Organizational ambidexterity, market orientation, and firm performance

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Organizational ambidexterity, market orientation, and firm performance

  1. 1. Organizational ambidexterity, market orientation, and firm performance Zelong Wei a , Jie Zhao b, *, Chenlu Zhang c a School of Management, Xi’an Jiaotong University, Xi’an 710049, Shaanxi, China b School of Economics and Management, Xidian University, Xi’an 710126, Shaanxi, China c School of Economics & Management, Northwest University, Xi’an 710118, Shaanxi, China J. Eng. Technol. Manage. 33 (2014) 134–153 A R T I C L E I N F O Keywords: Ambidexterity Exploration Exploitation Market orientation A B S T R A C T Although ambidexterity is crucial for a firm’s long-term success, existing literature offers conflicting views regarding the relationship between exploitation and exploration and thus how to allocate resources to leverage ambidexterity for firm performance. This research aims to investigate if the effects of ambidexterity on firm performance are different in firms with proactive or responsive market orientations. Based on the attention-based view and ambidexterity and market orientation literatures, we proposed six hypotheses and examined them with data from 203 Chinese firms. We find that, in a firm with responsive market orientation, exploitation has a positive effect whereas exploration has an inverted U-shaped effect on firm performance. In contrast, in a firm with proactive market orientation, we find that exploitation has an insignificant effect whereas exploration has a positive effect on firm performance. We find that the interaction of exploitation and exploration has a negative effect on firm performance in a firm with responsivemarketorientationwhereasithas a positiveeffectina firm with proactive market orientation. By investigating the contingent role of strategic orientation, this research contributes to the debate on whether exploration and exploitation are incompatible or comple- mentary and also enriches contextual ambidexterity literature. ß 2014 Published by Elsevier B.V. * Corresponding author. Tel.: +86 13772172695. E-mail addresses: wzlxjtu@mail.xjtu.edu.cn (Z. Wei), sophiazj2004@aliyun.com (J. Zhao), drizzlezhang0821@163.com (C. Zhang). Contents lists available at ScienceDirect Journal of Engineering and Technology Management journal homepage: www.elsevier.com/locate/jengtecman http://dx.doi.org/10.1016/j.jengtecman.2014.06.001 0923-4748/ß 2014 Published by Elsevier B.V.
  2. 2. Introduction As organizational ambidexterity is critical for a firm’s long-term success, it has attracted intensive research attention. The general agreement established is that achieving organizational ambidexterity by simultaneously pursuing exploration and exploitation is both critical for long-term success and difficult to achieve (March, 1991; Levinthal and March, 1993; Tushman and O’Reilly, 1996; He and Wong, 2004; Cao et al., 2009; Laureiro-Martı´nez et al., 2014). Various approaches have been proposed to identify the ways to handle the trade-off between exploitation and exploration, among which the resource allocation perspective has been central to ambidexterity literature (March, 1991; Gupta et al., 2006; Atuahene-Gima and Murray, 2007; Cao et al., 2009; Jansen et al., 2012; Wei et al., 2014). However, existing literature offers conflicting views on the relationship between exploration and exploitation and thushow toallocate resourcestoleverageambidexterity.Based onthe resourcescarcity assumption, one stream of literature suggests that exploitation and exploration are fundamentally incompatible because they compete for scarce organizational resources (March, 1991; Uotila et al., 2009). Therefore, firms should balance the resource allocation to exploration and exploitation. In contrast, theotherstreamofliteraturearguesthatexploitationmay complementexplorationtopromote firm performance by internal resource sharing (Katila and Ahuja, 2002; Birkinshaw and Gibson, 2004; Andriopoulos and Lewis, 2009; Simsek et al., 2009), external resource accessing (Gupta et al., 2006; Atuahene-Gima and Murray, 2007; Cao et al., 2009; Li et al., 2013), or dynamic resource reconfiguring (Wei et al., 2014). Therefore, to promote firm performance, firms should allocate resources to leverage the complementary effects between exploitation and exploration. In spite of these insights, existing literature fails to investigate the role of strategic orientation behind the resource allocation pattern. According to the attention-based view, strategic orientation refers to organizational business philosophy and value system (Ocasio, 1997, 2011). It guides a firm to balance scarce resource allocation and determines whether exploitation and exploration share or compete for scarce resources (Atuahene-Gima and Ko, 2001; Ocasio, 1997, 2011). The effect of ambidexterity on performance may vary with a firm’s strategic orientation (e.g., market orientation), which changes the resource allocation pattern. Ambidexterity literature has called for more research on the contextual factors that facilitate ambidexterity, such as culture, values, vision, incentives, and processes (O’Reilly and Tushman, 2011; Markides, 