Exploration and exploitation : organization's age and the nature of its innovative behavior

Abstract

This study examines the relationship of an organization's age and its innovative activity. The innovative activity of an organization is discussed and examined through the concepts of exploration and exploitation, basing on the previous literature on organizational ambidexterity. Three hypotheses on the relationship of aging and the innovative behavior of an organization are formed based on the ambidexterity literature and the theories of the effect of aging on an organization. These hypotheses are tested with logistic regression analyses on a patent data set covering the modern biotechnology industry in Finland between 1973–2008. The results of the analyses show that age has a weak but significant effect on the nature of an organization's innovative behavior.

There are relatively few previous studies that empirically investigate the effect of aging on an organization's explorative and exploitative actions and the existing studies have provided contradictory and inconsistent results. This study aims to add clarity on the phenomenon and provide additional empirical evidence on it in order to better understand the effect of aging on innovative activity. The study contributes both to the aging literature by providing evidence on the effects of aging on innovative activity and the ambidexterity literature by providing empirical information on the relationship of exploration and exploitation on the firm level. Interesting questions for future research,such as the role of financing in predicting the nature of an organization's innovative behavior, also arise from the results of the study.