Innovation is a key driver for companies' long-term success. Although, all companies can be distinguished as innovative in some form, they differentiate significantly in their strategy or activity to pursue innovation. There exist two types of activities, the explorative one on the one hand and the exploitative one on the other hand. The explorative one is applied by firms that invest heavily in research and explore new areas of technology. One example is Google, which grew from the pure search engine into a firm that developed an image-recognition application, autonomous vehicle technology and broadband services. Alternatively, the exploitative activity is applied when firms invest in deepening their knowledge in specific areas and become top market leaders. Samsung for example is an expert in electronics for consumer goods such as TV, mobile phones, LCD and LED panels and semiconductors.
The focus of this master thesis is to define and to understand the two groups of explorative and exploitative innovators and determine when, and under which circumstances, a type is more successful than the other. In order to do so, the data on large firms' innovation strategy, which is available in their patent portfolio, are collected and investigated. The collected patents are classified according to the following criterion: is the patent a radical innovation or just an incremental add-on? The data source is acquired from Google Patents which has become a dominant source in innovation research.
Results indicate that for some cases there is some evidence for a positive relationship between an innovation orientation of the firm associated with higher degree of exploration and financial performance measured in stock return. This is particularly the case for firms which own patents citing other patents outside its own technological class. With the given sample, there is no evidence for technological dynamism in an environment to moderate the relationship. This empirical assessment gives implications for further research.
Inhaltsverzeichnis (Table of Contents)
- 1. INTRODUCTION
- 2. RELATED LITERATURE AND HYPOTHESES
- 2.1 An introduction to innovation
- 2.2 The exploration and exploitation orientation of organizations
- 2.3 The balance between exploration and exploitation
- 2.4 Exploration, exploitation and financial performance
- 3. DATA AND METHODS
- 3.1 Data
- 3.2 Variables
- 3.3 Descriptive Statistics
- 3.4 Empirical Model
- 4. RESULTS
- 4.1 The effect of innovation orientation
- 4.2 The effect of technological dynamism
- 4.3 Robustness Checks
- 5. DISCUSSION AND CONCLUSIONS
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This master's thesis aims to differentiate between explorative and exploitative innovation strategies in companies and analyze their impact on financial success. It investigates whether and under what circumstances one strategy outperforms the other. The study uses patent data to classify innovations as radical or incremental and examines their correlation with financial performance, measured by stock returns.
- Exploration vs. Exploitation in corporate innovation strategies
- The relationship between innovation type (radical vs. incremental) and financial performance
- The role of technological dynamism in moderating the exploration-exploitation-performance relationship
- Analysis of large firms' innovation strategies using patent portfolio data
- Empirical assessment of the impact of innovation orientation on firm financial performance.
Zusammenfassung der Kapitel (Chapter Summaries)
1. INTRODUCTION: This introductory chapter sets the stage for the thesis by highlighting the importance of innovation for long-term company success. It introduces the two key concepts – exploration and exploitation – as contrasting approaches to innovation, providing examples such as Google's explorative approach and Samsung's exploitative strategy. The chapter establishes the central research question of identifying the conditions under which either exploration or exploitation leads to greater success. It then outlines the methodology employed, emphasizing the use of patent data to analyze innovation strategies and the choice of stock return as the performance metric. The chapter concludes by giving a brief overview of the following chapters' structure.
2. RELATED LITERATURE AND HYPOTHESES: This chapter provides a comprehensive review of existing literature on innovation, focusing on the exploration-exploitation dilemma. It delves into the theoretical foundations of both strategies, discussing their characteristics and their implications for organizational structure and decision-making. The chapter reviews prior research examining the relationship between exploration, exploitation, and firm performance, highlighting the nuances and complexities of this relationship. This section establishes a theoretical framework and forms the basis for the hypotheses that will be tested in subsequent chapters. Key theories are discussed and related to the research context, forming the basis for the empirical testing to be conducted. The chapter lays out several hypotheses regarding the relationship between innovation orientation (exploration vs. exploitation), technological dynamism, and firm financial performance.