2013). However, the literature has offered little insight on the contingent role of strategic orientation. Market orientation, as one of the most salient strategic orientations, describes a firm’s ‘‘orientation toward the promotion and support for the collection, dissemination and responsiveness to market intelligence to serve customer needs’’ (Atuahene-Gima and Ko, 2001, p. 55). Market orientation is the strategic philosophy that focuses on identifying and meeting customers’ needs to assure better competitive advantage (Narver and Slater, 1990). McCarthy et al. (2010) argue that how firms innovate and change is highly dependent on the conditions of markets. Therefore, market orientation, which determines how firms perceive the demand conditions and react to the market environment (Markides, 2013), may affect the resource allocation to exploration or exploitation (Menguc and Auh, 2008; Tushman and Smith, 2002). Furthermore, scholars have distinguished proactive and responsive market orientations (Atuahene-Gima et al., 2005; Narver et al., 2004; Baker and Sinkula, 2007). Proactive market orientation addresses the latent needs of customers, whereas responsive market orientation addresses the expressed needs of customers (Atuahene-Gima et al., 2005; Narver et al., 2004; Baker and Sinkula, 2007). Responsive and proactive market orientations may guide a firm to allocate resources in different ways to leverage exploitation or exploration for firm performance (Ocasio, 1997, 2011; McCarthy and Gordon, 2011). Therefore, does the effect of ambidexterity on performance vary with a firm’s proactive vs. responsive market orientations? This research seeks to answer this question. Based on the attention- based view, market orientation literature, and the ambidexterity view, we investigate how the effects of exploration, exploitation and their interaction on firm performance in firms with higher levels of proactive market orientation differ from those in firms with higher levels of responsive market orientation. This research contributes to ambidexterity literature in two ways. First, we extend our understanding of the debate on whether exploration and exploitation are incompatible or Z. Wei et al. / Journal of Engineering and Technology Management 33 (2014) 134–153 135
  3. 3. complementary by investigating the role of market orientation. We find that the effects of exploration, exploitation and their interaction on firm performance differ in firms with different market orientations. Second, we enrich the research on contextual ambidexterity by identifying market orientation as an important context factor. In this way, we provide more explicit knowledge about the contextual ambidexterity. Theoretical backgrounds Organizational ambidexterity Organizational ambidexterity refers to simultaneously pursuing exploitation and exploration (He and Wong, 2004). In this study, following He and Wong (2004) and also Cao et al. (2009), we focus on technological exploration and exploitation. Exploitation refers to the refinements and extensions of the existing technological base whereas exploration focuses on the development of new technological base (March, 1991; He and Wong, 2004; Cao et al., 2009). Organizational ambidexterity increases a firm’s adaptability to the changing environment and thus is of importance to long-term success. In spite of the importance of ambidexterity, exploration and exploitation form a paradox and the research effort to identify the ways for handling this paradox has gained prominence in ambidexterity literature (Wei et al., 2014; Lin et al., 2013). The resource allocation perspective has been central to the ambidexterity literature. The resource scarcity assumption has been one of the central logics to argue that exploitation and exploration are incompatible (Gupta et al., 2006). March (1991) argues that exploitation and exploration compete for scarce resources. Firms face a trade-off in allocating scarce resources to exploitation or exploration because they interplay in the form of zero-sum game. In line with this logic, firm should balance the relative levels of exploitation and exploration or find the optimal point in the continuum from exploitation to exploration where the scarce resources are optimally allocated (Gupta et al., 2006). Some empirical evidence also supports this argument. For instance, Menguc and Auh (2008) and Atuahene-Gima (2005) find that the interaction of exploration and exploitation is negatively related to firm performance. Uotila et al. (2009) and Wei et al. (2014) find that relative share of exploration has an inverted U-shaped effect on firm performance. In contrast, considerable progress has been made to question the resource scarcity assumption and the ways to allocate resources. First, Gupta et al. (2006) suggest that not all types of resources suffer from the constraint of scarcity. Exploitation and exploration may share these types of resources (e.g., technologies and flexible resources). Exploitation may complement exploration by sharing relevant resources. Second, accessing to external resources may also ease the internal resource scarcity. Therefore, exploitation may complement exploration in firms with higher levels of social capital (Atuahene-Gima