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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.
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Managerial attention to exploitation versus
exploration: toward a dynamic perspective on
ambidexterity
Bob Walrave
1
, A. Georges L. Romme
2,
*, Kim E. van Oorschot
3
and
Fred Langerak
4
1
School of Industrial Engineering, Eindhoven University of Technology, 5600 MB Eindhoven, P.O. Box 513,
The Netherlands. e-mail: b.walrave@tue.nl,
2
School of Industrial Engineering, Eindhoven University of
Technology, 5600 MB Eindhoven, P.O. Box 513, The Netherlands. e-mail: a.g.l.romme@tue.nl,
3
Department
of Leadership and Organizational Behavior, BI Norwegian Business School, 0442 Oslo, Norway. e-mail:
kim.v.oorschot@bi.no and
4
School of Industrial Engineering, Eindhoven University of Technology, 5600MB
Eindhoven, P.O. Box 513, The Netherlands. e-mail: f.langerak@tue.nl
*Main author for correspondence.
Abstract
Managerial attention to exploitation and exploration has a strong influence on organizational perform-
ance. However, there is hardly any knowledge about whether senior managers need to adjust their dis-
tribution 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 eco-
nomic 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 pro-
viding a dynamic perspective on ambidexterity: that is, senior managers need to redistribute their atten-
tion to exploration and exploitation to effectively meet the changing environmental demands over time.
JEL classification: C01 L1 L2 L86.
1. Introduction
To adapt and survive in the complex and dynamic business environments of today, corporate strategies need to en-
able the exploitation of existing knowledge and simultaneously facilitate the exploration of new knowledge domains
(March, 1991;Levinthal and March, 1993;Laureiro-Mart
ınez et al., 2015). This type of strategy originates, ultim-
ately, from the company’s senior managers (Smith and Tushman, 2005;Eisenhardt et al., 2010). In this respect, a key
determinant of organizational performance is the ability of senior managers “to pursue cognitively distant opportuni-
ties [...] without losing [...] the ability to attend to cognitively closer tasks” (Laureiro-Mart
ınez et al., 2015: 320).
Here, we assume that managerial ambidexterity involves the relative distribution of managerial attention to exploit-
ation and exploration. Corporate leaders such as Steve Jobs and Andy Grove exemplify such “ambidextrous” behav-
ior in their organizations by simultaneously enabling exploitation for short-term performance and exploration that
enhances long-term performance.
V
CThe Author 2017. Published by Oxford University Press on behalf of Associazione ICC.
This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/),
which permits unrestricted reuse, distribution, and reproduction in any medium, provided the original work is properly cited.
Industrial and Corporate Change, 2017, Vol. 26, No. 6, 1145–1160
doi: 10.1093/icc/dtx015
Advance Access Publication Date: 28 March 2017
Original article
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Thus far, considerable progress has been made in understanding the performance implications of exploitation and
exploration. Whereas several studies suggest a positive link between the simultaneous pursuit of exploitation–explor-
ation (EE) and firm performance (He and Wong, 2004), other scholars have observed that industry characteristics
like competitiveness, dynamism, and R&D intensity affect the most profitable EE distribution (Auh and Menguc,
2005;Jansen et al., 2006;Uotila et al., 2009;Derbyshire, 2014). However, earlier work in this area has not addressed
whether senior managers in charge of a given firm need to redirect their attention to EE over time. More specifically,
there is little empirical evidence that suggests that senior managers need to adjust their balance of attention to ex-
ploitation and exploration to effectively deal with major changes within their company’s industry context. This art-
icle addresses this gap in the literature.
The recent economic recession and subsequent recovery provide the opportunity for a natural experiment, as these
different episodes are likely to impose different attentional demands on senior managers. System Generalized
Method of Moments (GMM) estimation on a panel data set, including 86 firms in the information technology (IT)
industry, indeed indicates that different levels of managerial attention to EE are required to effectively deal with a re-
cession versus a recovery. As such, our study contributes to the literature on EE and ambidexterity, by providing a
dynamic perspective on ambidexterity (Raisch et al., 2009;Lugar et al., 2013). Moreover, our study has important
implications for managers facing recessions and recoveries in the IT sector. More specifically, we find that an eco-
nomic downturn requires more managerial attention to exploration, while leveraging the subsequent economic up-
swing demands more attention to exploitation.
2. Managerial attention and EE at the firm level
The attention-based view seeks to understand firm behavior and organizational adaptation by studying “how organ-
izations and their structures channel and distribute the attention of their decision-makers” (Ocasio, 1997: 203).
Following Ocasio (1997: 189), we define attention as “the noticing, encoding, interpreting, and focusing of time and
effort by organizational decision-makers on both issues [...] and answers [...].” Within this line of research, man-
agerial attention has been shown to significantly affect different output variables such as technological responsiveness
to competitors (Eggers and Kaplan, 2009), technological innovations (Kaplan, 2008), and firm response speed to sec-
tor and task changes (Nadkarni and Barr, 2008).
More specifically, senior managers’ attention to particular aspects serves to focus their organization toward spe-
cific areas of activity by influencing what information others in the firm attend to and how this information is inter-
preted (Simons 1991;Lefebvre et al., 1997;Yadav et al., 2007). In this respect, senior managers are in a position to
affect the behavior of their firm, due to their highly influential position, through their choices and the matters they
pay attention to. That is, managerial attention helps drive organizational activities within the firm by focusing the at-
tention of other firm members through communication and symbolic actions as well as development and adjustment
of organizational forms and resources allocated to alternative operations (Gifford, 1998;Yadav et al., 2007). This
enhances the level of awareness, anticipation, and action with respect to managerial focal matters. Through this or-
ganizational mechanism, senior managers are able to guide and direct the firm (Hambrick and Mason, 1984).
Therefore, managerial attention is an important determinant of firm behavior and its consequences (Hambrick and
Mason, 1984;Jansen et al., 2008;Gavetti et al., 2012).
In particular, senior managers interpret environmental challenges on an ongoing basis in terms of problems,
opportunities, and threats, and subsequently respond by focusing the attention of their firm (Ocasio, 1997;Yadav
et al., 2007). Such responses manifest themselves, generally speaking, in exploitative and/or explorative behaviors.
More specifically, managerial attention to exploitation helps the firm reduce its knowledge variety, increase its effi-
ciency, and therefore, generate profits in the short run (March, 1991;Andriopoulos and Lewis, 2009). In contrast,
managerial attention to exploration serves to develop or obtain new knowledge different from the current knowledge
base (Lavie et al., 2010), and thereby enhance the firm’s adaptability (March, 1991;Andriopoulos and Lewis, 2009).
3. Toward a dynamic perspective on managerial ambidexterity
Managerial attention is a limited resource, and management teams are exposed to much more information than they
can possibly process (Simon, 1947;Ocasio, 1997,2011;Yadav et al., 2007;Shepherd et al., 2016). Indeed, informa-
tion processing capacity, rather than information itself, is the scarcer resource for many senior managers (Yadav
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et al., 2007). Thus, managerial attention to EE constitutes a zero-sum game: “Increases in the allocation of attention
to [exploitation] are likely to come at some expense to the allocation to [exploration] and the radical opportunities to
which it often leads” (Shepherd et al., 2016: 3). As a result, senior management needs to be selective regarding what
exploitative and/or explorative matters they attend to, and those to ignore. Here, the so-called EE ratio refers to the
relative distribution of managerial attention over exploitation and exploration.
Several studies suggest that firm performance is positively influenced by a strategic distribution of exploitation
and exploration (He and Wong, 2004;Jansen et al., 2006;Uotila et al., 2009). Specifically, Uotila et al. (2009) show
that the relationship between the EE ratio and firm performance is characterized by an inverted U-shape. On the one
hand, excessive attention to exploration can be extremely costly because its outcomes are highly uncertain.
Moreover, it tends to drive out economies of scale and/or disciplined problem-solving (He and Wong, 2004;Smith
and Tushman, 2005). This one-sided managerial focus tends to result in the so-called “failure trap” (Levinthal and
March, 1993;Andriopoulos and Lewis, 2009). On the other hand, a strong focus on exploitation might result in rela-
tively certain returns but also discourages more radical learning, and is therefore likely to undermine the firm’s adapt-
ability (Teece et al., 1997;Benner and Tushman, 2003;Walrave et al., 2011). This phenomenon has been called the
“success trap” (Levinthal and March, 1993).
