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Abstract

Top management teams frequently overemphasize efforts to exploit the current product portfolio, even in the face of the strong need to step up exploration activities. This mismanagement of the balance between explorative R&D activities and exploitation of the current product portfolio can result in the so-called ‘success trap’, the situation where explorative activities are fully suppressed. The success trap constitutes a serious threat to the long-term viability of a firm. Recent studies of publicly traded corporations suggest the suppression of exploration arises from the interplay between the executive team’s myopic forces, the board of directors as gatekeeper of the capital market, and the exploitation-exploration investments and their outcomes. In this paper, system dynamics modeling serves to identify and test ways in which top management teams can counteract this suppression process. For instance, we find that when the executive board is suppressing exploration, the board of directors can still prevent the success trap by actively intervening in the exploitation-exploration strategy.

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... Misdirected attention to exploitation-exploration appears to have far greater negative performance implications in a recession than in a recovery. This finding resonates with the observation that adverse times provide extraordinary opportunities for firm revitalization and progress (Rosenblatt et al., 1993;O'Malley et al., 2011;Steenkamp and Fang, 2011), or alternatively, provoke and reinforce firm decline (Walrave et al., 2011(Walrave et al., , 2015. In this respect, we argued that decreasing levels of munificence make for a more severe external selection regime. ...
... Furthermore, the managerial failure to orchestrate EE during environmental disruptions can cause the firm to get trapped in a process of suppressing exploration (Walrave et al., 2011(Walrave et al., , 2015, a self-reinforcing process in which a decline in performance gives rise to more attention toward exploitation in an attempt to preserve shareholder value. Attentional mismanagement fuels this self-reinforcing retrenchment process. ...
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Managerial attention to exploitation and exploration has a strong influence on organizational performance. However, there is hardly any knowledge about whether senior managers need to adjust their distribution of attention to exploitation and exploration in response to major changes in demand patterns in their industry. Drawing on the analysis of a panel data set of 86 firms in the information technology industry exposed to an economic recession and recovery, we find that successfully navigating an economic downturn demands more managerial attention to exploration, while leveraging the subsequent upswing requires more attention to exploitation. As such, this study contributes to the literature by providing a dynamic perspective on ambidexterity: that is, senior managers need to redistribute their attention to exploration and exploitation, to effectively meet the changing environmental demands over time.
... Misdirected attention to exploitation-exploration appears to have far greater negative performance implications in a recession than in a recovery. This finding resonates with the observation that adverse times provide extraordinary opportunities for firm revitalization and progress (Rosenblatt et al., 1993;O'Malley et al., 2011;Steenkamp and Fang, 2011), or alternatively, provoke and reinforce firm decline (Walrave et al., 2011(Walrave et al., , 2015. In this respect, we argued that decreasing levels of munificence make for a more severe external selection regime. ...
... Furthermore, the managerial failure to orchestrate EE during environmental disruptions can cause the firm to get trapped in a process of suppressing exploration (Walrave et al., 2011(Walrave et al., , 2015, a self-reinforcing process in which a decline in performance gives rise to more attention toward exploitation in an attempt to preserve shareholder value. Attentional mismanagement fuels this self-reinforcing retrenchment process. ...
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Data appendix to the article "Managerial attention to exploitation versus exploration"
... Because so many systems and problems are characterized by dynamic complexity, the number of studies that apply system dynamics (SD) has increased accordingly (e.g., Repenning, 2001;Romme et al., 2010;Van Oorschot et al., 2013). Applications of SD range from global-level analyses (Meadows et al., 2004) to studies on the firm (Walrave et al., 2015) or individual (Repenning, 2001) levels. Of particular interest are intervention studies, which explore "the degree of change in model behavior as a result of alternative policies or scenarios" (Yücel and Barlas, 2015, p. 173). ...
... For such efforts, the intervention thresholds underlying such pattern change represent highly pertinent information. Walrave et al. (2015) calculate the intervention thresholds (i.e., months of managerial commitment) required to counteract an unanticipated self-reinforcing phenomenon (i.e., success trap) for all possible intervention moments (all t in the model). When an intervention size at a given moment is smaller than the intervention threshold, the outcome behavior is reinforced decline, but when the intervention size increases above the threshold the outcome behavior shifts to goal-seeking growth. ...