and Murray, 2007; Li et al., 2013) or environmental munificence (Cao et al., 2009; Li et al., 2013). Third, building dynamic resource management capabilities (e.g., resource flexibility and coordination flexibility) may enable firms to reconfigure resource portfolio to leverage ambidexterity to promote firm performance (Wei et al., 2014). Empirical evidence also supports these arguments, finding that the interaction of exploitation and exploration has a positive effect on firm performance. In line with this logic, firms should allocate resources to leverage the complementary effects of exploitation and exploration for firm performance. Advances in ambidexterity literature suggest that the effects of ambidexterity on performance are contingent on a firm’s way to allocate resources. In spite of these insights, existing literature fails to investigate the factors that guide a firm’s way to allocate resources. According to the attention-base view, strategic orientation sets organizational value or priorities on the resource allocation to exploration or/and exploitation, which guides a firm’s resource allocation pattern. However, little attention has been given to the role of strategic orientation. Although contextual ambidexterity research suggests that organizational context characterized by a combination of stretch, discipline, support and trust facilitates ambidexterity (Gibson and Birkinshaw, 2004; Birkinshaw and Gibson, 2004; Raisch and Birkinshaw, 2008; McCarthy and Gordon, 2011), existing literature fails to answer whether firms with different kinds of strategic orientation allocate resources to exploration or exploitation in different ways. Z. Wei et al. / Journal of Engineering and Technology Management 33 (2014) 134–153136
  4. 4. Attention-based view and the role of market orientation The attention-based view of the firm aims to explain firm behavior based on the structuring of organizational attention. This view argues that what decision makers do eventually depends on the firm’s structural distribution of attention. Strategy is viewed as a pattern of organizational attention on a particular set of issues (e.g., problems, opportunities, and threats) and answers (e.g., resource allocation pattern, processes, and routines). According to the attention-based view of the firm, firms with different strategic orientations attach different types of attention distribution to the set of issues and answers. Strategic orientation reflects a firm’s business philosophy rooted in a set of values that guides the firm to achieve competitive advantage (Gatignon and Xuereb, 1997). It defines the resource allocation motivation to address the issues and offers the answers to these issues with fit resource allocation pattern and processes. According to the attention-based view, the firm’s strategic orientations guide the resource allocation behaviors (Ocasio, 1997). Specifically, certain organizational norms and processes need to be adopted to realize strategic goals, and to direct attention and resources to relevant activities. For instance, Ocasio (2011) proposes that the forward looking attention facilitates a firm to overcome structural inertia and core rigidities. McCarthy and Gordon (2011) illustrate that management control systems can be used to allocate attention and resources to exploration or exploitation in an ambidextrous R&D unit. According to McCarthy and Gordon (2011), beliefs systems and interactive systems promote a feed-forward control orientation and are essential to exploration, while boundary systems and diagnostic systems capture a feedback control orientation and induce exploitation. Market orientation, as one of the most salient strategic orientations, describes a firm’s ‘‘orientation toward the promotion and support for the collection, dissemination and responsiveness to market intelligence to serve customer needs’’ (Atuahene-Gima and Ko, 2001, p. 55). It facilitates the acquirement and distribution of market information, and guides the firm to allocate resources to satisfy the need of customers (Kohli and Jaworski, 1990). A number of studies have suggested that a strong market orientationleads the firm toinvestresources insatisfyingtarget customers’ needs(Day, 1994).According to Narver and Slater (1990), market orientation not only prompts market information accumulating, sharing, and using, but also fosters a culture that affects the utilization of valuable resources for the enhancement of communication, collaboration, and coordination among functional units. Narver et al. (2004) extend the market orientation research by identifying proactive and responsive dimensions of market orientation. Proactive market orientation pertains to the attempt to discover and satisfy the unarticulated or future needs of customers and to pursue new market opportunities (Jaworski et al., 2000; Narver et al., 2000; Slater and Narver, 1998; Atuahene-Gima et al., 2005; Narver et al., 2004). On the contrary, responsive market orientation pertains to the generation, dissemination, and application of market intelligence targeting the current customers and product domain (Jaworski et al., 2000; Slater and Narver, 1995; Atuahene-Gima et al., 2005). Responsive and proactive market orientations