Innovation purity: Revisiting the exploration-exploitation debate

Trade-offs between the ”exploitation of old certainties” and ”the exploration of new possibilities” (March, 1991: 71) have long occupied a prominent place within the literature on learning and innovation (Levinthal & March, 1993; Nelson & Winter, 1982). Theoretical simulations, grounded investigations, and empirical analyses yield largely pessimistic forecasts. They suggest that exploitation often traps firms into suboptimal yet stable equilibria (Ahuja & Lampert, 2001; Levinthal & March, 1993), where firms not only get to know significantly less than they could but they also learn at a slower rate than relevant environmental changes may require (March, 1991), with self-destructive long-run consequences (Brenner & Tushman, 2002; Holmqvist, 2004). Alternatively, exploratory actions that increase variance in a firm’s knowledge sets, routines, and capabilities stimulate innovation and learning (Hargadon, 2002), often have significant short-term costs (Fisher & Ittner, 1999). The trade-off argument posits that, because exploration and exploitation exert countervailing forces on resources and strategies, firms are more successful when they focus on one or the other. Depending on the benefits sought, they periodically cycle between the two extremes (Holmqvist, 2004). Recent research, however, suggests that firms deliberately seek a balance between exploration and exploitation (Branzei, 2005; Gitleman & Kogut, 2003). However, maintaining an optimal mix is challenging-given ”[their] certainty, speed, proximity, and clarity of feedback” (March, 1991: 73), exploitation cycles are more tempting to initiate and harder to break, and thus often lure firms away from exploration. Opposite arguments co-exist in the literature. On one hand, a long tradition in learning curve advantage (Darr, Argote & Epple, 1995) and competitive advantage (Barney, 1991; Porter, 1985) suggests that focusing on one at the expense of the other yields superior payoffs. The attention-based view of the firm corroborates this prediction, suggesting that pure exploration or exploitation better mobilize resources and talent and thus is more likely to attain the desired results. Alternatively, March and his adherents have consistently argued for the benefits of ’balancing’ the two, suggesting that an optimal mix helps firms attain both short-term cost advantages and long-term positioning advantages.