Synchronizing Exploration and Exploitation: Knowledge Creation Challenges in Innovation

By Bailey, Jennifer

Georgia Institute of Technology

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Abstract

Advisors: Cheryl Gaimon, Manpreet Hora, Stylianos Kavadias, Vinod Singhal, David N. Ku

Innovation requires an ambidextrous knowledge creation strategy, which is defined as the simultaneous pursuit of both exploration and exploitation. A temporal ambidexterity strategy is one in which an organizational unit dynamically balances its investments in exploration and exploitation over time. This thesis provides new insights on various factors which should be considered when developing and executing a temporal ambidexterity strategy. In the Essay 1, I empirically examine the impact of exploration, exploitation and learning from cumulative innovation experience on the likelihood of successfully versus unsuccessfully generating a breakthrough innovation. The data sample, based on patents in the biomedical device industry, is drawn from the National Bureau of Economic Research patents database. I demonstrate three important tenets for developing a theory of temporal ambidexterity. First, I confirm, as conceptually expected, that when pursued independently, exploration and exploitation have opposing variance-generating versus variance-reducing impacts on innovation performance, respectively. Second, I find that when pursued jointly exploration and exploitation have a negative interaction effect on innovation performance. Third, I show that the benefits of ambidexterity accrue in the long-term, as a result of learning from prior failure experience. However, I demonstrate that prior failure experience and exploitation are jointly necessary, but not independently sufficient, for learning from failure to occur. In Essay 2, I introduce a dynamic optimization model of temporal ambidexterity. I examine the optimal sequencing of exploration and exploitation knowledge creation activities throughout the innovation process. I consider how an innovation manager's optimal dynamic investments in exploration and exploitation are driven by the innovation team's knowledge creation capabilities and prior innovation experience, and by the manager's short-term and long-term innovation risk objectives. The results demonstrate the conditions under which various temporal ambidexterity strategies endogenously arise. Finally, in Essay 3, I extend the single firm model introduced in Essay 2, to develop a model of temporal ambidexterity for two firms jointly pursuing knowledge creation and knowledge-sharing under co-opetition. Here, I consider how co-opetition, that is, cooperative knowledge-sharing with a competitor, impacts a firm's optimal ambidextrous knowledge creation strategy. I consider two-way knowledge sharing, and I assume that each firm freely reveals its knowledge to its competitor, without receiving compensation. The dynamic analytical results contribute to the open questions regarding optimal knowledge-sharing strategies under co-opetition, by demonstrating under what conditions knowledge-sharing with a co-opetitive partner is beneficial. Importantly, I also analytically examine the factors which drive empirically observed alliance dysfunctions, wherein organizations delay knowledge-sharing and withhold information from their alliance partners.

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Researchers should cite this work as follows:

  • Bailey, Jennifer (2014), "Synchronizing Exploration and Exploitation: Knowledge Creation Challenges in Innovation," https://matin.gatech.edu/resources/2362.

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