differ with respect to the distribution of attention to the set of strategic issues and answers reflected in the resource allocation pattern. Responsive market orientation, focusing on current customers or expressed needs, attaches more attention to issues such as current competition threats and opportunities in existing market domain. Attention on existing customers and their expressed needs is beneficial to mitigating the likelihood of errors in problem- solving (Atuahene-Gima et al., 2005). Therefore, firms with responsive market orientation allocate more resources to the strategic activities within existing product-market domains and those that help firms to handle current competition threats. Firms often build solid routines to improve the efficiency of resource allocations. In contrast, proactive market orientation, focusing on the future or latent market, attaches more attention to issues such as future competition and new market opportunities. Therefore, firms with proactive market orientation attempt to allocate more resources to the strategic activities beyond existing product-market domains. These firms often build flexible organizational structures or processes to facilitate resource allocation for new experiments and discoveries. Based on above discussion, we propose that the effects of ambidexterity on performance are contingent on a firm’s responsive or proactive market orientation. Therefore, based on ambidexterity literature, the attention-based view, and market orientation literature, we build a theoretical model as Fig. 1 shows. Z. Wei et al. / Journal of Engineering and Technology Management 33 (2014) 134–153 137
  5. 5. Hypothesis development Ambidexterity and firm performance under responsive market orientation To leverage ambidexterity for firm performance, a firm should allocate enough resources to support exploitation or/and exploration (March, 1991; Gibson and Birkinshaw, 2004; Cao et al., 2009; Wei et al., 2014). Responsive or proactive market orientation guides resource allocation motivation to exploitation or/and exploration, and also the ways to use these resources. Therefore, the effects of exploitation, exploration, and also their interaction on firm performance may vary with the change of market orientation. First, firms with high responsive market orientation allocate more resources to exploitation because exploitation fits their strategic focus. These firms aim to obtain competitive advantage by satisfying customers’ current needs (Atuahene-Gima et al., 2005; Narver et al., 2004). Responsive market orientation concentrates on the firm’s existing domain of knowledge and experience, and offers an in-depth understanding of current customers’ expressed needs (Berthon et al., 1999). It emphasizes organizational learning only within traditional boundaries (Day, 1994; Kohli and Jaworski, 1990), and thus is congruent with exploitation in nature (Atuahene-Gima et al., 2005). Firms with this strategic attention often allocate more resources to strategic activities which can meet the existing demand of customers (Christensen, 1997; Ocasio, 1997). Exploitation places emphasis on improvement or refinement of current products or services (March, 1991; He and Wong, 2004). These improvements are easily to be accepted and valued by customers. Therefore, in firms with high levels of responsive market orientation, exploitation fits the strategic orientation and thus may obtain more complementary resources (Ocasio, 1997; Cho and Hambrick, 2006; Bolivar-Ramos et al., 2012). Second, firms with high responsive market orientation are capable of using these resources to leverage exploitation for firm performance. The refinement or extension of existing technological base also fits the current procedural and communication channels (Jansen et al., 2006). Exploitation searches new resources in local supply, demand, and spatial network (Sidhu et al., 2007). Therefore, firms rely on existing routines, processes or structures to allocate and use the resources to support exploitation. Furthermore, the market intelligence, generated by responsive market orientation, complements exploitation. Responsive market orientation embraces information highly relevant to the firm’s existing knowledge base and experience (Atuahene-Gima et al., 2005). The deep understanding of customers’ requirements for product or service enables a firm to improve the effectiveness and efficiency of technological refinements (Zahra and Nielsen, 2002). Finally, because responsive market orientation advances the firm’s familiarity with the existing domain of knowledge and experience, it enhances the firm’s absorptive capacity and increases the efficiency of exploitation (Cohen and Levinthal, 1990). Hence, with abundant resource support, exploitation may be realized faster and more sufficiently. Therefore, we propose that: [(Fig._1)TD$FIG] Firm performance Market orientation (Responsive / Proactive) H1a: + / H2a: - H1b:∩ / H2b: + H1c: - / H2c: + Exploitation Exploration Fig. 1. Theoretical model. Z. Wei et al. / Journal of Engineering and Technology Management 33 (2014) 134–153138
