The Handbook of Technology and Innovation Management

Chapter 6. Rival Interpretations of Balancing Exploration and Exploitation: Simultaneous or Sequentia?

Eric L. Chen and Riitta Katilas

This research was supported by the National Science Foundation (Grant #0423646), Alfred P. Sloan Foundation Industry Studies Fellowship, and by Stanford Technology Ventures Program.

A long tradition of organizational literature has separated a firm's activities into two distinct realms of exploration and exploitation (March and Simon, 1958; Lawrence and Lorsch, 1967; Duncan, 1976; Mintzberg and McHugh, 1985). On the one hand, exploration encompasses behavior that increases the variance of organizational activity. As a result, its returns are often uncertain and distant in time. Exploration is 'the pursuit of knowledge, of things that might come to be known' (Levinthal and March, 1993, p. 105). On the other hand, exploitation encompasses behavior that increases the mean of organizational activity. As a result, its returns are more predictable and proximate in time (March, 1991). Exploitation is 'the use and development of things already known' (Levinthal and March, 1993, p. 105).^[]

^[] Consistent with the theoretical literature, the terms exploration and exploitation are used in this chapter to delineate specific types of activities. In empirical studies, exploration and exploitation are often described using outcome measures such as new product introductions or patents granted. In contrast, we focus on activities, in order to avoid tautological ...