Effects of Exploitative and Exploratory R&D on Firm Performance: The Role of Firm- and Industry-Specific Contingencies

Drawing from organizational learning theory, this PhD thesis explores the relationship between exploratory and exploitative R&D and firm performance and advances prior knowledge by specifying how firm- and industry-specific contingencies influence this relationship. Research on ambidexterity suggests that firms should balance exploratory and exploitative R&D activities for enhancing their performance (i.e. invest significantly in both activities). Yet, exploitative R&D (which relies on existing knowledge and old certainties and includes activities and structures that focus on efficiency) and exploratory R&D (which requires distant knowledge and includes activities and structures that rely on experimentation) are two antithetical activities with distinctively different knowledge requirements and outcomes. We therefore posit that specialization rather than ambidexterity might be more beneficial for the performance of some firms. Accordingly, in the context of R&D, we examine how balance versus specialization in exploratory R&D and exploitative R&D affect firm performance. In the first empirical chapter, we test and make a direct comparison between specialization in either exploratory or exploitative R&D and ambidextrous R&D strategies. This chapter also identifies whether and how the returns to exploratory and exploitative R&D vary for those firms that adopt a specialization versus an ambidextrous strategy. It advances thus scholarly understanding of how certain mechanisms affect the returns from specializing in exploratory or exploitative R&D and consequently firm performance. The second empirical chapter contributes to the literature on exploration and exploitation by identifying which specialization strategy (exploratory or exploitative R&D) and under what conditions is more beneficial for firm performance. Drawing from industrial organization economics, our analysis shows that this depends on industry orientation (a typology we develop that captures cross-industry variations in the concentration of exploratory and exploitative R&D activities). In the third empirical chapter, we contribute to our understanding of the phenomenon by examining how firms change their specialization strategies over time. We propose that firm performance depends on the speed at which firms switch between specialization strategies in a given timeframe and examine how the speed of such changes affect firm performance. This chapter offers thus an explanation that accounts for performance differentials across firms that change at different speeds and in different contexts. We test our framework and hypotheses using a longitudinal dataset of 32,537 observations. The analysis mainly supports our theoretical predictions, indicating that the effects of specialization in exploratory/exploitative R&D depend upon both firm and industry- specific dynamics that either accentuate or weaken the effects of exploratory and exploitative R&D investments.