  6. 6. Hypothesis 1a. Exploitation has a positive effect on firm performance under responsive marketorientation. Compared with exploitation, exploration introduces radically new products or services (March, 1991; He and Wong, 2004), and brings in new technologies, skills and processes. Departing from the existing technological trajectory, exploration is more flexible to environmental changes, and thus is crucial to sustainable competitive advantage in dynamic environments (Floyd and Lane, 2000; March, 1991; Levinthal and March, 1993; Benner and Tushman, 2003; Chen and Jaw, 2009). In firms guided by responsive market orientation, strategic attention has been attached to activities satisfying the expressed needs of customers. Firms often allocate resources to exploration to meet current needs (Voss and Voss, 2013). With the deeper understanding of current knowledge and experience, firms are better able to combine knowledge differently in order to solve customers’ problems and reduce the risks of exploration (Atuahene-Gima et al., 2005). Therefore, firms often allocate and use resources relying on current routines or processes to leverage exploration to meet current needs. In this case, exploration may have a positive effect on firm performance in a firm with high responsive market orientation. However, we posit that this positive effect may decline when exploration increases. First, too high a level of exploration may experience difficulties in obtaining enough resources because it does not fit the strategic focus of the firm (Ocasio, 1997; Cho and Hambrick, 2006). When exploration is at a high level, more resources are needed for R&D, new distribution channel, manufacturing and so on (March, 1991; Teece, 1986; Tripsas, 1997). However, firms with high levels of responsive market orientation may underestimate the value of exploration, and thus allocate fewer resources for it (Christensen, 1997; Ocasio, 1997). Second, the resources allocated to support exploration often do not fit the demand of high exploration. High exploration often provides breakthroughs that are different from existing products or services (Zahra and Nielsen, 2002). It may need new resources beyond the current product-market domain. These new resources are often out of the local search scope of the firm with responsive market orientation (Christensen, 1997). Responsive market orientation narrows the information collection to current market demand, while ignoring potential market demand (Li et al., 2010; Kohli and Jaworski, 1990; Slater and Narver, 1995). Knowledge associated with responsive market orientation may be too close to the existing operational domain and thereby undermines the success of exploration which goes beyond the scope of current knowledge and experience. Therefore, in firms with high levels of responsive market orientation, when exploration is low, it has a positive effect on firm performance. However, when it is high, exploration may not obtain abundant complementary internal resources or useful market information because it does not fit the strategic attention of the firm. In this case, exploration often fails to achieve target performance. Therefore, we propose that: Hypothesis 1b. Exploration has an inverted U-shaped effect on firm performance under responsive market orientation. The interactive effect of exploration and exploitation has attracted intensive research attention. By investigating the role of strategic orientation, we posit that in firms with high levels of responsive market orientation, exploration and exploitation are substitutive. First, responsive market orientation may fuel internal organizational conflicts between exploration and exploitation (Christensen, 1997; Hamel, 2000). Because exploration departs from current knowledge and paradigms, it challenges the existing dominant logics centering on current needs or markets and thus holds low legitimacy in a firm with high responsive market orientation. Responsive market orientation guides the strategic focus, organizational processes, routines and resource allocation to satisfy customers’ existing needs (Atuahene-Gima et al., 2005; Narver et al., 2004; Talke, 2007). Skills and procedures to understand and satisfy the expressed needs of current customers are more likely to highlight the importance of existing knowledge and experience. In this situation, high levels of exploration may confront organizational resistance from other departments that are bounded to exploiting existing market demand (Leonard-Barton, 1992; Atuahene-Gima, 2005). Second, responsive market orientation amplifies resource competition rather than resource sharing between exploration and exploitation. Responsive market orientation leads the firm to use Z. Wei et al. / Journal of Engineering and Technology Management 33 (2014) 134–153 139
