Knowing when to leap: Transitioning between exploitative and explorative <scp>R&amp;D</scp>

Abstract

A common perspective is that consistent R&amp;D investment facilitates innovation, while volatile spending implies myopic decision making. However, the benefits to exploiting extant competencies eventually erode, so firms must disrupt their R&amp;D function and explore for new competitive advantage. We suggest that high‐performing firms recognize when extant competencies decline and increase exploratory R&amp;D to develop new competencies at the appropriate time. We find that changes in R&amp;D expenditure away from the firm's historic trend, in either direction, are indicative of transitions between exploitative and exploratory R&amp;D and are associated with increased firm performance. Increases in R&amp;D expenditure above the trend are associated with an increased likelihood of highly cited patents, suggesting that firms are making the leap between R&amp;D ‐based exploitation and exploration . Copyright © 2013 John Wiley &amp; Sons, Ltd.