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This paper details a semi-automated method that can calculate intervention thresholds—that is, the minimum required intervention sizes, over a given time frame, that result in a desired change in a system's output behavior pattern. The method exploits key differences in atomic behavior profiles that exist between classifiable pre-and post-intervention behavior patterns. An automated process of systematic adjustment of the intervention variable, while monitoring the key difference, identifies the intervention thresholds. The results in turn can be studied and presented in intervention thresholds graphs in combination with final runtime graphs. Overall, this method allows modelers to move beyond ad hoc experimentation and develop a better understanding of intervention dynamics. This article presents an application of the method to the well-known World 3 model, which helps demonstrate both the procedure and its benefits.
... We specifically looked at the unfolding innovation processes at TechLtd and the dynamics involved in managing ambidexterity at the interface between old (conventional) and new (green) businesses. We followed other ambidexterity scholars, including Walrave et al. (2014), Tripsas (2013) and Khanagha et al. (2014), who recently used this method for detailed field studies, but in contrast to them, we focus on an unsuccessful case. To investigate the innovation process, we adopted a qualitative approach suitable for process studies (Huber and Van de Ven, 1995) that enables a better understanding of the dynamics at multiple levels of analysis: ...
Thesis
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The importance of firms to participate in sustainable development has been widely discussed in the literature. Yet, progress is still slow in light of the size and the urgency of the challenge. In terms of sustainability management, the challenge is to engage firms in sustainable development. This includes all firms, also SMEs that represent globally about 70% of pollution but have so far received less attention. Sustainability-oriented innovation (SOI) in the form of new products that lessen negative environmental impact, or even create a positive impact on the environment and positive value for society can play an important role, particularly at established SMEs who see business opportunities in sustainable development and consider possible diversifications into new sustainability markets. Whereas the extant literature discusses what SOIs are and why firms develop them, little is known about how they are developed. To enable firms to innovate for sustainability, it is essential to know more about how SOI are developed. This process is considered as a very difficult one, with many firms failing. The aim of this doctoral research project is to examine how SOIs dynamically unfold at SMEs and how they can be managed. Innovation processes at established SMEs are analyzed with the Fireworks innovation process model. The SOI specific challenges allow advances in the model to be achieved for this context. The findings reveal that SOI unfolds is an emergent, somewhat chaotic way, that duration and outcome are uncertain, that the overall journey is composed of multiple intertwined innovation paths, of which several will likely lead to setbacks. Four practices can help manage this process: first, the creation of a dedicated organization unit for exploration, second intelligent learning for efficient exploration, third in-depth investigation of the related technological innovation system, and fourth careful planning of the integration into the core business for commercialization. This research contributes to the SOI literature by advancing the Fireworks model and thereby proposing a model of how SOIs dynamically unfold. The model is both holistic and detailed, which opens several avenues for future research. Furthermore, the research contributes to management practice by providing a heuristic to manage SOI development at SMEs.
... We looked at the unfolding innovation processes at TechLtd and the dynamics involved in managing ambidexterity at the interface between old (conventional) and new (green) businesses and thereby followed the methodological approach of other ambidexterity scholars (e.g. Khanagha et al., 2014;Tripsas, 2013;Walrave et al., 2014). To understand the dynamics at multiple levels, our analysis cuts across value chain functions (R&D, production, sales and marketing), organizational levels (top management, units, individuals), and organizational boundaries (intraorganizational, interorganizational through alliances). ...
Preprint
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The ambidexterity literature suggests radical innovation is driven by preventing the undesirable spillover of routines and cognitive representations from the exploitative core business to the exploratory innovation space. This paper presents a longitudinal process study uncovering the anatomy of an unsuccessful exploration of green technologies by a medium-sized entrepreneurial firm. We investigated their innovation processes to understand how the managers configured and reconfigured the exploration-exploitation interface over time by using various modes of balance. The paper contributes to ambidexterity theory by identifying three separation pitfalls. First, a 'separation drift' from a textbook-like to a looser form of organizational separation allows for the undesirable spillover of routines which cannibalize the new business over time. Second, a mismatch can occur between the intended product-market strategy and the actual product-market exploration. A third pitfall increases management complexity due to the simultaneous use of several modes of balance originally perceived as a more resource-efficient alternative to a clear-cut organizational separation.
