2010 International Conference on E-Business and E-Government
Ambidextrous capabilities and innovation performance—the moderating effect of
Entrepreneurial orientation
Dong Yang
Industrial Engineering
XIDIAN University
Xi’an, China
xjtuyd@163.com
Hua Li
Industrial Engineering
XIDIAN University
Xi’an, China
lihua@ xidian.edu.cn
Abstract— Do the simultaneous pursuit of exploitative
and explorative activities will add to or detract from
innovation performance? We develop a model of firms as
essentially ambidextrous, i.e. as engaging in both exploitative
and explorative behavior. According to dynamic capabilities,
we find that firms with ambidextrous capabilities – those that
both use exploitative capabilities and build explorative
capabilities indeed exhibit better innovation performance.
Also, the entrepreneurial orientation (EO) has positive
moderating effect of on the relationship between capabilities
and innovation performance.
Keywords: ambidexterity; EO; innovation performance
I. INTRODUCTION
Will ambidexterity lead to good performance for all firms
under various contexts, specifically as dynamic capabilities?
Firms are constantly faced with the challenges of two
concomitant choices: exploitation and exploration (Gibson and
Birkinshaw 2004). A central concern of firm has to do with
making choices about how much to invest in different types of
activities. Both conceptual generation and empirical testing
have suggested an ambidexterity hypothesis where the pursuit
of both exploration and exploitation will improve firm
performance and survival (He and Wong 2004, Levinthal and
March 1993, Tushman and O ÿ Reilly 1996).While some
scholars regard that the ambidextrous organization wouldn’t
has better effect on performance than single activities
(exploitation or exploration)(Venkatraman,2007) .
As a result, it remains to be seen whether a firm pursuing
an ambidextrous activities will be ambiguous. Second, firms
are constrained by their organizational characteristics.
Whether such constraints will affect the performance of an
ambidexterity has not been fully addressed in the literature.
This paper seeks to test the ambidexterity hypothesis in the
specific context of dynamic capabilities. We investigate how
exploitative and explorative capabilities affect on innovation
performance, and how the interaction (ambidextrous)between
explorative and exploitative capabilities affect on innovation
performance. Then, the moderating effect of EO also is
investigated.
Supported by 863 Project(2009AA04Z122) and NSFC(No.70804027)
978-0-7695-3997-3/10 $26.00 © 2010 IEEE 1081
DOI 10.1109/ICEE.2010.279
ChunGang Lang
Business Management
XIDIAN University
Xi’an, China
langchungang@163.com
II. THEORY BACKGROUND
Exploration implies firm behaviors characterized by
search, discovery, experimentation, risk taking and innovation,
while exploitation implies firm behaviors characterized by
refinement, implementation, efficiency, production and
selection (March 1991). The firm’s capabilities to exploit
existing assets and positions in a profit producing way and
simultaneously to explore new technologies and markets; to
configure and reconfigure organizational resources to capture
existing as well as new opportunities (March, 1991). This
capabilities has been referred to either as exploration and
exploitation (March, 1991) or ambidexterity (Duncan, 1976;
Tushman & O’Reilly, 1997). Therefore, ambidextrous
capabilities are about doing both exploitative and explorative
behaviors. According to previous research, ambidexterity will
be the heart of a firm’s long-run survival.
Exploration and exploitation require different structures,
processes, strategies, and cultures to pursue and may have
different impacts on firm adaptation and performance. In
general, exploration is associated with organic structures,
loosely coupled systems, path breaking, improvisation,
autonomy and chaos, and emerging markets and technologies.
Exploitation is associated with mechanistic structures, tightly
coupled systems, path dependence, routinization, control and
bureaucracy, and stable markets and technologies (Brown and
Eisenhardt 1998, Lewin et al. 1999).
The revenue associated
with explorative capabilities are more variable and distant in
time, while the revenue associated with exploitative
capabilities are more certain and closer in time. In other words,
firms with explorative capabilities generate larger
performance variation by experiencing substantial success as
well as failure, while firms with exploitative capabilities are
likely to generate more stable performance.
