Exploration and exploitation within and across intra-organisational domains and their reactions to firm-level failure

This study examines the evolution of exploration and exploitation within intra-organisational domains, specifically, the technological and market knowledge domains in high-technology firms. It simultaneously tests the interaction between exploration and exploitation across domains. Furthermore, this paper examines the impact of firm-level failure experience on exploration and exploitation within each domain. Based on longitudinal analysis of cross-national panel data on drug development initiatives obtained from 191 biopharmaceutical firms from 1990 to 2008, we find a negative relationship between firms’ innovation experience and exploration orientation within domains. Technological exploration and market exploration are competing with each other. We further find that failure experience stimulates technological search but not market search. This work contributes to the exploration and exploitation literature by extending domain separation to the internal context of an organisation theoretically and empirically. It further contributes by using performance feedback theory to explore the impact of failure on exploration and exploitation.