Exploitation & exploration in product innovation of IT firms: a unified framework of decision making

This study examines IT firms’ product innovation orientations using a unified framework that incorporates both the backward-looking perspective and the forward-looking perspective of organizational decision making. Adopting a word-embedding technique, we analyze the text content of IT firms’ product announcements to assess their exploitative and explorative orientations in product innovation. We consider performance feedback as the key backward-looking factors and expected competitive threats as the key forward-looking factor, and also take into account IT firms’ alliance network structure. Based on a sample of 921 public US IT firms between 2002 and 2016, we find that IT firms lean more towards exploration-based product innovation when their past performance falls below their aspiration levels to a greater extent, but the effect of above-aspiration performance is ambiguous. IT firms lean more towards exploitation-based product innovation when they expect a higher extent of competitive threats in product market, but this relationship can be weakened by the cohesion of their alliance networks. Our study contributes to the research on exploration and exploitation by assessing these innovation orientations based on actual product outcomes, and using a unified framework to integrate perspectives from different theoretical domains.