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- Introduction
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,Exploratory Innovation, Exploitative Innovation, and
Performance: Effects of Organizational Antecedents and
Environmental Moderators
Justin J. P. Jansen, Frans A. J. Van Den Bosch, Henk W. Volberda
Units that engage in exploratory innovation pursue new knowledge and develop new
products and services for emerging customers or markets. Units pursuing exploitative
innovation build on existing knowledge and extend existing products and services for
existing customers. The need is more to understand how ambidextrous organizations
coordinate the development of exploratory and exploitative innovation in organizational
units.
Exploratory innovations are radical innovations and are designed to meet the needs of
emerging customers or markets. They offer new designs, create new markets, and develop
new channels of distribution. Require new knowledge or departure from existing
knowledge.
Exploitative innovations are incremental innovations and are designed to meet the needs of
existing customers or markets. They broaden existing knowledge and skills, improve
established designs, expand existing products and services, and increase the efficiency of
existing distribution channels. They build on existing knowledge and reinforce existing skills,
processes, and structures.
Organizational Antecedents of Exploratory and Exploitative Innovation Coordination
mechanism direct attention and group together key resources and interdependent
functions needed to develop innovations. However, they may differentially influence a unit’s
ability to pursue exploratory and exploitative innovation. Therefore, two generic types of
coordination mechanisms are examined:
1. The formal hierarchical structure;
a. Centralization reflects the locus of authority and decision making and
refers to the extent to which decision making is concentrated in an
organization. HYPOTHESIS 1: The higher a unit’s centralization of decision
making, (a) the lower its level of exploratory innovation, and (b) the higher its
level of exploitative innovation;
b. Formalization the degree to which rules, procedures, instructions, and
communications are formalized or written down. HYPOTHESIS 2: The higher
a unit’s formalization, (a) the lower its level of exploratory innovation, and (b)
the higher its level of exploitative innovation;
2. Informal social relations personal linkages between people and comprise a more
voluntary mode of coordination than hierarchical structure;
a. Connectedness increases opportunities for informal hall talk and
accessibility to knowledge sources within organizational units. It helps a
range of individuals to combine knowledge and develop new knowledge
underlying exploratory innovation;
, b. Dense social relations enable unit members to share experiences with
regard to how to implement certain improvements. HYPOTHESIS 3: (a) There
will be an inverted U-shaped relationship between a unit’s connectedness
among its members and the level of exploratory innovation. (b) The higher a
unit’s connectedness among its members, the higher its level of exploitative
innovation.
The Moderating Role of External Environment on the Effectiveness of Exploratory and
Exploitative Innovations The impact of the external environment on innovativeness and
performance has been widely acknowledged;
1. Environmental dynamism refers to the rate of change and the degree of
instability of the environment. HYPOTHESIS 4: Environmental dynamism (a)
positively moderates the relationship between exploratory innovation and financial
performance, and (b) negatively moderates the relationship between exploitative
innovation and financial performance;
2. Environmental competitiveness the extent to which external environments are
characterised by intense competition. HYPOTHESIS 5: Environmental
competitiveness (a) negatively moderates the relationship between exploratory
innovation and financial performance, and (b) positively moderates the relationship
between exploitative innovation and financial performance.
Results
HYPOTHESIS 1A: SUPPORTED
HYPOTHESIS 1B: NOT SUPPORTED
Although centralization negatively influences exploratory innovation, it does not support
exploitative innovation as predicted. Possible answer to this insignificance: in this research
context – the financial services industry – decentralization of decision authority may be
required to execute tasks and initiate ideas for improving existing products and services or
enhancing customer service quality.
HYPOTHESIS 2A: NOT SUPPORTED
HYPOTHESIS 2B: SUPPORTED
This research bears similarities with recent insights that rules and procedures might not be
as detrimental to exploration efforts as previously assumed. Moreover, codification efforts
of newly developed knowledge in written rules and procedures might help units to facilitate
the replication and diffusion of an exploratory innovation.
HYPOTHESIS 3A: NOT SUPPORTED
HYPOTHESIS 3B: SUPPORTED
1. Connectedness shows a significant positive effect on both exploratory and
exploitative innovation highlight the importance of social relations manifested in
organizational units to pursue both innovation types;
2. A comparison of the full model with restricted models containing either formal or
informal coordination mechanisms also shows that informal coordination
mechanisms (connectedness) are more important than formal coordination
mechanisms (centralization and formalization) in predicting both types of innovation.
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