In this paper, we embed the notion of ambidexterity in
the dynamic capabilities framework. And we show how the
capabilities to simultaneously pursuit of emerging and existing
strategies to long-term survival.
Entrepreneurial orientation is the processes, structures,
and behaviors of firms that are characterized by
innovativeness, proactiveness, and risk taking (Covin & Slevin,
1989). Notwithstanding the possibility that these three
dimensions may vary independently of one another (Lumpkin
& Dess, 2001), we view entrepreneurial orientation as the
simultaneous exhibition of innovativeness, proactiveness, and
risk taking and thus focus on the performance implications of
a firm’s overall entrepreneurial posture. According to dynamic
capabilities, entrepreneurial orientation allows the firms to
reconfigure internal and external capabilities to address
rapidly changing environments. Without entrepreneurial
orientation, firm’s behavior would be neither dynamic nor
adaptive. Similarly, Slater and Narver (1995) argue that
entrepreneurial orientation is an important driver of product
development and reformulation, innovation in manufacturing
and channel.
The effect degree of capabilities on innovation
performance depends on the leveraging degree of capabilities.
Then, EO as capabilities may have moderating effect on the
relationship between capabilities and innovation performance.
Based on above discussion, we propose a conceptual
model: the direct of capabilities on innovation performance;
and the moderating effect of EO on the relationship between
capabilities and innovation performance.
III. HYPOTHESIS DEVELOPMENT
III.1 Exploitative capabilities and innovation performance
With exploitative capabilities, firms can fully exploit
existing resources, which can contribute to the innovation. For
example, with technological capabilities, firms can realize
process innovation or product innovation. Then firms may
exhibit cost advantage or enhance the market share. With
exploitative capabilities, firms also can effectively understand
market need, so firms can reconfigure and leverage resources.
For example, with marketing capabilities, firms can learn to
knowledge about customer and market, which is help for firms
to target market. Then firms can find niche, in which firms
have cost or production advantage. Firms also can acquire the
information of latent needs of customers, which is helpful for
firms to realize management innovation and special
production or service.
However, the knowledge foundation of exploitative
capabilities is existing knowledge, whose character is stability,
repetitive and routine behaviors. Repetitive routine behaviors
make firms operational efficiency and effectiveness. However,
lack of experiences of new behaviors, organizational routine
would hinderopportunities grasp and reaction of threat, so
hamper capabilities enhancement. Similarly, the core
capabilities would exhibit core rigidity. Namely, existing
knowledge basement can exhibit the search, recognition and
expressing capabilities of firms. The existing capabilities
would have negative effect on environment search and
assimilate new knowledge. Accordingly:
Hypothesis 1: The effect of will be greatest at the moderate
level of exploitive capabilities, such that the innovation
performance across low, medium, and high levels of exploitive
capabilities is ˆ -shaped.
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III.2 Explorative capabilities and innovation performance
Explorative capabilities can enhance firm’s innovation
performance. Firstly, with explorative capabilities, firms can
exploit new market and grasp new opportunities, which is
helpful for firms to adopt new process to realize the needs of
latent customer. Secondly, with leveraging explorative
capabilities, firms can acquire new knowledge and cultivate
new capabilities. Then firms can reduce production innovation
period and innovation risk. The leveraging of explorative
capabilities has advantage of leadership decision, which can
keep innovation sustainability and effectiveness. Firms should
integrate and use explorative technological and marketing
capabilities to realize innovation. With explorative capabilities,
firms can exploit new production to react to environment. On
the other hand, the explorative capabilities exhibit the
knowledge and skills of the style and technological trace of
firm’s production. The higher explorative capabilities means
the higher probability firms realize innovation. Accordingly:
Hypothesis 2: The higher the level of explorative capabilities,
the higher the strategic innovation performance of the firm.
III.3 Ambidextrous capabilities and innovation Performance
Ambidextrous capability, namely both exploitative and
explorative capabilities, helps firms to reconfigure existing
assets and capabilities to sense and seize new opportunities. In
the face of changing markets and technology, without
exploration, path dependence dynamics drive firms toward
continued successful exploitation, which leads to failure.