As some scholars suggest, the most effective EE ratio is likely to vary significantly across different environmental
contexts (Jansen et al., 2006;O’Reilly and Tushman, 2008,2013). Drawing on empirical findings, several scholars
indeed recommend managers to provide specific levels of attention to exploitation and exploration in view of, for in-
stance, the level of competitiveness or dynamism of their company’s industrial context (Jansen et al., 2006;Uotila
et al., 2009). For instance, more attention to exploitation is beneficial in highly competitive settings, while more at-
tention to exploration is needed in very dynamic industrial contexts. These studies, therefore, present a static perspec-
tive on ambidexterity: that is, senior managers (are recommended to) adopt a fixed distribution of attention to EE
that aligns with their company’s environmental characteristics (Raisch et al., 2009).
Yet, several key environmental characteristics are likely to change significantly within a given industry over time.
A clear example is the change in customer preferences and needs observed when an economic recession moves into a
recovery (O’Malley et al., 2011). As a result of this economic transition, management very likely needs to readjust
their balance of attention to exploitation and exploration to effectively deal with such changing environmental de-
mands (Webb and Pettigrew, 1999;Siggelkow, 2002). In this respect, Raisch et al. (2009: 688) argue that it is “un-
likely that [static] organizational configurations (not even ambidextrous ones) could provide the exhaustive steady-
state functionality required to deal with the entire range of boundary conditions that an organization faces over
time.” Consequently, managerial attention to EE needs to involve a dynamic balance: while the attentional emphasis
sometimes is on exploration, at other times, it is on exploitation to be able to manage the changing demands within a
given industry over time. This constitutes our main thesis: the need for a dynamic perspective on ambidexterity.
To develop and test a dynamic perspective on EE, an empirical setting that includes a strong environmental
change is required. This environmental change moderates the relationship between managerial attention to EE and
firm performance by altering “how the subsystems of the environment (e.g., technology and markets) and the organ-
ization (e.g., knowledge and goals) are linked” (Shepherd et al., 2016: 9). In other words, we expect that major envir-
onmental changes are likely to transform the EE attentional requirements over time.
In the next section, we explore how the transition from an economic recession to a recovery presents senior man-
agers with significantly different EE challenges (cf. Lamey et al., 2007;Steenkamp and Fang, 2011). Notably, we as-
sume that managerial attention to both exploitation and exploration is required for sustained organizational
performance. Following Uotila et al. (2009), we assume an inverted-U relationship, but also argue that exploitation
and exploration must be dynamically balanced; that is, more attention needs to be given to either exploration or ex-
ploitation, depending on the recessionary or recovery context.
4. Hypotheses
The National Bureau of Economic Research (Hall et al., 2010: 1) defines an economic recession as a “period of fall-
ing economic activity spread across the economy, lasting more than a few months, normally visible in real gross do-
mestic product, real income, employment, industrial production, and wholesale–retail sales.” Conversely, an
economic recovery can be defined as a period of rising economic activity spread across the economy, lasting more
than six months, normally visible in real gross domestic product, real income, employment, industrial production,
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and wholesale–retail sales (Hall et al. 2010). A recession is characterized by an industry-wide contraction, which
strongly reduces the amount of business opportunities that can be pursued (Deleersnyder et al., 2004;Lamey et al.,
2007;Srinivasan et al., 2011;Steenkamp and Fang, 2011;Archibugi et al., 2013). In contrast, a recovery triggers a
general rise in economic conditions, resulting in a growing number of business opportunities to be pursued
(Deleersnyder et al., 2004;Lamey et al., 2007). In this respect, recession and recovery periods differ in terms of their
environmental munificence (i.e., lower for the former, higher for the latter), that is, “the extent to which the environ-
ment can support sustained [firm] growth” (Dess and Beard, 1984: 55). Furthermore, a recessionary context is likely
to alter customer preferences and needs, as the associated economic uncertainty undermines the confidence of con-
sumers, making them more price conscious and reduce their spending (O’Malley et al., 2011).
In this respect, a recession can rather suddenly alter an organization’s environmental context (Pearson and Clair,
1998;O’Malley et al. 2011), rendering organizational capabilities, including products and services, obsolete (Schmitt
et al., 2010). Senior managers attending more to exploration direct their company to learn about the new environ-
mental demands (March, 1991), making it more likely that the company discovers and develops new products, ser-
vices, or business models which better align to the recessionary context (O’Malley et al., 2011). The alternative
strategy involves a sustained or even increasing amount of attention to exploiting the current business, which essen-
tially implies a focus on a declining business. In this respect, Yang et al. (2011) observe that sales prices can, in gen-
eral, decline by up to 1% per week in a recessionary context. Together these arguments suggest that in recessions, the
attentional emphasis should be on exploration. Indeed, the latter appears to stimulate investments in product devel-
opment and innovation, which are critical in any attempt to survive a recession (Pearce and Michael, 1997;
O’Malley et al., 2011).
Moreover, threat-rigidity theory predicts that managers facing organizational decline, a likely scenario during a
recession, will direct their attentional emphasis to exploitation (Staw et al., 1981). Such a retrenchment strategy may
be a natural response to a recession by conserving resources until the economic recovery sets in (Srinivasan et al.,
2011;Paunov, 2012). Indeed, any managerial interventions that reflect a more exploratory focus, such as R&D in-
vestments, are believed to be “a perennially attractive target for corporate belt-tightening rituals, since it doesn’t pro-
duce cash directly” (Barrett et al., 2009: 92). Interestingly, as many senior managers are likely to reduce their
attention to exploration, it becomes relatively easy for those few managers focusing more on exploration to (have
their firm) uncover business opportunities that better fit the changing environmental situation. This also implies that
senior managers who, in a recession, direct their attentional emphasis to exploration are likely to position their firm
better for the subsequent economic recovery (Amore, 2015).
Any subsequent period of economic recovery brings about an increase in munificence, with business opportunities
becoming increasingly dense (Deleersnyder et al., 2004;Lamey et al., 2007) and, therefore, easier to pursue. In this
setting, managerial attention to exploration becomes less important. Indeed, senior managers need to take advantage
of this situation by redirecting their attention toward exploitation to enable the generation and restoration of short-
term profits. As such, different EE ratios appear to be required to effectively deal with a recession versus recovery
context: while the attentional emphasis should be more on exploration in a recession, it has to shift more toward ex-
ploitation during a recovery. Therefore:
H1: To enhance firm performance, (i) more managerial attention to exploration is required during a recession
than during a recovery and (ii) more managerial attention to exploitation is required during a recovery than during a
recession.
More managerial attention to exploration in a recession is extremely critical because business opportunities are
becoming scarcer in times of economic decline (Grewal and Tansuhaj, 2001). That is, the lower level of munificence in
a recession makes for a more severe selection regime of business opportunities (Steenkamp and Fang, 2011). As a conse-
quence, recessions provide few opportunities for accelerated firm growth. If these opportunities are not explored, a re-
cession is likely to reinforce organizational decline (Walrave et al.,2011). Marketing scholars have long maintained that
contractions, compared to expansions, present managers with the rare opportunity to boost their firms’ market share
and long-term profitability (O’Malley et al.,2011;Steenkamp and Fang, 2011). This observation also resonates with
the organizational decline literature (Porter and Harrigan, 1983;Rosenblatt et al.,1993)andimpliesthatseniorman-
agers’ attention to the “right” amount of EE is more critical in a recession than in a recovery.
Moreover, the lack of managerial attention to exploration and the subsequent failure to pursue (the shrinking vol-
ume of) business opportunities in a recession, in combination with the general decline in output levels, cause a rapid
decrease in firm performance. This decrease can give rise to a vicious feedback loop, in which the negative
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performance trend further deteriorates the alignment between environmental demands and the balance of attention
to EE, which in turn accelerates organizational decline (Leonard-Barton, 1992;Levinthal and March, 1993). In re-
sponding to economic recessions and other external threats, senior managers frequently let their firms slip into such a
trap (Schmitt et al., 2010;Walrave et al., 2011). In contrast, a vicious feedback loop is (far) less likely to develop in a
recovery because of the general rise in output levels (Deleersnyder et al., 2004). We thus expect the relative import-
ance, or the differential performance effect, of the EE ratio to be greater in an economic recession:
H2: The differential performance effect of the most effective managerial attention to EE (see H1) is greater in a re-
cession than in a recovery.
