The (In-)congruence effect of exploitative and explorative capabilities on firm performance

Abstract

Innovative capabilities are important for firms to maintain competitive advantages. To develop such capabilities, firms can utilize from existing knowledge, skills and markets (i.e., exploitation) and/or gain from new ones (i.e., exploration). Although previous research has discussed about the impact of exploitative capability (EXC) and explorative capability (ERC) on firm performance, the effects of portfolios of such capabilities remain largely unexplored. Therefore, in this study, to investigate how firms’ EXC and ERC portfolios influence performance, we develop a framework through which to examine their congruence and incongruence effects on firm performance. Using panel data of China's listed firms from 2012 to 2017, we extracted EXC and ERC by using stochastic frontier analysis and further investigated their (in-)congruence effects via response surface analysis. Our results reveal that, compared with incongruence, the congruence between EXC and ERC positively influences firm's performance. Furthermore, in the case of congruence, the higher both capabilities are, the higher firm performance will be. In the case of incongruence, the combination of high ERC and low EXC outperforms the opposite. These conclusions shed new light on how to better invest and develop both EXC and ERC for firms’ innovation.

Keywords

• O31 Innovation and Invention: Processes and Incentives
• O32 Management of Technological Innovation and R&D
• L21 Business Objectives of the Firm
• L25 Firm Performance: Size, Diversification, and Scope