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Knowing when to leap: Transitioning between exploitative and explorative R&D

Authors

  • Ram Mudambi,

    1. Department of Strategic Management, The Fox School of Business, Temple University, Philadelphia, Pennsylvania, U.S.A.
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  • Tim Swift

    Corresponding author
    1. Department of Management, St. Joseph's University, Philadelphia, Pennsylvania, U.S.A.
    • Correspondence to: Tim Swift, Management Department, St. Joseph's University, 5600 City Avenue, Philadelphia, PA 19131, U.S.A. E-mail: tim.swift@sju.edu

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Abstract

A common perspective is that consistent R&D investment facilitates innovation, while volatile spending implies myopic decision making. However, the benefits to exploiting extant competencies eventually erode, so firms must disrupt their R&D function and explore for new competitive advantage. We suggest that high-performing firms recognize when extant competencies decline and increase exploratory R&D to develop new competencies at the appropriate time. We find that changes in R&D expenditure away from the firm's historic trend, in either direction, are indicative of transitions between exploitative and exploratory R&D and are associated with increased firm performance. Increases in R&D expenditure above the trend are associated with an increased likelihood of highly cited patents, suggesting that firms are making the leap between R&D-based exploitation and exploration. Copyright © 2013 John Wiley & Sons, Ltd.

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