H1 and H2 imply that managerial attention to EE needs to be dynamically balanced, within a given industry over
time, because of the fundamentally different challenges arising from environmental changes.
5. Method, measures, and analysis
As argued earlier, we assume that the EE ratio has an inverted U-shaped relationship with firm performance (Uotila
et al., 2009). Accordingly, we assume two inverted U-shaped relationships (see Figure 1), one for the recession and
the other one for the recovery, following our main thesis that the attentional requirements differ over time. More spe-
cifically, the two inverted U-shaped curves anticipated in Figure 1 differ in their position on the horizontal axis: this
shift in the vertex reflects the need for more attention to exploration during a recession (H1). Furthermore, the two
inverted U-shaped relationships also differ in the steepness of their slopes, which reflects a difference in the relative
importance of the EE ratio (H2). Moreover, the inverted U-shaped relationships also differ in their position along the
vertical axis. That is, during a recession, the firm is less likely to accomplish the financial results achievable during a
recovery due to the decreased level of environmental munificence. As such, the difference in munificence implies that
(on average) a certain EE ratio, sustained throughout both the recession and recovery, is expected to be more profit-
able during the recovery than in the recession. This expectation implies a difference in the absolute performance im-
plications of a given EE ratio, that is, a difference along the y-axis.
5.1 Data collection
Although economic recessions and recoveries affect the entire economy, not all industries are equally affected
(Deleersnyder et al., 2004;Steenkamp and Fang, 2011). For example, senior managers of companies in the high-tech
sector tend to allocate more resources to exploration than their counterparts in other sectors (Grewal and Tansuhaj,
2001). The IT industry is an exemplar of a high-tech sector characterized by continuous product innovation, high
growth rates, and high product differentiation (Mendelson, 2000). As such, senior managers of IT firms need to be
more responsive to environmental fluctuations, and returns on (explorative) investments are generated faster
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1
Exploitation-Exploration ratio
Effect on firm performance
Recession
Recovery
Direction
of change
H2: d < e
H1: a < b
b a
d
c
e
c
Figure 1. Graphical representation of H1 and H2.
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compared to many other (e.g., gas or food) industries (Mendelson, 2000). Consequently, the performance implica-
tions arising from any given EE ratio are likely to be observed faster in the IT industry than in most other industries
(Uotila et al., 2009;Vagnani, 2012). We therefore selected the IT industry as the context for our empirical study.
To test the hypotheses, longitudinal data involving both a recession and a recovery are required. As such, we col-
lected data covering the years 2006–2010 for companies active in the IT sector (20 quarters in total). The Global
Industry Classification Standard (GICS) lists these firms under codes 4510–4530. In view of the global character of
the recession and recovery under investigation, we collected data on both US-based and Europe-based companies.
Moreover, we focused on publicly owned corporations because they generate a regular flow of documents such as an-
nual reports and letters to shareholders (Yadav et al., 2007;Uotila et al., 2009;Walrave et al., 2011). Finally, to
make the sample consistent in terms of firm size, a net income in excess of US$75 million (in 2006) was required to
be included in the final data set. In summary, our sample includes firms that (i) were listed in GICS codes 4510–
4530, (ii) were based in the United States or Europe, (iii) were publicly owned, (iv) traded at the beginning of 2006,
and (v) had a net income in excess of US$75 million in 2006.
With these criteria, we first selected 89 firms in the United States from Standard and Poor’s (S&P) 500 index and
11 European–based firms from the S&P 350 EURO index. To improve the geographical balance in the sample, we
then supplemented the data with all European-based IT firms (not listed in the S&P indexes) that had a net income of
at least US$75 million in 2006 (from Thomson ONE Banker). These 21 firms were too small to be listed in the S&P
EURO index, but did meet the sample selection criteria outlined earlier. This process resulted in an initial sample of
121 firms.
We collected the firm-level data from two main sources: Thomson ONE Banker and annual letters to share-
holders, commonly found in annual reports. We omitted 35 firms from the analysis because the panel for these firms
was incomplete (i.e., missing letters to shareholders or missing financial data)—which would cause a misfit with our
longitudinal research design. This resulted in a final sample of 86 companies (66 in the United States and 20 in
Europe) and 1720 valid observations over 20 quarters. The geographical distribution of the firms in the sample is re-
ported in the Appendix that is available upon request from the authors.
5.2 Recession and recovery
We analyzed the economic recession that occurred over the course of 2006–2008. The recovery that unfolded during
2009–2010 was of such strength and length that any later recession—for example, arising from the European sover-
eign debt crisis—is considered a new one (Hall et al., 2010). In this respect, the 2006–2008 and 2009–2010 periods
represent distinct phases with opposing macroeconomic characteristics. Furthermore, global economic upheavals
tend to be synchronized at large (Claessens et al., 2009), and we therefore assumed there is no delay between the re-
sponses of American and European firms. This assumption is reinforced by the fact that all firms in our sample are
global players that are simultaneously affected by any global economic crisis.
To be able to allocate the observations to either the recession or the recovery period, we applied the Zivot and
Andrews unit root test to the sample; this test treats the breakpoint endogenously (Zivot and Andrews, 2002). More
specifically, we tested the averaged values (per quarter) of net income across the sample. We found that the break-
point (i.e., the minimum t-statistic) was significant at quarter 12 (7.079, P<0.01), that is the fourth quarter of
2008. Therefore, we split the data into a recession and a recovery phase as follows: for Quarters 1 through 12 (i.e.,
years 2006–2008), we coded the “Recovery dummy” variable as 0 to indicate a recession, and for Quarters 13
through 20 (i.e., years 2009–2010), it was coded as 1 to indicate a recovery.
5.3 Dependent variable: profit margin
The EE literature employs various performance measures. Some studies draw on self-reported measures (Gibson and
Birkinshaw, 2004;Lubatkin et al., 2006) or accounting-based measures (He and Wong, 2004), whereas others rely
on market value-based measures (Uotila et al., 2009). In view of their subjective and retrospective bias, self-reported
measures are not appropriate when historical data are collected within a longitudinal research design (Golden,
1992). Market value-based measures, such as Tobin’s Q, may adequately capture both the short-term (book value)
performance and the long-term (market value) prospects of managerial decision-making (Lubatkin and Shrieves,
1986;Lee and Makhija, 2009). Yet, during periods of economic upheaval, market value-based performance indica-
tors are likely to be biased due to severely increased levels of volatility on the stock market. As such, we use an
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accounting-based measure, the profit margin, as the performance indicator in this study. The model was also tested
with return on assets (ROA) as dependent variable, resulting in findings consistent with the ones reported later.
5.4 Independent variable: EE ratio
Prior research has operationalized exploitation and exploration in many different ways. For example, Katila and
Ahuja (2002) use the depth and breadth of technological search activity as a proxy. Other studies have relied on ques-
tionnaires that target key personnel (He and Wong, 2004;Jansen et al., 2006;Sidhu et al., 2007). These operationali-
zations tend to be highly specific and therefore lack generalizability and applicability outside their particular
contexts (Uotila et al., 2009). Moreover, it is unclear whether and how they resonate with the original definitions of
exploitation and exploration (Uotila et al., 2009;Lavie et al., 2010). Furthermore, questionnaire data on managerial
attention to EE are difficult to obtain, especially for extended periods of time (Vagnani, 2012).
As previously argued, the exploitative and explorative capability of firms inherently manifests itself in the atten-
tional focus of senior managers. Therefore, we documented senior management’s attentional focus, in terms of the
EE ratio, by analyzing the content of letters to shareholders (Nadkarni and Barr, 2008;Vagnani, 2012). Content ana-
lysis of linguistic media is useful for reconstructing the beliefs and perceptions of their authors (D’Aveni and
MacMillan, 1990). As such, letters to shareholders are a relatively homogeneous communication channel that is care-
fully controlled by senior managers (D’Aveni and MacMillan, 1990;Ocasio, 2011). These letters embody the “cor-
porate speak” of senior management more than any other form of communication. The managerial attention
reflected in these letters has been found to affect the company’s response to competitors (Eggers and Kaplan, 2009),
technological innovation (Kaplan, 2008), speed of response to sector and task changes (Nadkarni and Barr, 2008),
orientation toward exploration (Vagnani, 2012), and how the firm detects, develops, and deploys new technologies
(Yadav et al., 2007). In this respect, previous work has demonstrated that the strategic direction set by senior man-
agement can be effectively uncovered by means of content analysis of letters to shareholders (D’Aveni and
MacMillan, 1990;Yadav et al., 2007;Walrave et al., 2011;Vagnani, 2012).
