Abstract
"In this paper, we use the concepts of exploration and exploitation as a proxy for understanding capability building and renewal in young high-growth firms from inception throughout the business development stage. However, while the concepts of exploration and exploitation have been widely used in organization theory, very few is known about what drives and influences firms’ engagement in exploration or exploitation activities. Answering the call from researchers to bring a more dynamic view to ambidexterity, we draw on a longitudinal multi-case design to bring new contributions to the literature. Our research focused on the specific context of young high-growth firms and observation took place over an average of 7 years after founding using a mix of retrospective and current data. This context was chosen because we new it would be appropriate to capture multiple phenomena, as young high-growth firms typically go through episodes of accelerated change. Because very few is known on exploration and exploitation dynamics, we used grounded theory techniques to uncover what type of internal and external factors trigger changes towards exploration or exploitation activities or both at the same time, which in turn will impact capability building and renewal. First, we found two overarching dimensions that are critical to understand the dynamics of exploration and exploitation in young high-growth firms: the phase the firms are in (early-stage or business development phase) and the founders’ or CEOs’ personal drivers (“exploration oriented” or “growth oriented”), drivers that give rise to two different types of firms. Second, taking into account these dimensions, we found that internal factors such as firm ownership structure and risk of dependency, and external factors such as market characteristics may determine firms’ exploration and exploitation activities over time, which in turn affect how firms build or renew their capabilities. Consequently, we found two types of capability building trajectories that lead firms to successful growth during our observation period. First, firms led by so called growth oriented CEO’s will tend to exploit as much as possible their current capabilities while under-developing exploratory capabilities until they face market factors that constrain them to do so. These firms tend to grow very quickly but experiment growth plateaus while engaging in a new business model (and keeping the old one). Second, firms led by exploration oriented CEOs tend to both explore and exploit simultaneously and constantly, thus building a stock of explorative capabilities and high levels of absorptive capacity that enable them to rapidly seize growth opportunities. These firms will tend to have a slow initial growth but seem to accelerate and catch-up later on. We conclude our article with a discussion section where theoretical and managerial implications will be presented, followed by limits and possible avenues for future research."