3. DATA AND METHODS: This chapter details the data collection and methodological approach used in the thesis. It describes the data source (Google Patents), explaining its suitability and limitations for analyzing innovation strategies. The chapter defines the key variables, including measures of exploration and exploitation (based on patent characteristics), and describes the econometric model used for analyzing the relationship between innovation strategies and firm performance. Data cleaning and processing techniques are detailed, and descriptive statistics providing an overview of the data are presented. The specific methodology used for testing the hypotheses is explained in detail, justifying the econometric choices made and addressing potential limitations.
4. RESULTS: This chapter presents the empirical findings from the analysis of patent data and their correlation with firm financial performance. The results section focuses on testing the hypotheses put forth in Chapter 2. Specific results concerning the relationship between innovation orientation and financial performance are presented. The role of technological dynamism in moderating this relationship is also examined, with detailed analysis of the interaction effects. Robustness checks are discussed and their impact on the main findings is explained. Statistical significance of the findings is clarified, ensuring the reliability and validity of the results.
Schlüsselwörter (Keywords)
Exploration, Exploitation, Innovation Strategy, Radical Innovation, Incremental Innovation, Patent Analysis, Financial Performance, Stock Return, Technological Dynamism, Firm Performance.
Frequently Asked Questions: Analysis of Exploration and Exploitation Innovation Strategies
What is the main topic of this master's thesis?
This master's thesis investigates the impact of explorative and exploitative innovation strategies on a company's financial success. It aims to determine whether and under what conditions one strategy outperforms the other. The study uses patent data to classify innovations and analyzes their correlation with financial performance, measured by stock returns.
What are the key concepts explored in the thesis?
The central concepts are "exploration" and "exploitation" as contrasting approaches to innovation. Exploration involves pursuing novel ideas and radical innovation, while exploitation focuses on refining existing products and processes and incremental innovation. The thesis examines the relationship between these strategies and firm performance, considering the role of technological dynamism.
What data was used in the analysis?
The study utilizes patent data from Google Patents to classify innovations as radical or incremental (exploratory or exploitative). Stock returns serve as the measure of financial performance. The chapter details data cleaning and processing techniques.
What are the main research questions or hypotheses?
The thesis investigates the relationship between innovation type (radical vs. incremental), exploration and exploitation strategies, technological dynamism, and firm financial performance. Specific hypotheses regarding these relationships are formulated and tested empirically.
What methodology was employed?
The research employs an econometric model to analyze the relationship between innovation strategies (measured by patent characteristics) and firm financial performance (measured by stock returns). The chapter details the specific econometric model used, justifying the choices made and addressing potential limitations. Descriptive statistics are provided.
What are the key findings of the study?
The results chapter presents empirical findings on the relationship between innovation orientation (exploration vs. exploitation), technological dynamism, and firm financial performance. The results focus on testing the hypotheses presented earlier, including an analysis of interaction effects and robustness checks to ensure reliability and validity.
What are the implications of the findings?
The discussion and conclusions chapter summarizes the main findings and their implications for understanding the optimal innovation strategy in different contexts. It discusses the limitations of the study and suggests avenues for future research.
What are the key words associated with this research?
Exploration, Exploitation, Innovation Strategy, Radical Innovation, Incremental Innovation, Patent Analysis, Financial Performance, Stock Return, Technological Dynamism, Firm Performance.
How is the thesis structured?
The thesis is structured into five chapters: an introduction, a literature review and hypothesis development, a description of data and methods, a presentation of results, and a discussion and conclusion. Each chapter summary is provided in the document.
Where can I find more details about the specific aspects of the research (e.g., literature review, methodology, results)?
Detailed information on the related literature, the employed methodology (including data sources, variable definitions, and econometric model), and the results of the empirical analysis are presented in the respective chapters of the full thesis document.
- Quote paper
- Jenny Giang (Author), 2019, Exploitation versus Exploration. Which companies exploit existing R&D assets and which explore new technologies?, Munich, GRIN Verlag, https://www.grin.com/document/1189591