The operationalization of exploitation and exploration in our content analysis is based on March’s (1991) ori-
ginal work, also in line with earlier work (Uotila et al., 2009;Vagnani, 2012). This ensures that the operationaliza-
tion of the EE ratio aligns well with the conceptual definitions adopted. Moreover, Uotila et al. (2009) demonstrate
that March’s definitions statistically and accurately differentiate between exploitation and exploration. Thus, we
captured managerial attention to exploitation by (the roots of) the keywords “refinement,” “choice,” “production,”
“efficiency,” “selection,” “implementation,” and “execution.” We captured managerial attention to exploration by
(the roots of) the keywords “search,” “variation,” “risk,” “experimentation,” “play,” “flexibility,” “discovery,”
and “innovation.” Moreover, manual inspection of a randomly chosen selection of letters to shareholders, compris-
ing 5% of all letters, revealed that the keywords “new” and “technology” reflect attention to exploration, and “cost”
and “reduction” represent a focus on exploitation. Therefore, we also included (the roots of) these four words in the
analysis. A preliminary analysis of the letters indicated that contractions of the keywords selected are rarely used in
the context of other meanings, except in the case of “executive,” which was therefore excluded from the analysis.
Given our zero-sum approach, we assume that managerial attention to exploitation and managerial attention to
exploration are two ends of the same continuum (March, 1991;Greve, 2007;Lavie et al., 2010;Walrave et al.,
2011). We therefore operationalized the EE ratio as the total number of matched keywords for exploration divided
by the sum of matched keywords for exploitation and exploration (Uotila et al., 2009). Thus, an EE ratio exclusively
directed toward exploitation receives a score of 0, and the EE ratio is 1 when it is exclusively directed to exploration.
In total, we matched the keywords to 16,340 instances, of which 66% involve exploration. We checked whether the
EE ratio is sufficiently reflected in exploration and exploitation as operational activities (Vagnani, 2012) by correlat-
ing the EE ratio with the amount of resources dedicated to R&D over sales (0.26, P<0.001). We also found our
measure to be temporally stable (0.91, P<0.000), in line with what can be expected (Vagnani, 2012).
5.5 Control variables
We added several other variables to control for possible confounding effects. We used the autoregressive component
y
t1
to control for past firm performance and included time dummies (for every quarter) to prevent contemporaneous
correlation, the most likely form of cross-individual correlation (Roodman, 2009b). R&D spending is likely to influ-
ence firm performance positively in times of economic upheaval (Srinivasan et al., 2011;Steenkamp and Fang,
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2011). As such, we used the standardized value of R&D spending as a percentage of sales (“R&D-Sales ratio”).
However, not all companies reported their R&D spending; therefore, we coded the firms that do not report R&D ex-
penses as 0 (effectively replacing the missing value with the sample’s mean) and coded the dummy variable “R&D
missing dummy” as 1 (Cohen et al., 2003;Uotila et al., 2009). Furthermore, larger firms may be better able to miti-
gate the effects of economic recessions and recoveries (Lee and Makhija, 2009;Steenkamp and Fang, 2011).
Therefore, we controlled for effects arising from size, measured by the number of employees (“Firm size”) and the
standardized value of “Total assets.” Older firms are also likely to be more inert and thus less able to adapt to chang-
ing environmental circumstances (Steenkamp and Fang, 2011). Therefore, we included “Firm age”
(Balasubramanian and Lee, 2008;Aschhoff and Sofka, 2009) in terms of the standardized value of the number of
days since the initial public offering. Furthermore, Walrave et al. (2011) observe that in case of unsatisfactory per-
formance, shareholders are likely to direct senior management’s attention to exploitation (at the cost of attention to
exploration). To account for this effect, we included “Net Income” in the model. Finally, we incorporated geographic
location by coding and including a dummy variable for US-based versus Europe-based firms (“US location dummy”)
and also controlled for industry subsector by coding and including two dummy variables (“GICS 4510 dummy” and
“GICS 4520 dummy”).
5.6 Analysis
Several econometric methods serve to control for endogeneity and unobserved heterogeneity in studies that draw on
panel data (Blundell and Bond, 1998;Roodman, 2009b;Uotila et al., 2009). In this respect, simple dynamic panel
models estimated with standard GMM estimators have often produced unsatisfactory results due to, among others, a
weak instrument problem (Blundell and Bond, 1998,2000). System GMM estimation has become increasingly popu-
lar in the field of strategic management (Keil et al., 2008;Uotila et al., 2009;Vagnani, 2012) because of its ability to
allow for a short panel, a lack of good external instruments, fixed effects, and a first-order autoregressive error term
(Arellano and Bover, 1995;Blundell and Bond, 2000;Roodman, 2009a,b). By employing multiple instrumental vari-
ables, the system GMM estimator controls for firm-specific effects as well as for possible sources of simultaneity be-
tween dependent and independent variables, without biasing the estimates (Vagnani, 2012). We therefore adopted
system GMM estimation in testing our hypotheses.
Roodman (2009a) recommends putting all regressors and their lags into the instrument matrix. Therefore, we
treated almost all variables as predetermined (Uotila et al., 2009); exceptions were the time dummies, the recovery
dummy, the industry dummies, and the US dummy, which were all treated as exogenous variables. This approach,
combined with the number of variables included, resulted in a large number of instruments and therefore in overiden-
tification. Although overidentification does not compromise the coefficient estimates, it does weaken the Sargan/
Hansen test and as such raises the need for robustness tests (Roodman, 2009a). Consequently, we also tested the
models by varying the number of instruments. These robustness tests demonstrated that the key coefficients, in terms
of their sign, effect size, and significance level, are consistent with those of the model used for testing the hypotheses.
The details and results of these and other robustness tests are available upon request from the authors.
6. Results
Table 1 presents the descriptive statistics and correlations for all variables. The EE ratio significantly correlates with
R&D expenditure (0.26, P<0.001), which suggests that senior managers giving more attention to exploration also
accomplish higher R&D investment levels in their firms. This finding suggests that managerial attention to EE indeed
influences firm-level indicators of EE.
Table 2 presents the results of the system GMM regression analyses. Notably, the effect of the EE ratio on the
profit margin is assumed to be delayed by four quarters (Wang and Li, 2008). Three models were estimated. Model 1
is the base model that includes the EE ratio, as a linear effect, and the control variables. Subsequently, to test for the
inverted U-shaped relationship, we included the squared term of the independent variable in Model 2 (Aiken and
West, 1991). As such, this model serves to explain variation in the dependent variable over the course of a recession
and recovery, assuming static ambidexterity. In other words, Model 2 tests the theory that a certain fixed distribution
of managerial attention to exploitation and exploration is needed to optimize performance. Finally, Model 3 includes
the moderating effect of environmental change (recovery dummy) on the relationship between the EE ratio and firm
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performance by incorporating the interaction terms (Aiken and West, 1991). As such, this model serves to test for
two inverted U-shaped relations, that is, the thesis of dynamic ambidexterity.
As Table 2 illustrates, Model 3 has a significantly better model fit compared to the other two models (P<0.001).
This key finding supports our main thesis that senior managers need to adjust their distribution of attention to ex-
ploitation and exploration over time to effectively deal with major changes in their company’s environment. The re-
mainder of this section elaborates the key findings for Model 3.
The autoregressive component appears to be persistent (b
6
¼0.20, P<0.05). Furthermore, net income positively
influences the dependent variable (b
7
¼0.62, P<0.01), while total assets has a negative effect (b
8
¼0.40,
P<0.05). As expected, firm age (b
12
¼0.14, P<0.05) has a significant influence on the dependent variable.
Moreover, the recovery dummy (b
3
¼1.56, P<0.01) implies that overall performance is lower during a recession.
