Exploitation, Exploration or Continuous Innovation?

Strategy Focus, Fit and Performance

in Different Business Environments

Andreas Größler Bjørge Timenes Laugen Harry Boer

Astrid Heidemann Lassen

Radboud University

Nijmegen

University of Stavanger Aalborg University

Exploitation, Exploration or Continuous Innovation?

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Organisations adapt to their environment, but

they also shape it.

Organisation Environment

Organisations as “co-producers” of their environment

Organisation adapts to environment

1. Instability

2. Complexity

3. Diversity

4. Hostility

(Mintzberg, 1979)

Exploitation, Exploration or Continuous Innovation?

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Research questions and propositions

RQ1. Do firms pursuing a continuous innovation strategy exist?

RQ2. To what extent does the business environment affect the

choice of competitive strategy?

RQ3. How successful, in terms of performance, are these

strategies?

P1. Most exploitative firms exist in low uncertainty business environments,

while explorative firms will probably dominate high uncertainty

environments .

P2. Exploitation-only firms are more successful in low uncertainty business

environments than explorative and continuous innovation firms.

P3. Exploration-only firms are more successful in high uncertainty business

environments than exploitative and continuous innovation firms.

Exploitation, Exploration or Continuous Innovation?

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2010

Data and operationalisation (i)

• International Manufacturing Strategy Survey, 5th round,

2009

• 19 countries, 677 plants

• ISIC 28-35: machinery, tools, electrical, electronic and

optical devices, measurement devices, and transportation

equipment

• Director of Manufacturing, estimates and perceptions,

mostly 5-point Likert scales

• Market dynamics proxy for stability (transformed), market

span for complexity, geographical focus for diversity, and

competition intensity for hostility

Exploitation, Exploration or Continuous Innovation?

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2010

Operationalisation (ii)

• Strategy operationalised using order winners (single-variate

measurement)

– Quality

– Time exploitation

– Cost continuous innovation

– Flexibility

– Innovativeness

• (Operational) performance: three factors regarding

time/cost, quality, and flexibility

exploration

Exploitation, Exploration or Continuous Innovation?

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Procedure and analysis

1. Split the sample (cluster analysis) based on characteristics

of environment (Mintzberg’s four factors).

2. Classify the firms in the data set according to their strategy

in exploitation-only, exploration-only, and continuous

innovation firms based on their order-winners.

3. Using cross tabulation, investigate the representation of

different firm types (exploitative, explorative and

continuous innovation) in different environmental clusters.

4. Using ANOVA, investigate the relationships between

different firm types and operational performance in the

different environmental clusters.

Exploitation, Exploration or Continuous Innovation?

Grö

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2010

Step 1: Clustering the sample wrt. environment

Three clusters appeared to be most interpretable:

1. A low uncertainty business environment: low complexity,

low dynamics, low hostility and low diversity.

2. A medium uncertainty business environment: high

diversity, medium hostility, medium complexity and low

dynamics.

3. A high uncertainty business environment: high complexity,

high dynamics, high hostility and high diversity.

661 firms clustered: 147 firms in the low uncertainty cluster

and 257 firms in each of the two other clusters

Exploitation, Exploration or Continuous Innovation?

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2010

Step 2: Classifying firms wrt. strategy

441 firms from the sample classified: 160 firms are

exploitation-only, 47 exploration-only, and 234 firms pursue a

continuous innovation strategy

RQ1: continuous innovation firms do exist!

Exploitation, Exploration or Continuous Innovation?

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2010

Step 3: Cross tabulation

Strategy

Cluster

Exploitation

-only

Exploration-

only

Continuous

innovation

Total

(%)

Total

(N)

Low

uncertainty

34.8%

19.4%

15.7%

29.8%

49.4%

18.8%

20.2% 89

Medium

uncertainty

35.1%

37.5%

11.1%

40.4%

53.8%

39.3%38.8%

171

High

uncertainty

38.1%

43.1%

7.7%

29.8%

54.1%

41.9%41.0%

181

Total (%)36.3% 10.7% 53.1%

100.0

%

Total (N) 160 47 234 441

RQ2: no link between the strategy pursued and characteristics of

environment. Proposition P1 is not supported by data.

Exploitation, Exploration or Continuous Innovation?

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2010

Step 4: Strategy and performance

• Low-uncertainty business environment:

– a strategy focused on exploitation does not lead to competitive

advantage over the other strategic foci

– P2 is rejected

• Medium-uncertainty business environment:

– continuous innovation firms perform significantly better than

exploiters

• High-uncertainty business environment:

– firms pursuing an explorative or continuous innovation strategy

perform significantly better than focused exploiters

– P3 partially supported

Exploitation, Exploration or Continuous Innovation?

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2010

Discussion and implications

• Continuous innovation firms do exist

• … even in a very high number: fashion, artefact, necessity,

or natural development?

• No clear link between strategy and environment; in

particular: why exist so many exploitation-only firms in high-

uncertainty environments?

• Continuous innovation (i.e. multi-focus) firms are at least as

successful as the other types; advantage of focus?

• Strategy based on order winners – actual behaviour/

structure?

• Operational performance vs. business/financial

performance