... Based on prior studies that relate firm differences in R&D investments and firm patenting to CEO characteristics (Carpenter et al., 2004;Cummings and Knott, 2018), we controlled for CEO tenure (the total number of years a CEO had held office), founder (dummy variable indicating whether a CEO was a founder of the focal firm), CEO ownership (the percentage of stock owned by the CEO), and insider (dummy variable indicating whether the current CEO had been hired from inside the company rather than from outside of it). We controlled for the board independence (the number of inside directors to the total number of directors on the board) because of inside directors' influence through their monitoring and advising roles (Walrave et al., 2014). At the firm level, we controlled for firm size (the logarithm of the number of employees) and financial performance (return on assets; net income divided by total assets) because these may influence a firm's innovation potential (Ahuja and Lampert, 2001). ...
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This study develops and tests a comprehensive framework that explains what, when, and how CEO characteristics influence firms’ innovation outcomes in R&D‐intensive industries. Empirical evidence from 109 CEOs from 87 U.S.‐based pharmaceutical firms over the period 2001–2013 reveals that research‐oriented CEOs – those with ability and motivation for science and technology – increase their firms’ innovation outcomes. The results indicate that the CEO–innovation relationship strongly depends on the extent of CEOs’ managerial discretion, which is shaped by the organizational context. We contribute to a more comprehensive understanding of the role of CEOs in firms´ innovation performance differentials.
... However, the current business environment has become much more volatile and subject to rapid change, and firms need to be proactive in order to survive and thrive. Previous research has suggested that it is unlikely that organizations in today's business context are unaware of environmental uncertainty, and organizational complacency/myopia has limited explanatory power (Walrave et al., 2015). The characteristics of the biotechnology industry make it an industry with rapid changes, which suggests a need for proactive, effective ways of using resources. ...
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Based on a survey study of 155 U.S. firms, we conducted a firm-level assessment of the impact of different kinds of structures (i.e., functional versus cross-functional) in different kinds of new product development (NPD) processes (i.e., incremental versus radical) on different kinds of firm innovation performance (i.e., derivative versus breakthrough). We observe that most firms opt for similar structures for their incremental and radical NPD processes. At the same time, though, we find strong evidence that (1) firms that apply a cross-functional structure for the radical NPD process perform significantly better in terms of breakthrough innovation performance than firms that apply a functional structure for the radical NPD process and (2) firms that apply a functional structure for the incremental NPD process perform significantly better in terms of derivative innovation performance than firms that apply a cross-functional structure for the incremental NPD process. These latter findings point to the relevance of adopting structural ambidexterity, where firms make an explicit distinction between incremental and radical NPD processes and organize them in a different way.
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No one executive is immune from that difficult-to-distinguish line that divides the self-confidence required of a successful CEO from the hubris seen at the root of so many corporate scandals today. We can count Warren Buffett, Steve Jobs, Martha Stewart, and Jack Welch among the business leaders who have been infected with hubris at various stages of their careers – and seen their lives and companies suffer as a result. Every executive is vulnerable to hubris when they become dependent on wealth, status, and other extrinsic rewards for their sense of worth; when they embark on ventures that cross beyond their capabilities; when they unduly rely on the advice and input of others to execute their vision; and when they simply assume that their plans for the future will be realized without obstacle. Understanding these four key dynamics and the mistakes made as a result of falling prey to them will pave the road for business professionals to understand how they can guard against their own hubris while still building upon their unparalleled will to reach even greater levels of success. (Summary)
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When a company does well, its CEO is showered with money and adulation. When it does poorly, the CEO gets the blame--and the boot. For better or worse, investors now view chief executives as the primary determinant of corporate performance. But the reality is that most companies perform no better after they dismiss their CEOs than they did in the years leading up to the dismissals. Worse, the organizational disruption created by a rushed firing can leave a company with deep and lasting scars. Far from being a silver bullet, the replacement of a CEO often amounts to little more than a self-inflicted wound. The blame for such poor results, the author argues, lies squarely with boards of directors. Boards often lack the strategic understanding of the business necessary to give due diligence to choosing a replacement CEO. Concern over restoring investor confidence quickly--rather than doing what's right for the company--drives the selection process. And all too often, companies continue to be dogged by the same old problems after the new CEOs come on board. But a good board can make a CEO replacement pay off if its members first develop a better understanding of the business context, worry less about pleasing the investment community and more about a replacement's strategic fit, and take an active role in overseeing the new CEO and the performance and direction of the company. In the long run, such approaches are likely to foster stability at the helm--making it less likely a company will have to fire its CEO in the first place.