Model 3 also points at a curvilinear relationship between the EE ratio and firm performance in both a recession and
recovery context. That is, the required coefficients are statistically significant: EE ratio (b
1
¼3.39, P<0.01), EE ratio
squared (b
2
¼2.35, P<0.01), EE ratio recovery dummy interaction (b
4
¼3.93, P<0.05), and EE ratio
squared recovery dummy interaction (b
5
¼2.72, P<0.05), which confirms H1. Interestingly, this implies an in-
verted U-shaped relationship in recessions, but a U-shaped relationship in a recovery setting. Figure 2 depicts this
finding. This unexpected result further reinforces the idea that changes within an industry require different, in this
case, even opposite, EE ratios. Indeed, to enhance firm performance, a recession requires more managerial attention
to exploration, while a recovery calls for more managerial attention to exploitation.
Figure 2 also suggests that the differential performance effects of the EE ratio are greater in a recession than in a
recovery. That is, in absolute terms, the graph for the recession is steeper than the graph for the recovery. In this re-
spect, Figure 2 shows a visual image of the interaction effect, which may provide face validity for H2. However, this
visual interpretation in itself does not demonstrate that the two graphs in Figure 2 are significantly different. We al-
ready observed that the transition from recession to recovery constitutes a structural break. From this result, the re-
sults for H2 can be assessed. More specifically, we use the following equation to estimate Model 3 (Xdenotes the EE
ratio and Zthe recovery dummy):
^
Y¼b1Xþb2X2þb3Zþb4XZ þb5X2Zþb0þb6...b36
½:
Because Zis either 0 or 1, it follows that:
b
Yrecession ¼b1Xþb2X2þb0þb6...b36
½as Z ¼0ðÞ;and
^
Yrecovery ¼ðb1þb4ÞXþðb2þb5ÞX2þb3þb0þb6...b36
½
as Z ¼1
ðÞ
:
Table 1. Means, SDs, and correlations* (t
1
t
20
)
MSD1234567891011121314
1 Profit margin 0.09 0.33 1.00
2 Profit margin
t1
0.08 0.33 0.34* 1.00
3 EE ratio
t4
** 0.70 0.17 0.09* 0.09* 1.00
4 (EE ratio)
2t4
0.52 0.23 0.09* 0.09* 0.99* 1.00
5 Recovery dummy 0.40 0.49 0.06* 0.10* 0.13* 0.14* 1.00
6 Net income 240 741 0.37* 0.18* 0.17* 0.19* 0.03 1.00
7 Total assets 11132 19058 0.04 0.04 0.11* 0.13* 0.04 0.70* 1.00
8 R&D–sales ratio 0.14 0.14 0.10* 0.10* 0.26* 0.28* 0.03 0.09* 0.00 1.00
9 Firm size 29281 56352 0.00 0.00 0.00 0.02 0.00 0.56* 0.86* 0.09* 1.00
10 Firm age 32573 4002 0.01 0.01 0.09* 0.09* 0.00 0.16* 0.28* 0.03 0.30* 1.00
11 R&D missing dummy 0.14 0.34 0.04 0.05 0.04 0.03 0.01 0.07* 0.13* 0.04 0.04 1.00
12 GICS 4510 dummy 0.44 0.50 0.09* 0.10* 0.18* 0.19* 0.00 0.09* 0.00 0.08* 0.03 0.23* 0.35* 1.00
13 GICS 4520 dummy 0.29 0.45 0.05* 0.05 0.10* 0.09* 0.00 0.00 0.15* 0.03 0.15* 0.25* 0.18* 0.57* 1.00
14 US location dummy 0.77 0.42 0.07* 0.07* 0.03 0.03 0.00 0.17* 0.12* 0.05* 0.09* 0.19* 0.07* 0.16* 0.01 1.00
Note: *Correlations are significant at the 0.05 level. Significance levels reported are two-tailed. **The average EE ratio during the recession was 0.73 (SD 0.17;
min 0.23; max. 1.00). The average EE ratio during the recovery was 0.68 (SD 0.17; min. 0.19; max. 1.00).
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As such, the difference between the recession and the recovery equals:
^
Yrecovery ^
Yrecession ¼b5X2þb4Xþb3:
Equation 4 involves a quadratic relationship, a parabola. This implies that b
5
determines the difference in steep-
ness of the parabola between the recession and the recovery. The significant and positive b
5
coefficient (b
5
¼2.72,
Table 2. Results of the system GMM regression analysis (8 of 20 lags used)
Dependent variable: profit margin Model 1: base model Model 2: static ambidexterity Model 3: dynamic ambidexterity
Coefficient (SE)
b
Coefficient (SE)
b
Coefficient (SE)
b
b
1
—EE ratio
t4
0.07 (0.22) 0.89 (1.00) 3.39 (1.33)**
b
2
—(EE ratio)
2t4
0.64 (0.76) 2.35 (0.95)**
b
3
—Recovery dummy 1.56 (0.61)**
b
4
—EE ratio
t4
recovery dummy 3.93 (1.82)*
b
5
—(EE ratio)
2t4
recovery dummy 2.72 (1.41)*
b
6
—Profit margin
t1a
0.20 (0.09)* 0.20 (0.09)* 0.20 (0.09)*
b
7
—Net income
a
0.62 (0.20)** 0.62 (0.20)** 0.62 (0.20)**
b
8
—Total assets
a
0.40 (0.22)* 0.39 (0.22)* 0.40 (0.22)*
b
9
—R&D–sales ratio
a
0.01 (0.07) 0.00 (0.07) 0.00 (0.07)
b
10
—R&D missing dummy 0.17 (0.16) 0.15 (0.16) 0.17 (0.17)
b
11
—Firm size
a
0.04 (0.17) 0.04 (0.17) 0.04 (0.16)
b
12
—Firm age
a
0.13 (0.07)* 0.12 (0.07)* 0.14 (0.07)*
b
13
—GICS 4510 dummy 0.13 (0.13) 0.14 (0.13) 0.15 (0.13)
b
14
—GICS 4520 dummy 0.11 (0.12) 0.11 (0.12) 0.12 (0.12)
b
15
—US location dummy 0.07 (0.11) 0.07 (0.11) 0.09 (0.11)
b
16
—Constant 0.06 (0.15) 0.31 (0.34) 1.39 (0.49)**
Hansen test of overidentification 1.00 1.00 1.00
Arellano–Bond test for AR(1)
c
2.89 ** 3.03 ** 3.03 **
Arellano–Bond test for AR(2)
c
0.45 0.17 0.18
Wald v
2
(df in parentheses) 142.90 (31) 144.10 (32) 172.00 (35)
Note:
a
Standardized value.
b
The standard errors are robust to heteroskedasticity and arbitrary patterns of autocorrelation within agents (Roodman, 2009a).
c
z-
values reported. *P<0.05; **P<0.01; ***P<0.001; time dummy variables were included in all models but are omitted from these results. One-tailed significance
levels are reported. SE ¼standard error.
-1,6
-1,4
-1,2
-1
-0,8
-0,6
-0,4
-0,2
0
0,2
0,4
0 0,10,20,30,40,50,60,70,80,9 1
Exploita tion-Explorati on ratio [0-1]
Effect on profit margin
Recession
(i.e., quarter 1 - 12 )
Recovery
(i.e., quarter 13 - 2 0)
Optimum at 0
Optimum at 0.7 4
Figure 2. The relationship between EE ratio and performance in recession and recovery.
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P<0.05) therefore provides support for H2: the differential performance effects of the EE ratio are greater in a reces-
sion than in a recovery.
7. Discussion and conclusion
The performance implications of EE are becoming increasingly understood (Auh and Menguc, 2005;Jansen et al.,
2006;Uotila et al., 2009). For example, different levels of environmental dynamics appear to demand different distri-
butions of managerial attention to exploitation and exploration (Wang and Li, 2008). However, this body of litera-
ture assumes that these environmental characteristics are not likely to change significantly over time. Earlier in this
article, we have criticized this assumption to subsequently explore how senior managers adapt their attention to ex-
ploitation and exploration to effectively deal with changing environmental demands (Raisch et al., 2009). There is lit-
tle empirical evidence for a dynamic perspective on ambidexterity (Lugar et al., 2013), which constitutes the reason
d’^
etre for conducting this study.
