Whether to invest in development during a crisis: joint research project conducted by gsom spbu, haskayne school of business and lut
Galina V. Shirokova, professor at the Graduate School of Management at St. Petersburg University (GSOM), together with colleagues from the Haskayne School of Business, University of Calgary, Canada, and the LUT School of Business and Management, Finland, have conducted a study to identify which company strategies are most effective in the crisis.
Exploration and exploitation are two generic strategies of firms' in adapting to their environments. The first strategy involves the creation of new knowledge, competencies and opportunities for the company, while the second strategy concentrates on existing ones.
“In stable times, company performance based on exploitation is more unstable and slow to achieve over time. At the same time, results associated with the use of available resources are more secure and faster to achieve. When the business environment is undergoing a major crisis, it is more difficult to evaluate the effectiveness and reliability of these approaches,” explained Galina V. Shirokova, co-author of the study, professor, Director of the Center for Entrepreneurship at St. Petersburg University.
Researchers studied the data of 500 small and medium-sized Russian companies and revealed a connection between the choice of one of these strategies and the level of company performance in crisis conditions. The study showed that the degree of severity of the crisis to which a firm is exposed, acts as a positive contingency for the impact of exploration on firm performance level and variability, and as a negative contingency for exploitation level and variability effects.
The main assumption is that a strategy for finding new opportunities can be useful for crisis situations, especially for those companies that can withstand the risks associated with it. The search for new opportunities will lead to variability in the company's performance, but will provide potential for growth and change. On the other hand, if the company has a serious threat to its survival, and additional funds and resources are not available, the exploitation approach would be the best option.
The study was conducted jointly by Oleksiy Osiyevskyy from the Haskayne School of Business, University of Calgary, Canada, and Paavo Ritala, School of Business and Management, Lappeenranta University of Technology, Finland. The article was published in the Journal of Business Research, which is currently open for temporary access. The study was conducted under a grant from St. Petersburg University (ID: 41106933) and the Social Sciences and Humanities Research Council of Canada (No: 430-2019-00057).