There are three key reasons why an ambidexterity focus
on using existing capabilities and building new ones may
deliver synergistic effects (Katila & Ahuja, 2002; He & Wong,
2004) for firms. Firstly, the development of new capabilities
by a firm will be constrained by its existing capabilities. In
order to identify new routine, the firm will need to possess
sufficient absorptive capacity (Cohen & Levinthal, 1990). The
foundations for these processes typically reside in the existing
capabilities of the firm. Second, the interplay between drawing
on existing capabilities and developing new ones may enable
firms to develop unique resource combinations that result in
competitive advantage (Eisenhardt & Martin, 2000). Katila
and Ahuja (2002) propose a similar synergistic effect for the
combination of new knowledge with knowledge that is already
known to a firm. Third, new environment’ opportunities are
more easily grasped by the firms with higher level of
explorative capabilities. Then, firms with higher level of
exploitative capabilities can leverage the opportunities. Firms
with ambidextrous capabilities indeed combine existing and
new capabilities are likely to be recognition and use the
opportunities, finally enhance the innovation performance.
Accordingly:
Hypothesis 3: The higher the level of ambidextrous
capabilities (i.e. the interaction of exploitation and
exploration), the higher the strategic innovation performance
of the firm.
III.4 The moderating effect of EO on the relationship between
capabilities and innovation performance
 In the beginning, the effect of EO on innovation
performance is direct. Gradually, the indirect effect of EO on
innovation performance also can be investigated, such as the
mediating and moderating effect of EO on innovation
performance.
We regard EO as an organizational capability that affects
the leveraging effect of capabilities on innovation performance.
EO can contribute to higher innovation performance by
facilitating a firm’s capabilities to identify innovative
opportunities with potentially large returns, target premium
market segments, and obtain first mover advantages (Lumpkin
& Dess, 1996; Wiklund & Sheperd, 2005).EO also can expand
the managerial knowledge base of capabilities. Knowledge or
information use can be instrumental or conceptual (the direct
or indirect application of information to solve a problem).
Both direct and indirect using of knowledge is more likely to
lead to positive performance for the firms. Firms with EO will
first-move to leverage their information-gathering efforts in
order to decrease the firm’s exposure to risk, and help resolve
problems. Firms with EO also will use the knowledge to
attempt to innovate. In a word, firms with EO can promote the
effect of capabilities on innovation performance. Accordingly:
Hypothesis 4a: The moderating effect of EO on the
relationship between exploitative capabilities and innovation
performance.
Hypothesis 4b: The moderating effect of EO on the
relationship between explorative capabilities and innovation
performance.
Hypothesis 4c: The moderating effect of EO on the
relationship between ambidextrous capabilities and
innovation performance.
IV. DISCUSSION AND CONCLUSIONS
This study proposed the effect of capabilities on
innovation performance, as well as the moderating effect of
EO on the relationship between capabilities and innovation
performance. The effect of different types of capabilities on
innovation performance is different. Concretely, the effect of
exploitative capabilities on innovation performance is ˆ ---
shaped; the effect of explorative capabilities on innovation
performance is positive; the firms with ambidextrous
capabilities, namely using existing capabilities and building
new capabilities will exhibit high level of strategic
performance. Entrepreneurial orientation will has positive
moderating effect of the relationship between capabilities and
innovation performance.
Implication from this study is the need for senior
managers to manage exploitative and explorative capabilities
simultaneously in Āa steady-state perspective,ābeside Āa
life cycle perspectiveā (Winter and Szulanski 2001). There
are two organizational adaptation patterns: (1) a punctuated
equilibrium pattern involving a series of discrete periods, each
focused on exploitative or explorative capabilities, and (2) a
synthesizing capability to create competitive advantage.
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balance continuous evolutionary process exploitative and
explorative capabilities. Our findings suggest the need for
managers to manage the tension between exploitative and
explorative capabilities on a continuous process.
This study is subject to a limitation. Due to data
limitations, we could not investigate the hypothesis. Future
research needs empirical research to test the hypothesis.
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