Overall, our results confirm that, in times of strong economic upheaval, senior managers need to adjust their dis-
tribution of attention to exploitation and exploration. More specifically, we observe that an economic downturn re-
quires more attention to exploration, while leveraging the subsequent economic recovery demands more attention to
exploitation. The observed difference in attentional requirements appears to be even stronger than expected, as the
nature of the relationship also differs between recession and recovery settings (i.e., an inverted U-shape versus U-
shape). In this respect, our study suggests that a static perspective on managerial ambidexterity might not be valid
during more turbulent economic times, that is, “managing for ambidexterity is a task of dynamic rather than static
alignment” (Raisch et al., 2009: 689).
Our findings thus provide evidence for an inverted U-shaped relationship between the EE ratio and firm perform-
ance in a recession, and a U-shaped relationship between these variables in a recovery. The former finding replicates
earlier work (Uotila et al., 2009), whereas the latter one demonstrates that the curvilinear relationship inferred by
Uotila et al. (2009) from a cross-sectional sample consisting of both traditional manufacturing and IT firms cannot
be readily generalized to other populations and contexts. In this respect, this article serves to extend the “ambidexter-
ity hypothesis” arising from March’s (1991) original argument, but also suggests that more work is needed to better
understand under which conditions a static or dynamic perspective on ambidexterity can be applied (Raisch et al.,
2009).
Moreover, our findings suggest that the attentional balance between exploitation and exploration is even more
difficult to manage than originally anticipated. Our study shows that the attentional balance needs to be adapted
over time, as the nature of the balance itself evolves. As such, the simultaneous pursuit of exploitation and explor-
ation may imply a dynamic rather than static alignment challenge, which calls for structures and systems that facili-
tate such a dynamic balancing act (O’Reilly and Tushman, 2013). The organizational vacillation literature
(Boumgarden et al., 2012) may provide some guidance in how such a dynamic balance can be achieved at the organ-
izational level.
This study also has interesting implications for managerial practice, most notably for how to effectively handle re-
cessions. Economic downturns are inevitable (Berends and Romme, 2001;O’Malley et al., 2011), and the aftermath
of any past period of economic upheaval illustrates that some firms are affected considerably more than others. For
instance, Apple saw only little downfall during the most recent global recession and achieved a tremendous “recov-
ery” afterward. In this respect, we find that senior managers of (IT) firms should shift their attention to exploration
to successfully navigate recessions and outperform competitors. This advice resonates with other studies on reces-
sions, which recommend firms to maintain a more explorative strategy during a recession (Archibugi et al., 2013). In
economic recessions, therefore, the benefits from extra managerial attention to exploration appear to outweigh the
(short-term) benefits arising from extra attention to exploitation—also because the extra attention to exploration is
likely to enhance organizational growth in the subsequent recovery period (Amore, 2015). In the latter period, char-
acterized by increasing levels of munificence, management needs to redirect some of its attention back to exploiting
the (newly uncovered) business opportunities.
Moreover, we observed significant differential performance effects of the EE ratio between a recession and recov-
ery context. Misdirected attention to exploitation–exploration appears to have far greater negative performance im-
plications 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;
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Steenkamp and Fang, 2011), or alternatively, provoke and reinforce firm decline (Walrave et al., 2011,2015). In this
respect, we argued that decreasing levels of munificence make for a more severe external selection regime. Post-
analysis of the data (i.e., mean-comparison test) shows that senior managers, who deviate on average more than
15% from the vertex identified in a recession, realize a profit margin that is more than 14% lower (P<0.001) during
the recession and more than 33% lower during the subsequent recovery (P<0.001). This simple test again points at
the need for the EE ratio to shift over time, dependent on the environmental context.
The fact that many senior managers tend to shift their attention toward exploitation in a recession (Archibugi
et al., 2013) suggests it is counterintuitive for most managers to proactively initiate more exploration activity in this
context (Filippetti and Archibugi, 2011). In times of decline, senior managers are inclined to adopt a retrenchment
approach in an attempt to maintain liquidity (Robbins and Pearce, 1992;Berends and Romme, 2001;Srinivasan
et al., 2011;Steenkamp and Fang, 2011), especially if they can get away with downsizing, while blaming the eco-
nomic conditions (Schmitt et al., 2010). In doing so, senior managers frequently ignore the long-term challenges and
problems of their organization (Staw et al., 1981;D’Aveni and MacMillan, 1990;Levinthal and March, 1993). Our
findings, however, suggest that such a strategy might be highly counterproductive in times of major economic
upheaval.
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., 2011,2015), a self-reinforcing process in which a de-
cline in performance gives rise to more attention toward exploitation in an attempt to preserve shareholder value.
Attentional mismanagement fuels this self-reinforcing retrenchment process. The suppression of exploration can also
be reinforced by the firm’s shareholders, especially when they press senior management to focus on exploitation in
an effort to compensate for declining performance (Wiersema, 2002;Walrave et al., 2011). Our study suggests that
management teams adopting this strategy are likely to make their firms very vulnerable in adapting to and exploiting
the subsequent economic upswing, relative to competitors that have proactively invested in exploration during the
recession.
7.1 Limitations, future work, and conclusion
A key limitation of this study arises from the nature of the sample, composed of large firms in the IT industry in the
United States and Europe. This focus helped uncover the implications of managerial attention to EE in a recession
and recovery context. Therefore, our findings may only apply to (large companies in) the IT industry and the North
American and European capital market regimes. Future work would need to test whether our findings can be general-
ized to other industries and/or smaller firms.
We found that managerial attention to exploitation and exploration needs to shift over time, but the limits to
such shifts are unknown. While our theoretical arguments and empirical findings provide some indications of the
most effective direction of change in attention (relatively more exploration versus more exploitation), the precise
boundaries of such changes are unclear—for example, with regard to whether and how firm-level structures and
processes should change accordingly. These challenges can also be addressed in future work.
We selected the IT industry because the performance implications arising from managerial attention to EE are
likely to be observed more clearly and within a shorter time span than in many other industries (Vagnani, 2012).
That is, the actual exploitation and exploration activities in an IT firm are likely to be quickly adapted to changes in
managerial attention. The lead times of major exploration efforts are extremely long in several other industries; for
example, firms in the consumer electronics or pharmaceutical industries engage in explorative projects that may take
10–15 years (or longer) from first idea to market introduction. The management teams of these firms therefore tend
to craft strategies that have a rather long time horizon and are less likely to be adapted along the way, even in a glo-
bal economic recession. Future work in this area will serve to establish the extent to which our findings can(not) be
generalized.
This study draws on letters to shareholders to capture managerial attention to exploitation and exploration. Some
researchers have criticized the use of letters to shareholders because they are, to some extent, written for “impression
management” purposes (Yadav et al., 2007). That is, letters to shareholders are sometimes considered to be deliber-
ately crafted to manipulate the perceptions of external audiences, rather than being a governance and procedural
channel that adequately reflects managerial attention inside the company. If this would be the case, then the metrics
of cognition derived from letters to shareholders would not predict the actions and performance of the firm in the
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future. However, a substantial body of research has confirmed that the content of these letters has a systematic effect
on firm actions and performance (D’Aveni and MacMillan, 1990;Noble et al., 2002;Yadav et al., 2007;Tetlock
et al., 2008;Vagnani, 2012), thereby demonstrating that these letters do adequately reflect managerial attention.
Our main finding is that, in times of strong economic upheaval, the distribution of managerial attention to ex-
ploitation and exploration needs to be adjusted to effectively deal with environmental changes. Navigating an eco-
nomic downturn demands more managerial attention to exploration, while leveraging the subsequent upswing
requires more attention to exploitation. As such, this study provides a dynamic perspective on ambidexterity.
Acknowledgements
The authors thank two anonymous reviewers and the journal editors for their valuable comments. Furthermore, they acknowledge
Steven Spronk for his input during the early stages of the project. They are also grateful to members of the ITEM group at
Eindhoven University of Technology for their comments on an earlier version of the article, and would like to acknowledge the feed-
back provided by participants in the 2013 annual meeting of the Academy of Management.
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... Managerial attention to exploitation and exploration constitutes a zero-sum game (Walrave et al., 2017). Per Shepherd et al. (2016: p. 3), "increases in the allocation of attention to [exploitation] are likely to come at some expense to the allocation to [exploration] and the radical opportunities to which it often leads." ...
