Exploration/exploitation innovation and firm performance: the mediation of entrepreneurial orientation and moderation of competitive intensity
| Pages | 489-506 |
| Date | 07 October 2019 |
| DOI | https://doi.org/10.1108/JABS-11-2017-0206 |
| Published date | 07 October 2019 |
| Author | Bojun Hou,Jin Hong,Ruonan Zhu |
| Subject Matter | Strategy,International business |
Exploration/exploitation innovation and
firm performance: the mediation of
entrepreneurial orientation and
moderation of competitive intensity
Bojun Hou, Jin Hong and Ruonan Zhu
Abstract
Purpose –Although many scholars have found that exploration and exploitation innovation have
significantly positive effects on firm performance, it remains to be resolved whether the relationship
between the two is still established at different stages of enterprise development and in different
competitive contexts. This paper aims to clarify the effect of exploration/exploitation innovation on firm
performance in start-ups,and in particular, the mediation role of entrepreneurial orientation (EO)and the
moderation role of competitive intensity are tested to explore their disturbing effects on above
relationship.
Design/methodology/approach –The authors construct a theoretical framework to analyze and verify
the relationship between innovation, EO and firm performance. The hypotheses of this paper are put
forward by theoreticalinference. In addition to test the hypotheses,143 questionnaires are collectedfrom
technology-orientedstart-ups in Hefei NationalUniversity Science Park.
Findings –The empirical resultsshow that consistent with previous findings, explorationinnovation and
exploitation innovation both have positive impact on firm performance; meanwhile, the EO partially
mediates the relationship between both innovations and firm performance. What cannot be ignored is
that the competitionintensity plays a moderationrole between EO and firm performance.
Originality/value –The findings revealthat the impact of innovation activities on corporate performance
has been disrupted by EO and competition intensity in start-ups. The work of this paper deepens the
understanding of the relationship between innovation, EO, external environment and firm performance,
which is of guidingsignificance to the entrepreneurshipmanagement of emerging economies.
Keywords Entrepreneurial orientation, Firm performance, Exploitation innovation,
Exploration innovation
Paper type Research paper
1. Introduction
Innovation is the key source for enterprises to gain competitive advantage and can provide
lasting impetus to improve firm performance in the competitive market (Kim et al.,2012).
Many scholars think that organizations need to simultaneously pursue exploration and
exploitation innovation activities to achieve optimal performance (Benner and Tushman,
2002, 2003;Gupta et al.,2006). Although many scholars have studied the effect of
exploration and exploitation innovation on firm performance, the action process from
innovation to firm performance may be interfered by other potential factors. The enterprises
with different ages have different choices in innovation strategy, for example, the start-ups
pay more attention to how to obtain the difference advantage to occupy the market share,
and they pay more attention to the role of innovation than the incumbent enterprises
Bojun Hou and Jin Hong
are both based at the Hefei
University of Technology,
Hefei, China. Ruonan Zhu is
based at the School of
Management, The
University of Science and
Technology of China, Hefei,
China.
Received 11 November 2017
Revised 31 July 2018
Accepted 21 June 2019
The work is supported by the
National Natural Science
Foundation of China with the
project number: 71572188 and
71172213.
DOI 10.1108/JABS-11-2017-0206 VOL. 13 NO. 4 2019, pp. 489-506, ©Emerald Publishing Limited, ISSN 1558-7894 jJOURNAL OF ASIA BUSINESS STUDIES jPAGE 489
(Acs et al., 2009). Innovation is a high-risk investment activity, whose success will not only
be affected by internal factorsbut also by external environmental factors. Previous research
on the effects of the innovation activities and firm performance mostly focuses on the
situations of the incumbent enterprises, but how the situations of the start-ups remain to be
resolved. Miller (1983) analyzed the characteristics and differences between incumbent
enterprises and start-ups, and found that the former will actively carry out market and
product innovation, tended to take risks, advance awareness and action, and be willing to
initiate challenges to competitors, while the latter is the opposite. This paper will study the
impact of two types of innovation on firm performance, taking into account the interference
impact of entrepreneurial orientation (EO) and competitive intensity in the context of start-
ups.
Innovation is an essential way to promote the development of enterprises, provide enterprises
with key competitive advantage and enable enterprises to maintain vitality i n a highly volatile
environment (Day, 1994). Innovation activities profoundly affect business performance
(Uotila et al.,2009). However, to achieve optimal performance, the choice of innovation
strategy is balanced by allocation of firms’ limited resources (Gupta et al.,2006). In
organization learning theory, learning is divided into exploration and exploitation (March,
1991), and they are the result of rational allocation of existing resources. Previous research has
seen the important role of ambidextrous innovation that simultaneously pursues and
implements exploratory and exploitative activities through organization learning, improvement
and creation (Tsai, 2016). It is undeniable that the primary aim of enterprise is getting profit
and improving performance, but any kind of innovation requires businesses to invest in
manpower and material costs. Besides because of the combined effect of internal
organizational factors and external environmental factors, whether the different types of
innovation can promote firm performance in start-ups is uncertain. Based on March’s
organization learning theory, Benner and Tushman (2002,2003) investigated how to increase
organizational capabilities in both stable and turbulent contexts for technological innovation,
and ambidextrous organizational forms required organizations to effectively choose
exploratory activities or exploitative activities accordin g to the environment faced by
organizations, in other words, exploratory innovation or exploitative in novation. The connotation
of exploration is profoundly embodied in “things captured by terms such as search, varia tion,
risk-taking, experimentation, play, flexibility, discovery and innovation” (March, 1991,p.71).In
contrast, for the gradual improvement or use of existing knowledge, the exploitation i s defined
as processes committed to doing things such as refinement, choice, p roduction, efficiency,
selection, implementation and execution (March, 1991, p. 71; Jones and L inderman, 2014).
Exploratory innovation is a kind of radical innovation that meets emerging custome r and
market demand, for this innovation, the production and creation of new knowledge are through
developing new products, services, markets and distribution channels (Jansen et al.,2006).
Exploitative innovation, as incremental innovation, focuses on improvement, adaptation and
application of existing knowledge, products and skills (Kollmann and Sto
¨ckmann, 2014). The
competition for resources will affect the contribution of two innovative activities on business
performance. The differences in demand for resources and the ability to adapt to the market,
technology and knowledge change, will affect the distribution and use of operating costs, and
the innovation uncertainty makes companies not have a sense of security. Research on the
impact of exploratory/exploitative innovation on firm performance has been a lot but with no
consistent conclusions (Jansen et al., 2006;Liu and Xie, 2014;Raisch et al.,2009;Lisboa
et al.,2011
;Junni et al., 2013), so it is necessary to clarify whether, how and why different
innovation activities affect firm performance in the start-ups context considered in this paper.
Furthermore, we will consider the mediation role of EO, as well as the moderation of
competition intensity in EO and firm performance.
Entrepreneurship, considered to be a correct value choice, is a word often mentioned
(Kollmann and Sto
¨ckmann, 2014), and the general view of society and government policy
advocacy holds that entrepreneurship is good. EO is the process of a continuum of
PAGE 490 jJOURNAL OF ASIA BUSINESS STUDIES jVOL. 13 NO. 4 2019
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