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.
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
Objectives & Topics
This master thesis examines how explorative and exploitative innovation strategies influence the financial performance of large companies. By analyzing patent data, the research aims to understand which innovation orientation is more successful under varying environmental conditions and whether an optimal balance between these two strategies exists to drive long-term success.
- Measurement of explorative vs. exploitative innovation via patent citation analysis.
- Evaluation of the relationship between innovation orientation and financial outcomes (stock returns and operating returns).
- Analysis of the moderating role of industry technological dynamism.
- Identification of potential U-shaped or curvilinear relationships between innovation strategy and performance.
Excerpt from the Book
2.1 An introduction to innovation
The concept of exploration and exploitation appeared as the two fundamental ideas of organizational learning and survival. Over time, these were extended into other areas of research such as knowledge management, strategic management and innovation. Organizational and management research on innovation distinguish between inventions and innovations. Inventions describe the first occurrence of an idea for a new product or process. When the idea is commercialized, it becomes an innovation (Fagerberg, 2003). For example, the first computer was invented in the early 90s, but it was not an innovation until it was first sold for money. It could be argued that this makes invention a forerunner to innovation (Ruttan, 1959). In some sectors like biotechnology, it is difficult to determine the difference between inventions and innovations because significant time passes, even up to several decades, between an invention and the commercialization of it (Rogers, 1995; Ruttan, 1959).
Summary of Chapters
1 INTRODUCTION: Introduces the thesis, the research context of exploration and exploitation, and the importance of technological innovation in the digital era.
2 RELATED LITERATURE AND HYPOTHESES: Reviews theoretical foundations regarding innovation, organizational learning, and develops hypotheses on the impact of innovation orientation on performance.
3 DATA AND METHODS: Describes the sample construction, the usage of USPTO and Google Patents data, the definition of variables, and the empirical regression models.
4 RESULTS: Presents the empirical findings concerning the impact of innovation orientation, technological dynamism, and robustness checks.
5 DISCUSSION AND CONCLUSIONS: Discusses the findings, addresses limitations of the study, and provides implications for future research.
Keywords
Innovation, Exploration, Exploitation, Financial Performance, R&D, Patents, Technological Dynamism, Patent Citations, Organizational Learning, Strategic Management, Radical Innovation, Incremental Innovation, Stock Return, Operating Return, Firm Strategy
Frequently Asked Questions
What is the core focus of this master thesis?
The thesis investigates the "Exploitation vs. Exploration" trade-off in corporate innovation strategies and examines how these different approaches affect a firm's long-term financial performance.
What are the primary themes discussed?
The main themes include organizational learning, the classification of radical versus incremental innovations, the role of technological dynamism, and the empirical measurement of innovation strategies using patent data.
What is the primary research goal?
The primary goal is to determine which type of innovation orientation—explorative or exploitative—is more successful and under which circumstances (e.g., environmental dynamism) firms should emphasize one over the other.
Which scientific methods are applied?
The study uses quantitative empirical methods, specifically panel regression models (fixed effects, random effects, and GMM estimators) to analyze U.S. patent data from 849 firms over a 49-year period.
What topics are covered in the main body?
The main body covers the literature review on innovation, the detailed methodology for collecting patent information via web scraping, the definition of dependent/independent variables, and extensive regression analyses of results and robustness checks.
Which keywords best describe this research?
The research is best characterized by terms like Innovation, Exploration, Exploitation, Financial Performance, R&D, and Patent Citations.
How does the author define radical and incremental innovation?
Radical innovation is defined by the creation of new knowledge and deviation from a firm's existing technological portfolio (measured by non-self-citations), while incremental innovation builds upon existing firm knowledge (measured by self-citations).
Why are patent citations used as a proxy for innovation strategy?
Patent citations, specifically backward citations, are used because they reveal whether a firm is building upon its own previous knowledge (exploitation) or citing external sources to develop new technological areas (exploration).
- Citar trabajo
- Jenny Giang (Autor), 2019, Exploitation versus Exploration. Which companies exploit existing R&D assets and which explore new technologies?, Múnich, GRIN Verlag, https://www.grin.com/document/1189591