... Thus, managers need to strategically decide the relative distribution of limited managerial attention over exploitation and exploration of knowledge. On the one hand, excessive attention to exploration of knowledge can prove to be extremely costly since it drives out firm's economies of scale (Walrave et al., 2017), which can lead to a "failure trap" (Levinthal and March 1993). On the other hand, attention focus on exploitation of knowledge can discourage organizational learning and adaptation, resulting into a "success trap" (Levinthal and March, 1993). ...
... Attention devoted toward searching distant knowledge that resides outside of the firm. Firms exercising this kind of attention span organizational boundaries and look to exploit knowledge external to its knowledge base Helps to improve existing products and services and explore possible opportunities for growth attention to exploration and exploitation needs to provide a dynamic balance, wherein managerial attention emphasis is sometimes on exploration, and at other times, on exploitation, to meet the changing environment demands within a given industry over time (Walrave et al., 2017). Interestingly, threat-rigidity theory predicts that managers facing changes such as organizational decline will direct their attentional emphasis to exploitation of knowledge (Staw et al., 1981). ...
Article
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The development of competitive advantage as a field of academic inquiry has come at the price of significant fragmentation of the overall scientific quest. The existing competitiveness studies are mainly characterized by mono-level research related to separate levels of analysis accompanied by the absence of a synthesis of various approaches. Thus, promising concepts of managerial attention, knowledge processes, and dynamic capabilities, emanating from varied strategic theories, have been integrated to develop a robust multilevel, meta-theoretical framework which explains: (a) how dynamic capabilities originate through the cognition of individual employees at the micro level, allowing managers and knowledge workers to systematically recognize the need for change in current routines and capabilities; (b) how individual-level abilities are amplified when they are harnessed to form knowledge capabilities, thereby orchestrating an idiosyncratic knowledge base at the meso level; and (c) how the multiple, firm-specific combinations of attention capabilities, knowledge capabilities, and higher-order dynamic capabilities together produce heterogeneous attention-based and knowledge-based dynamic capabilities that are capable of triggering instant yet systematic resource realignment to create the potential for sustainable competitive advantage at the macro level. AQ2
... Les mots clés que nous avons utilisés pour effectuer ce codage se fondent sur l'article de March (1991), dans lequel il définit l'exploration et l'exploitation, et qui a servi de base de codage à d'autres études (Uotila et al., 2009 ;Walrave et al., 2017). ...
... Once exploration strategies start yielding benefits, they could arguably generate large future returns because of the lack of competition due to their avant-gardist new products. Indeed, exploration allows the firm to develop new knowledge different from the current knowledge base (Lavie et al., 2010), and thus increase its adaptability (Andriopoulos and Lewis, 2009;March, 1991;Walrave et al., 2017). Indeed, firms focusing on exploration will have the competencies allowing them to more effectively combat market variations, and therefore combat the increases in systematic risk, thanks to their elevated speed in understanding and seizing promising new opportunities (Zahra and George, 2002) and their better adaptation to environmental changes (Wiklund and Shepherd, 2005). ...
... Although exploration is required for a firm to maintain advantage in the face of tough industry competition (Hauser et al. 2007), radical innovations, that are often associated with exploration (Bierly and Daly 2007;Jurksiene and Pundziene 2016), can also lead to an increase in total firm risk. As it may potentially "drive out economies of scale and/or disciplined problem-solving" (Walrave et al., 2017(Walrave et al., , p. 1147, exploration increases the variability of firm performance (Osiyevskyy et al., 2020). For instance, Sorescu and Spanjol (2008) have shown that radical innovation is positively associated with increases in total firm risk, meaning both idiosyncratic and systematic risk alike. ...
Thesis
L’objectif principal de ce travail de thèse est de contribuer à la littérature sur l’ambidextrie dans les PME en apportant, plus précisément, un regard sur la relation entre ambidextrie et risque dans ces entreprises. Ce domaine de recherche reste actuellement peu étudié car lorsque la littérature s’intéresse aux risques dans ces entreprises, elle ne les analyse pas à travers le prisme de leurs spécificités, mais cherche plutôt à appliquer des modèles d’analyse destinés aux grandes entreprises, qui peuvent s’avérer compliqués et coûteux. Dès lors, nous avons décidé de travailler spécifiquement sur les PME pour étudier ce qui pourrait être un facteur « stratégique » de réduction des risques – et donc de pérennité de celles-ci –, tel que l’ambidextrie. Notre principal objectif théorique est d’identifier le rôle que joue l’ambidextrie sur les risques inhérents aux PME selon leur stade et leur mode de développement. Nous avons pour ambition d’étudier, dans un premier temps, l’impact qu’a l’articulation entre exploration et exploitation sur le risque d’enlisement des start-ups dans la « vallée de la mort ». Dans un deuxième temps, notre objectif est d’explorer le rôle de différents types d’ambidextrie dans la réduction du risque de défaillance des PME matures. Enfin, dans un troisième temps, nous proposons de tester l’effet de l’ambidextrie ainsi que ses composantes, l’exploration et l’exploitation, sur le risque systématique pour les PME cotées sur le marché boursier. Notre intérêt porte donc sur la compréhension du rôle joué par l’ambidextrie dans la gestion des risques au sein des PME, en vue d’augmenter leur chance de survie à différents stades de développement et selon leurs différents modes de développement. Les résultats de notre travail doctoral montrent tout d’abord que si certaines entreprises sont nées ambidextres, d’autres apprennent rapidement à le devenir. Ils suggèrent toutefois que l’ambidextrie soit certes une condition nécessaire mais pas suffisante pour la survie de la start-up dans la « vallée de la mort ». En particulier, ils montrent que, face au risque d’enlisement dans la « vallée de la mort », les start-ups ambidextres doivent faire preuve d’agilité et utiliser les ressources disponibles au sein de leurs réseaux, certaines start-ups se considérant même comme des « réseaux d’équipes ». Dans un deuxième temps, nos résultats montrent que l’ambidextrie joue un rôle clé dans la gestion du risque de défaillance des PME matures familiales dans des environnements non-munificents, tant que la dimension de l’ambidextrie qui permet de réduire ce risque est alignée avec la taille de l’entreprise et le dynamisme de l’environnement. Enfin, nos résultats montrent aussi que, sur un risque systématique à court terme (un β à deux ans) des PME cotées sur Euronex Growth, l’exploration a un effet amplificateur tandis que l’exploitation a un effet réducteur. Contrairement à ce qui était attendu, l’ambidextrie a un effet amplificateur du risque systématique, ce qui invite à creuser les éléments explicatifs de ce résultat allant à l’encontre du constat largement accepté dans la littérature que l’ambidextrie joue un rôle positif dans la réduction du risque. Les enjeux managériaux de cette recherche consistent à éclairer les praticiens sur l’importance d’être ambidextre, mais aussi sur les efforts qu’il est nécessaire de déployer pour faire de l’ambidextrie un véritable vecteur de gestion des risques. Cela paraît d’autant plus important que le nombre de défaillances des start-ups est élevé et que de nombreuses PME peinent à grandir pour devenir des ETI. De plus, nous cherchons à mettre en avant une vision générale des risques auxquels les praticiens, et notamment les dirigeants, vont devoir faire face lors des différents stades de développement de leur entreprise, et l’importance que pourrait alors avoir l’ambidextrie pour leur entreprise.
... Ambos and Birkinshaw, 2010;Bouquet et al., 2009;Yu et al., 2019), and performance (e.g. Posen and Martignoni, 2018;Surroca et al., 2016;Walrave et al., 2017). ...
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Over two decades ago, Ocasio (1997) introduced the Attention-Based-View (ABV) of the firm with a powerful argument: Firm-level behaviour is the result of the situated distribution and allocation of managerial attention, embedded in broader organizational structures and the environmental context. ABV-based research has received substantial and increasing scholarly attention, resulting in a complex and incoherent body of research. In order to address this issue, this paper takes stock of extant research on the ABV and consolidates key debates. Based on a systematic review of 173 papers, we synthesize existing research into a unifying framework. Drawing on this framework, we propose situated attention as a central theme for future research. We elaborate on four situational factors (materiality, social dynamics, temporality, and, what we call, framing of the strategic setting), which may influence how actors' attention is situated in the particular context.
... The literature suggests that managerial cognition and decision-making are influenced by their industry environment (Gupta, Nadkarni and Mariam, 2019;Li and Tang, 2010;Walrave et al., 2017;. Hence, we control for industry-level variables, including essential industry and industry revenue growth. ...
