Heterogeneity of Optimal Balance Between Exploration and Exploitation

Although existing ambidexterity literature suggests that firms need to find a balance between exploration and exploitation for superior performance, few studies have examined how the optimal level of balance heterogeneously appears according to firm- specific conditions. Building upon the capability and alliance network literatures, we contend that firms technological capability and network position within industry alliances determine the optimal balance between exploration and exploitation. Analyzing 7-year panel data in the worldwide semiconductor industry from 1994 to 2000, we find support for the following hypotheses: 1) the proportion of exploration has an inverted-U-shaped relationship with innovation performance; 2) as technological capability increases, the optimal point between exploration and exploitation moves toward the exploration side; 3) as network position (centrality) within industry alliances increases, the optimal point moves toward the exploitation side. The results offer theoretical i...