  7. 7. the enhanced understanding of current knowledge and experience for exploitation to meet the expressed customer need rather than for exploration to discover the unexpressed customer need. Thus, this strategic focus makes it more difficult for exploration to share resources with current exploitation because of the lower internal legitimacy (Christensen, 1997; Ocasio, 1997). Actually, high levels of exploration may lead to high levels of resource competition with exploitation, and suffer a more severe shortage of resources since large quantities of resources are dedicated to exploitation. Third, the synergic effects of exploration and exploitation are reduced under responsive market orientation. On the one hand, exploitation is easily self-reinforced and develops to an over-high level. Focusing too much on exploitation makes the firm unable to effectively adapt to the emerging needs of the market, because it relies too much on existing knowledge but fails to generate novel ideas and strategies. The firm is likely to be locked in the existing scope of experiences and confront the risk of obsolescence (March, 1991). On the other hand, because exploration is constrained, it fails to increase the economics of exploitation (Cao et al., 2009). Underdeveloped exploration cannot enlarge the pool of new knowledge for exploitation. Meanwhile, although exploitation leads to a deep understanding of existing knowledge, exploration is insufficient to take full advantage of this. As a result, firms are not capable of triggering new discoveries and creations based on reconfigurations of current knowledge (Cao et al., 2009). Therefore, we propose that: Hypothesis 1c. The interaction of exploration and exploitation has a negative effect on firm performance under responsive market orientation. Ambidexterity and firm performance under proactive market orientation From the resource allocation perspective, we posit that exploitation may have a negative effect on firm performance in firms with high proactive market orientation. First, firms with high proactive market orientation may allocate fewer resources to support exploitation because exploitation does not fit the firm’s strategic focus. These firms aim to obtain competitive advantage by satisfying customers’ new needs or latent market demand (Atuahene-Gima et al., 2005; Narver et al., 2004). Proactive market orientation mainly focuses on creating superior customer value based on knowledge derived from new market demand, new customer and latent demand analysis (Narver et al., 2004; Baker and Sinkula, 2005). Firms with this strategic attention often allocate more resources to strategic activities which can meet the demand of new or latent customers (Christensen, 1997; Ocasio, 1997). However, exploitation generates performance by improving products or services (March, 1991; He and Wong, 2004) based on existing offerings that have been accepted by customers. Therefore, a firm with high proactive market orientation may allocate fewer resources to leverage exploitation for firm performance. Second, proactive market orientation often fails to provide complementary market intelligence for exploitation. Attention on latent market needs entails the search for new and diverse market information beyond the firm’s existing scope of knowledge and experience. A firm with high proactive market orientation emphasizes the experimentation that leads to variation in organizational activities (Atuahene-Gima et al., 2005). Proactive market orientation emphasizes learning beyond traditional boundaries, and guides the firm to collect information about new demand and potential competition (Atuahene-Gima et al., 2005; Slater and Narver, 1998). Therefore, the information of potential market demand and emerging opportunities makes no contribution to exploitation. For exploitation, possible information overload associated with proactive market orientation may increase the difficulty of coordination, causing unexpected contradiction among functional units. Therefore, we propose that: Hypothesis 2a. Exploitation has a negative effect on firm performance under proactive market orientation. Different from exploitation, exploration may have a positive effect on firm performance in a firm with high proactive market orientation. First, a firm with high proactive market orientation may Z. Wei et al. / Journal of Engineering and Technology Management 33 (2014) 134–153140
  8. 8. allocate more resources to leverage exploration for firm performance. When a firm is prone to proactive market orientation, the resource is allocated to the strategic activities that enable the firm to meet the latent needs of customers (Narver et al., 2004). Exploration leads to breakthroughs and radically new attributes of products or services (March, 1991; He and Wong, 2004) and this enables a firm to meet future or latent market needs. Therefore, exploration is consistent with the strategic attention of the proactive market oriented firms (Ocasio, 1997; Cho and Hambrick, 2006). In this situation, exploration fits the strategic focus of the firm and thus may obtain more complementary resources (Ocasio, 1997; Teece, 1986). These complementary resources such as distribution channels, manufacturing facilities and organizational support reduce the commercial risk of exploration (Teece, 1986; Tripsas, 1997; Zahra and Nielsen, 2002; Lai et al., 2010). Second, proactive market orientation provides fit market intelligence for exploration. Proactive market orientation attempts to identify and satisfy customers’ latent or unexpressed needs (Narver et al., 2004). Therefore, firms with proactive market orientation often collect more complementary market information, which increases the effectiveness of exploration in improving firm performance (Christensen, 