Exploring and yet failing less: The role of exploitation and human capital to foster learning from exploration

Abstract

Exploration is both a risky activity and a key ingredient in the strategy of firms that strive for radical innovations. In this paper we analyse how firms? investment in exploration activities affects their exposure to innovation failure. Our baseline results point to an inverted U-shaped relation: while investment in exploratory activities initially increases the rate of failure in innovation, firms that overcome an experience threshold in exploration exhibit decreasing rates of innovation failure. We also show that firm?s commitments to product and process development and the availability of human capital act as relevant moderators: they contribute to speed the organisational learning process enhanced by exploration and result in lowering the probability of innovation failure. We investigate these issues drawing on a sample of 2,954 Spanish manufacturing companies for the period 2008-2010.