilly and Tushman, 2008). Although some of the studies report direct effects of exploration and exploitation on fi rm performance, others (Raisch et al., 2009;Raisch and Birkinshaw, 2008;Simsek et al., 2009) contend that the relationships are more complex, with various factors either mediating or moderating the linkages. Recently, researchers have proposed various processes (e.g., innovation process) and capabilities (e.g., absorptive capacity) that support the capitalization of these strategies (Kohtamäki, Kautonen, and Kraus, 2010;Lubatkin Keywords: exploration strategy; exploitation strategy; ambidexterity; strategic learning; exploitation trap; profi t performance *Correspondence to: Charlotta A. Sirén, Department of Management, University of Vaasa, PO Box 700, Vaasa, Simsek et al., 2009) call for studies analyzing fi rms' internal process-related mediating and moderating factors in the link between exploration, exploitation and fi rm performance.To address this issue, we introduce the construct of strategic learning (e.g., Mintzberg and Waters, 1985) as a mediating fa...

The impact of university-based incubation support on the innovation strategy of academic spin-offs

“…Levinthal and March (1993) propose another explanation and define exploration as the pursuit of knowledge of things that may come to be known, and exploitation as the use and development of things already known. Some studies suggest that maintaining an appropriate exploration and exploitation balance is critical for firm survival (Sirén et al, 2012;Bierly and Daly, 2007;Smith and Tushman, 2005). Another stream of studies proposes that exploration and exploitation can be treated as an ambidextrous process such that firms can successfully engage in both activities (Gupta et al, 2006;Jansen et al, 2006;Lavie and Rosenkopf, 2006;Lutbatkin et al, 2006).…”

“…Combelli et al, 2014;Sirén et al, 2012;Simsek et al, 2009) for more evidence that links the strategy of small firms to their performance. While previous research has asserted the link between strategy and performance, most studies focus on established firms and overlook the role of external support that is often received by small firms and especially spin-offs.…”

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“…From this perspective, internationalization is viewed as a learning and knowledge accumulation process. Data from a sample of researchintensive firms of mechanics and electronics using design and engineering activities shows that operational-level exploratory and exploitative productive innovation and marketing capabilities allow firms to implement exploratory and exploitative strategies in complex and dynamics international business marketing (Kim & Atuahene-Gima, 2010;Lisboa et al, 2011;McCarthy & Gordon, 2011;Siren et al, 2012). A number of studies suggest that a firm that invests in R&D activities continuously can foster the firm's innovativeness (Hagedoorn & Duysters, 2002).…”

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