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Pandemics and epidemics occur regularly, yet their impact on firm behaviours is under‐researched. COVID‐19 provides a unique opportunity to examine the impact of a once‐in‐a‐century pandemic – given its scope, swift spread, health and economic devastation – on firms’ behaviours. Attention is the critical and initial step of the environmental adaptation process. In this paper, we draw on two complementary theories – contingency and attention‐based view – and examine the relationship between disruption experienced by firms and their COVID‐19 attention focus – a sudden exogenous shock. Industry environments may influence which signals attract managerial attention; hence, we examine if firm disruption–COVID‐19 attention focus is moderated by industry dynamism. Drawing on the publicly available data and using a sample of 1,861 US and 1,154 Chinese firms – two diametrically opposite situational contexts – we test the generalizability of our hypotheses. We find a positive relationship between firm disruption and COVID‐19 attention focus for the US sample and that industry dynamism negatively moderates this relationship. In the case of Chinese firms, these relationships were insignificant. Further analysis using topic modelling revealed that business–government relationships accounted for this difference.
... In the model of Acemoglu et al. (2012), sequential ambidexterity follows from multiple equilibria where separate firms choose to explore or exploit depending on framework conditions such as the degree of protection of intellectual property rights or the size of the skill premium. In the empirical work of Archibugi et al. (2013) and Walrave et al. (2017), it is a choice of senior executives to dynamically orient the business model towards one option or the other according to the phase of the business cycle. Structural ambidexterity is the second type, based on two loosely coupled structures, one dedicated to exploration and the other one to exploitation (Adler et al. 2009). ...
Article
Microfoundations allow the unpacking of processes by which dynamic capabilities are created. Along this line, managerial cognition has been proposed as a variable related to the dynamic capabilities. However, the high number of cognitive variables reported hinders the theoretical contributions. Thus, this study classifies the managerial cognitive variables of chief executive officers (CEOs) into three types of dynamic managerial capabilities: (1) managerial sensing, (2) managerial seizing, and (3) managerial reconfiguration. We estimate the correlation of these managerial capabilities with firms' dynamic capabilities. We use a three-level random effects model to synthesize 101 correlations reported from 2007 to 2021, representing 6,153 CEOs around the world. This meta-analysis reveals a positive relationship between CEOs' managerial cognition and dynamic capabilities, especially with respect to those cognitive variables that support managerial sensing as the perception of opportunities and entrepreneurial alertness.
Chapter
Ambidexterity or the ability by individuals or firms to simultaneously and synergistically pursue both exploitation and exploration activities has been found to have positive effects on firm performance. However, the ambidexterity literature has been predominated by the studies at the organizational level, and little is known about the antecedents and consequences of ambidexterity at the individual level. This study examines environmental dynamism and social network as the antecedents of managerial ambidexterity, and knowledge brokerage and firm performance as the consequences. This study tests the mediating role of knowledge brokerage on the relationship between managerial ambidexterity and firm performance. Data are collected from 308 senior executives working in technology manufacturing firms in Malaysia using a questionnaire survey. The findings reveal that environmental dynamism and social networks are significantly and positively related to managerial ambidexterity, and knowledge brokerage mediates the relationship between managerial ambidexterity and firm performance.
Article
Purpose The purpose of the study was to analyse the impact of innovation ambidexterity represented by explorative and exploitative innovation capabilities and their combined effects on product innovation performance and to prove the mediating effect of decentralization. Design/methodology/approach The study uses partial least squares for structural equation models and SmartPLS version 3.3.1 on a sample of 174 Romanian medium- and large-sized firms from the IT industry to test six research hypotheses. To measure innovation ambidexterity, the orthogonal approach was used, conceptualizing innovation ambidexterity as a multidimensional, second-order construct composed of explorative and exploitative innovation capabilities. Innovation ambidexterity was conceptualized as a multiplicative term of both explorative and exploitative innovation capabilities. Findings The empirical results prove that innovation ambidexterity is positively correlated with product innovation performance, while decentralization is mediating the impact of innovation ambidexterity on product innovation performance in the IT industry. Research limitations/implications The data was based on self-reported assessments of senior executives. While innovation ambidexterity may influence product innovation performance in the long term, such long-term effects are not assessed. Other studies found a moderating effect between centralization or decentralization and ambidexterity, while we found that it has a mediating effect. Practical implications In the context of innovation capability, the combination of explorative or exploitative capabilities may lead to a better synergy. Innovation ambidexterity influences product innovation performance through a synergistic effect, making the simultaneous combination of capabilities useful for firms willing to make efficient use of existing resources and make their capabilities mutually supportive. Moreover, for senior executives, the effects of decentralization as a mediator provide further incentive to include it in their development of firms' innovation capabilities. Originality/value This study extends findings of other studies by contributing to a deeper examination of the effects of decentralization, on innovation outcomes by focusing on a specific type of innovation, product innovation. Moreover, since innovation capability is often studied in small firms or in the manufacturing industry, this study contributes to the research on innovation capability and the consequences on innovation capability in the services sector and medium- and large-sized companies. By proving that decentralization mediates the effects of innovation ambidexterity on product innovation performance, it enables reconsideration of the organizational structure role in fostering innovation.
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Early technology start-up faces a lot of problems such as leader mentality, ecosystem, lack of general knowledge, and innovation. One of the root causes is the absence of leadership role. This study is constructed to fill a research gap on the influence of servant leadership behaviour to team innovation in technology start-up. The authors propose team ambidexterity as mediator to enhance the role of servant leadership behaviour in fostering team innovation. We also investigate the team climate as a moderator to support the team ambidexterity. The samples are 207 start-up members in Indonesia which aggregated into 59 clustered samples. The result shows that the team ambidexterity has a significant mediation effect between servant leadership behaviour and team innovation. Second result is team climate, which is a good moderator on team ambidexterity. These outcomes lead to research opportunities and practical implications to enhance the team innovation among start-ups.
Article
Purpose The purpose of this paper is to examine different types of organization of the firm considering the innovation capabilities of manufacturing firms. Design/methodology/approach The authors carried out an innovation survey with Brazilian manufacturing firms. A sample of 1,156 firms was analyzed in this paper. Collected data were analyzed using multivariate data analysis techniques. From an innovation capabilities approach, it was possible to identify different types of organization of the firm. Findings Results show four different types of organization of the firm: advanced, intermediate and basic stability-oriented and change-oriented. Each type presents a different innovation capabilities arrangement. The successful strategies toward innovation are related to change-oriented organization of the firm and advanced stability-oriented organization of the firm. Research limitations/implications This study contributes to the literature by presenting a different view on the organization of the firm, encompassing the capabilities approach and thus a higher level on the perception of firms' heterogeneity. This study contributes to narrow the literature gap on how firms internally coordinate its different capabilities into a coherent organization to sustain an innovative behavior. Practical implications These straightforward findings can serve as a guideline so that managers can conduct changes within their companies toward more innovation. Managers can reconsider its organization as a way to foment innovation, once it is identified as a key strategy for competitiveness. Social implications This study may help managers understand that focusing on stability-driven capabilities is riskier if change-driven capabilities are not present in an adequate and aligned level of development. The outcome may be the growth of the cost structure greater than the potential return. Conversely, managers should also understand that once change-driven capabilities are in a glance, they need do follow up with stability-driven capabilities. Here, the risk is not having an adequate structure to sustain the upcoming growth, arising from innovation. In short, not only “cost and value” should be taken together, but they must be arranged following the specific situation of the company. Every company should manage costs either to sustain new added value or to allow the addition of new value. Originality/value The study is based on a unique dataset that traces a large set of companies, being able to check different types of firm organization and associate it with innovation capabilities. The study relates to an emerging economy, which has not received adequate attention until now, largely because of the lack of micro-level data. The study is based on a robust theoretical model of innovation capabilities, which is being tested through such data. Finally, results elucidate ways to improve innovation performance of firms.
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1. The Entrepreneur in Economic Theory. 2. Limited Attention. 3. Allocating Limited Entrepreneurial Attention. 4. Innovation, Firm Size and Growth. 5. Career Choice. 6. Optimally Incomplete Contracts. 7. The Internalization of Transactions. 8. The Role of the Venture Capitalist. 9. Independent Contractors. 10. Conclusion. Appendix. Name Index.
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