1997). Specifically, proactive market orientation entails behaviors such as investigating customers’ unexpressed needs to discover new market opportunities, cooperating with lead users to understand the market demand, or implementing experiments to test future needs (Atuahene-Gima et al., 2005; Jaworski et al., 2000; Narver et al., 2000; Slater and Narver, 1998). Emphasis on unexpressed customer needs brings new variants of market information to the firm, which alerts the firm to emerging market trends (Atuahene-Gima et al., 2005). Proactive market orientation enables the firm to nurture creative ideas that challenge existing cause-effect relationships, and improves the firm’s problem-solving capacity, thus advancing the effectiveness of exploration (Atuahene-Gima et al., 2005). Therefore, we propose that: Hypothesis 2b. Exploration has a positive effect on firm performance under proactive market orientation. We posit that the interaction of exploration and exploitation has a positive effect on firm performance in firms with high proactive market orientation. First, proactive market orientation may reduce the conflicts between exploration and exploitation. Proactive market orientation attaches more strategic attention to emerging market demand and thus reduces the internal resistance to radical change (Christensen, 1997; Ocasio, 1997; Cho and Hambrick, 2006). In firms with high levels of proactive market orientation, exploration obtains its legitimacy and thus experiences less organizational resistance from exploitative departments (Leonard-Barton, 1992; Atuahene-Gima, 2005). Resource competition is eased because exploration fits the strategic attention of the firm (Christensen, 1997; Ocasio, 1997). In this case, firms with proactive market orientation are able to leverage both exploratory and exploitative technologies to explore new markets (Tushman and Anderson, 1986; Atuahene-Gima, 2005). Furthermore, proactive market orientation encourages a firm to search beyond existing product-market domains for new resources. Therefore, a firm with proactive market orientation may access more external resources, which extends the resource portfolio and thus reduces resource competition between exploitation and exploration. Second, proactive market orientation may improve the synergic effects of exploitation and exploration. Proactive market orientation facilitates resource sharing between exploration and exploitation. According to Ocasio (2011), as a forward-looking attention perspective, proactive market orientation increases a firm’s capability to overcome structural inertia by building flexible structures. Therefore, in firms with proactive market orientation, flexible organizational structures or processes facilitate the resource sharing between exploitation and exploration (Wei et al., 2014). Hence, proactive market orientation enhances the firm’s abilities of reconfiguring current resources and ensures the effectiveness of exploration by reducing the risks in the firm’s attempt to satisfy new and distant customer needs (Atuahene-Gima et al., 2005). It is easier for firms with high proactive market orientation to integrate exploration and exploitation to yield complementary effects on firm performance (Simsek et al., 2009; Castiaux, 2007). Therefore, we propose that: Hypothesis 2c. The interaction of exploration and exploitation has a positive effect on firm performance under proactive market orientation. Z. Wei et al. / Journal of Engineering and Technology Management 33 (2014) 134–153 141
  9. 9. Methodology Sample and data collection Data for this study were collected through a survey. To reduce system error caused by differences among districts, we chose firms from four provinces, Shaanxi, Guangdong, Jiangsu and Shandong, covering a broad geographic scope of China. The sample was randomly selected from a registered firm list provided by local governments. A pilot test was conducted with 12 managers whose responses were excluded from the final sample. During the process, the interviewers made sure that each item was understood accurately. Modifications were made according to the suggestions made by these managers. The pre-commitment approach was undertaken to increase response rate, and 489 firms agreed to answer the questionnaire. The respondents were senior executives who possessed enough information. Finally, we received 203 complete and valid questionnaires with an effective response rate of 41.5% (203/489). 