The Multifaceted Nature of Exploration and Exploitation: Value of Supply, Demand, and Spatial Search for Innovation

TLDR

The study conceptualizes exploration and exploitation as a nonlocal–local search continuum across supply, demand, and geographic space. Using cross‑sectional data from diverse manufacturing industries, the authors develop and validate an operational measure of the exploration–exploitation continuum. These findings, derived from cross‑sectional data, show that supply‑side, demand‑side, and spatial exploration–exploitation are environment‑dependent: supply‑side search boosts innovation in dynamic settings but hinders it in static ones; demand‑side search has the opposite pattern; spatial search consistently supports innovation in both contexts.

Abstract

In this paper, exploration and exploitation are conceptualized in terms of a nonlocal-local search continuum in three-dimensional supply, demand, and geographic space. Using cross-sectional data from a wide range of manufacturing industries, we develop and validate an operational measure of the exploration-exploitation concept. In line with theory-based arguments, our analysis suggests that the value of supply-side, demand-side, and spatial exploration and exploitation is contingent on the environment. While boundary-spanning supply-side search is found to be positively associated with innovation in more-dynamic environments typical of the entrepreneurial regime phase of technology evolution, such exploration appears to hurt innovation in less-dynamic environments. In a reverse fashion, while boundary-spanning demand-side search is found to be favorably associated with innovation in less-dynamic environments, it appears to harm innovation in a more-dynamic context. Interestingly, spatial boundary-spanning search seems to contribute to innovation in more- as well as less-dynamic environments. With the caveat that the substantive findings of this study are based on cross-sectional data, we discuss the implications of our work and future research directions.