Exploitative Learning and Entrepreneurial Orientation Alignment in Emerging Young Firms: Implications for Market and Response Performance*
| Author | Robert E. Morgan,Paul Hughes,Mathew Hughes |
| DOI | http://doi.org/10.1111/j.1467-8551.2007.00519.x |
| Published date | 01 December 2007 |
| Date | 01 December 2007 |
Exploitative Learning and Entrepreneurial
Orientation Alignment in Emerging Young
Firms: Implications for Market and
Response Performance
*
Mathew Hughes, Paul Hugheswand Robert E. Morganz
University of Nottingham, Nottingham University Business School, Jubilee Campus, Wollaton Road,
Nottingham NG8 1BB, UK, wLoughborough University, The Business School, Loughborough, Leicestershire
LE11 3TU, UK, and zCardiff University, Cardiff Business School, Colum Drive, Cardiff CF10 3EU, UK
Corresponding author email: mat.hughes@nottingham.ac.uk
We examine exploitative learning and entrepreneurial orientation (EO) in emerging
young high technology firms located within business incubators. In the last five years,
the UK government has invested approximately £125m in incubation activities. The
rationale for supporting business incubation is to maximize knowledge sharing across
firms with an expectation that it will leverage performance. This represents exploitative
learning – the acquisition of established knowledge that carries clear known value and
outcomes. Paradoxically, research into EO has repeatedly emphasized the value of
knowledge created through exploratory learning mechanisms (‘play, discovery and
experimentation’) in securing advantage. Theoretical and empirical questions are raised
herein with regard to the value of exploitative learning within a network context which
might negatively influence the impact of EO on the firm. Using configuration theory, we
demonstrate that firms cannot sustain dual-dominant orientations of exploitative
learning and EO. A strongly configured EO generates high performance returns.
However, multi-group analysis reveals that these effects are particularly strong for
those firms whose exploitative learning is weak. Implications and directions for future
research are discussed.
Introduction and background
Emerging young firms, handicapped by liabilities
of newness, face two important strategic chal-
lenges: (i) how to expand effectively the firm’s
knowledge base to compete intelligently (Yli-
Renko, Autio and Sapienza, 2001); and (ii) how
to maximize gains from an entrepreneurial orien-
tation (EO) (Wiklund and Shepherd, 2003). A
strategic response to the first challenge is network
learning. A growing stream of research advocates
the use of network relations (Hite and Hesterly,
2001) and networked incubators (Hansen et al.,
2000) as means for young firms to learn, acquire
and share knowledge quickly. A networked incu-
bator is not just a housing facility for emerging
young firms but serves as a hub for such firms to
quickly and repeatedly network with other similar
firms, on-site business assistance organizations
and any other outside firm brought into the
strategic network by the incubator’s management
team (Bøllingtoft and Ulhøi, 2005). Networked
*
We are grateful to Duane Ireland for his advice and
guidance on the theoretical aspects of this research
project. We also acknowledge United Kingdom Business
Incubation, in particular its Deputy Chief Executive,
Peter Harman, for supporting the fieldwork. We also
thank the three anonymous reviewers for their con-
structive comments.
British Journal of Management, Vol. 18, 359–375 (2007)
DOI: 10.1111/j.1467-8551.2007.00519.x
r2007 British Academy of Management
incubators allow emerging young firms to access a
wealth of potential partners who can be repeatedly
tapped to acquire knowledge (Hansen et al., 2000).
Such continuous exposure to learning opportu-
nities can improve the capacity for intelligence-
based competition and stimulate rapid growth
(Kambil, Eselius and Monteiro, 2000).
Such expectations have triggered substantial
public policy attention and investment in the last
five years globally which have seen the number of
incubators soar worldwide. In the UK, for example,
between 2001 and 2005 the government estab-
lished a £75m Incubator Fund and a £50m
Innovative Incubators and Clusters Fund as part
of its strategy for opportunity and wealth
creation (DTI, 2001). There are now over 200
incubators in the UK and circa 1000 in the USA.
In China, the growth has been most prolific with
more than 20,000 technology firms having been
incubated within the last decade from 53 national
incubators (Atuahene-Gima and Li, 2004). In-
cubators are also an important economic devel-
opment mechanism for the OECD (Nolan, 2003).
Young firms have limited knowledge and look
to the experiences of networked firms to learn and
acquire existing knowledge. Incubators extend
from this logic but the learning achieved is of an
‘exploitative’ and not ‘exploratory’ nature. Ex-
plorative learning captures creativity, experimen-
tation, play and discovery to create knowledge.
Exploitative learning conveys refinement, effici-
ency and execution (March, 1991). Explorative
and exploitative learning reflect different capabi-
lities for knowledge production, and affect the
nature of knowledge produced and the behavi-
ours necessary to create it (O
¨zsomer and Gen-
c¸ tu
¨rk, 2003). Explorative learning creates new
knowledge with potentially high but uncertain
returns. Exploitative learning, drawing on exist-
ing knowledge to make full use of what is already
known, generates incremental knowledge with
moderate but certain and immediate returns
(Schulz, 2001). Over time, explorative knowledge
is more valuable.
Hite and Hesterly (2001) examined the evolu-
tion of firm networks and found that emerging
firms persistently exploit current networks of
relationships to acquire exploitative knowledge
as the value of that knowledge is clear and can be
readily applied. This is echoed by Koza and
Lewin (1998) who observed the strong tendency
for inter-organizational relationships to adopt
exploitative learning, rather than exploratory
learning, for similar reasons. Network relations
increase the speed of acquiring knowledge that
contains little uncertainty, has a known value and
can be repeatedly accessed and thus can become
‘addictive’ to an emerging young firm in posses-
sion of poor knowledge reserves.
The network context, andthe exploitative learn-
ing it facilitates, possess some key drawbacks.
Exploitative learning can be self-reinforcing, lead-
ing to over-relian ce; decreased variation i n knowl-
edge across firms and inside firms; impaired
capacity for exploration; efficiency over effective-
ness; and reduced performance in the long run
(Kyriakopoulos and Moorman, 2004). Critically,
exploitative learning institutionalizes its behavi-
ours of search, refinement and efficient execution
over time such that it becomes a dominant
orientation and risks shaping an internal envir-
onment that regards its behaviours as the most
desirable (March, 1991; cf. Atuahene-Gima and
Ko, 2001).
This leads to the second strategic challenge – to
maximize gains from EO. An EO captures the
decision-making styles, processes and practices
that specify how a firm intends to operate and
compete (Lumpkin and Dess, 1996). It is com-
monly configured by risk-taking, innovativeness
and proactiveness (Miller, 1983) and represents a
bias toward exploration and experimentation.
EO reflects many of the antonyms associated
with refinement,efficiency and execution implied
by exploitative learning and is congruent to the
play and discovery dimensions of exploratory
learning. EO reflects behaviours such as creative
experimentation, proactive discovery, change anti-
cipation and tolerance of the unknown (Lumpkin
and Dess, 1996). EO mobilizes a firm to generate
explorative knowledge that increases internal
variety through knowledge richness, which is
associated with innovation and superior perfor-
mance (McGrath, 2001). These behaviours are in
sharp contrast to those associated with exploita-
tive learning. An imbalance toward exploitative
learning risks creating an internal environment
that reinforces its behaviours at the expense of
play, discovery and experimentation. If EO proves
to be a powerful basis for competitive advantage
then this poses serious consequences to emerging
young firms already undermined by liabilities of
newness. At present, no study has examined the
relationship between exploitative learning and EO
360 M. Hughes, P. Hughes and R. E. Morgan
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