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Exploration and exploitation in crisis environment: Implications for level and variability of firm performance.

ABSTRACT: Exploration and exploitation are two generic strategies of firms' adaptation to their environments. However, the effectiveness and reliability of these approaches are not fully understood when the business environment is undergoing a major crisis. Building on organizational adaptation, strategic fit, and organizational decline streams of literature, we develop a framework that examines exploration and exploitation in crisis contexts. We argue that the severity of crisis a firm is exposed to acts as a positive contingency for the impact of exploration on firm performance level and variability, and as a negative contingency for exploitation's level and variability effects. Employing the multiplicative heteroscedasticity regression model on the data from 500 Russian SMEs, we test the proposed theoretical framework linking exploration and exploitation activities to the distribution of firm performance under different conditions of the firm-specific crisis severity. The results provide an improved understanding of strategic management approaches under economic crises and related turbulence.

SUBMITTER: Osiyevskyy O

PROVIDER: S-EPMC7180043 | biostudies-literature | 2020 Jun

REPOSITORIES: biostudies-literature

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Exploration and exploitation in crisis environment: Implications for level and variability of firm performance.

Osiyevskyy Oleksiy O Shirokova Galina G Ritala Paavo P

Journal of business research 20200423

Exploration and exploitation are two generic strategies of firms' adaptation to their environments. However, the effectiveness and reliability of these approaches are not fully understood when the business environment is undergoing a major crisis. Building on organizational adaptation, strategic fit, and organizational decline streams of literature, we develop a framework that examines exploration and exploitation in crisis contexts. We argue that the severity of crisis a firm is exposed to acts ...[more]

PMID: 32341610

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Project description:The digital transformation of firms plays an increasingly important role in the economy and society. However, limited access to data on firm-level digital intensity is an impediment to advancement of multiple research projects concerned with firm digitalization. To alleviate this challenge, this paper proposes a method for estimating firm-level digital intensity based on other more readily available firm-level data and reference data on digitalization, which is available on sector-level. The proposed method utilizes firm-level revenue breakdown by sector to estimate sector revenue-weighted digital intensity scores, which lead to classification of firms into low, medium and high digital intensity groups. The output from the proposed method can be directly used in research concerned with firm digitalization and investigating this multifaceted phenomenon. Results from the application of the proposed method to an illustrative sample of large US and non-US firms (2000 observations in total) indicate that firm-level digital intensity can be efficiently estimated for large samples using data commonly available to researchers. The key differences between the proposed method and alternative methods are:•Recognition of the fact that firms might participate in more than one sector or industry, which partially explains within-sector heterogeneity in firm-level digital intensity. We found that 67.8% of large US firms and 78.6% of large non-US firms were engaged in more than one industry.•Use of reference sector-level digital intensity scores, which allows for rapid update, application across geographies and time, as well as parallel calculation of multiple digital intensity scores for each reference data. Furthermore, use of reference data enables supplementation of firm-level data on digitalization.•Replicability of the method and reproducibility of the results through inclusion of the source code and availability of data through research and commercial databases.

Dataset Information

Exploration and exploitation in crisis environment: Implications for level and variability of firm performance.

Publications

Exploration and exploitation in crisis environment: Implications for level and variability of firm performance.

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