A research team at GSOM SPbU has completed work on the project «The role of exploration and exploitation strategies in enhancing firm performance in short- and long-term perspectives».
During its work on the project, the research team analyzed the literature on the specifics of strategic behavior of entrepreneurial firms and approaches to organizational adaptation. Their analysis was focused on studying the relationship between exploration and exploitation as strategies of organizational adaptation and firm performance. In addition, given the challenges that the business community has had to face in recent years in the context of regularly occurring economic shocks, a tense external political environment, and the global pandemic of the COVID-19 coronavirus, special attention has been paid to systematizing research on the strategic behavior of small and medium-sized enterprises in times of crisis.
Based on the results of literature analysis, the research team developed a theoretical model of the relationship between the strategic behavior of small and medium-sized enterprises and their performance, formulated and theoretically justified research hypotheses and tested them empirically. It was revealed that exploration and exploitation had different impacts on the average level of firm performance and firm performance variability. Thus, exploration lowers average firm performance and increases its variability. This strategy creates both opportunities for obtaining extremely high revenues and the risks of having significant losses. It provides more alternatives for firm development while reducing average firm performance, at least in the short-term. Contrary to the developed theoretical model and research hypotheses, it was found that exploitation was not related to firm performance but had a positive relationship with firm performance variability.
The results of the analysis became more meaningful after taking into account the firm-level severity of the crisis. It was found that the severity of the crisis experienced by firms changed the usefulness of exploration and exploitation strategies. Under a high level of crisis severity, exploration strategies are significantly and positively related to the level of firm performance as well as to its variability, while under a low level of crisis severity, the relationship becomes negative. Exploitation strategies, on the contrary, under high crisis severity lead to a reduction of both firm performance level as well as variability. When crisis severity is low, exploitation strategies lead to an increase in performance level coupled with an increase in its variability.
This project contributed to the creation of significant groundwork for further research on this topic. The research team created panel data by conducting a survey of small and medium-sized enterprises that had survived after the economic crisis. In the future, this data is planned to be used for a comparative analysis of the utility of exploration and exploitation strategies in the short- and long-term perspectives, as well as in various external environments (crisis and stability).
The results of this research project were presented at the following leading international conferences, The 79th Annual Meeting of the Academy of Management, Babson College Entrepreneurship Research Conference 2019,and Research in Entrepreneurship and Small Business 2019. The most significant results of the research project have been published in a top-tier academic journal ranked Q1 and indexed in Scopus and Web of Science databases: Osiyevskyy O., Shirokova G., Ritala P. 2020. Exploration and exploitation in a crisis environment: Implications for level and variability of firm performance. Journal of Business Research, 114: 227-239
In addition, two working papers have been prepared and published: Belikova A. Exploration/exploitation and Firm Performance Relationship: Literature Review. Working Paper #16 (E) – 2019. Graduate School of Management, St. Petersburg University: SPb, 2019; Shirokova G., Karpinskaia E. Balancing Exploration and Exploitation at Different Stages of High-tech Start-up Development: Evidence from Russia. Working Paper #8 (E) – 2019. Graduate School of Management, St. Petersburg University: SPb, 2019.
These studies have been conducted under a grant from St. Petersburg University (ID: 41106933) and the Social Sciences and Humanities Research Council of Canada (No: 430-2019-00057).