78.8% of the respondents had a bachelor’s, a master’s or a doctor’s degree, and the respondents had worked for 4.29 years on average in the target firms. Therefore, the respondents were able to well understand the items and accurately respond to them. We also collected R&D investment information of the target firms, but only 103 firms provided qualified data, that 7.99% of sales on average were invested into R&D activities in these firms. To ensure the validity of the sample, we checked non-response bias. We tested the differences in firm size and age between the responding and non-responding firms with t-tests, and compared the distribution of ownership in the two groups with Chi-square test. Both t-statistics and Chi-square test were insignificant, which suggested that non- response bias was not a problem. Table 1 reports the sample profile. It is noteworthy that in this study, we argue that ambidexterity has different effects on firm performance under proactive market orientation and under responsive market orientation. Thus, we calculated relative proactiveness index as proactive market orientation divided by the sum of proactive market orientation and responsive market orientation. Based on the median of relative proactiveness index, we divided our full sample into two parts: proactive market orientation sample with 102 firms and responsive market orientation sample with 101 firms. Table 1 Sample profile. Frequency Percentage 1. Industry type Electronics 16 7.88% Machinery manufacturing 57 28.08% Software development and IT service 19 9.36% Agricultural product manufacturing 15 7.39% Service 32 15.76% Real estate 14 6.90% Chemical & pharmaceutical 20 9.85% Others 30 14.78% 2. Firm age 5 54 26.60% 6–10 67 33.00% 11–15 35 17.24% 16–20 17 8.37% >20 16 7.88% Missing 14 6.90% 3. Firm size (number of employees) 50 50 24.63% 51–250 55 27.09% 251–500 27 13.30% 501–1000 11 5.42% >1000 26 12.81% Missing 34 16.75% Z. Wei et al. / Journal of Engineering and Technology Management 33 (2014) 134–153142
  10. 10. Measures The measures in our study were compiled based on established scales in existing literature. Questionnaire items were measured on a 7-point Likert scale in which ‘‘1’’ represents ‘‘strongly disagree’’ and ‘‘7’’ represents ‘‘strongly agree’’, unless state otherwise. Exploration and exploitation Based on the work of March (1991), He and Wong (2004), and also Cao et al. (2009), we adopted five items to measure exploration and five items to measure exploitation (see Table 2). Proactive market orientation and responsive market orientation Using the primary scale validated by Narver et al. (2004) with some modification, we adopted six items to measure proactive market orientation and six items to measure responsive market orientation (see Table 2). Firm performance Based on previous literature (e.g., Dess and Robinson, 1984; Li and Zhang, 2007), we used four items to measure firm performance (see Table 2). The respondent was asked to rate the firm’s performance compared to its competitors over the last three years from ‘‘1’’ (‘‘very low’’) to ‘‘5’’ (‘‘very high’’) on these items. Control variables Five control variables were introduced in our analysis to account for the alternative explanations. First, firm size has been used as a basic control variable in a number of studies due to its strong impact on performance. We measured firm size by calculating the nature logarithm of the number of full-time employees. Second, considering the pressure brought by the industrial competition (Auh and Menguc, 2005), we controlled competitive intensity by rating the extent of competition from ‘‘1’’ (‘‘very weak’’) to ‘‘5’’ (‘‘very strong’’). Third, institutional uncertainty has been emphasized to affect firm performance (Li and Zhang, 2007), and thus was taken as a control variable by two items: (1) the government policy relevant to enterprises changes fast; and (2) the change of government policy is difficult to predict. Fourth, we also controlled the influence of industry. Following the approach of Zahra and Nielsen (2002), we controlled industry by subtracting an industry’s average score of firm performance from a firm’s score, and then dividing this difference by the industry’s average score. Construct reliability and validity We tested construct reliability and validity of the full sample and the two subsamples. First, as Table 2 shows, most item loadings in the full sample, proactive market orientation sample and responsive market orientation sample are above 0.70. Only a few loadings are below 0.70 but they are significantly above the requisite level of 0.40 suggested by Fornell and Larcker (1981), indicating good convergent validity of each construct. The Cronbach’s alpha values and composite reliability values are all greater than the cut-off of 0.70. Thus, all the constructs demonstrate adequate reliability and convergent validity. Second, we evaluated the discriminant validity of the constructs using the confirmatory factor analysis (CFA) method and the average variance extracted (AVE) method with the full sample, proactive market orientation sample and responsive market orientation sample. First, we performed 10 pairwise tests with each pair of construct chosen from 5 constructs. In a pairwise test, we compared a restricted model (correlation fixed to 1) with a freely estimated model (correlation estimated freely). The significant chi-square difference indicates a high level of discriminant validity. The chi-square difference test for all the constructs in pairs showed that in each case a two-factor model had a better fit than a single-factor model, which indicates good discriminate validity. Second, we calculated square root of AVE and compared them with correlations. As Table 3 shows, the diagonal elements representing the square roots of AVE for each construct are significantly greater than the off-diagonal Z. Wei et al. / Journal of Engineering and Technology Management 33 (2014) 134–153 143
  11. 11. Table 2 Constructs reliability and validity. Factors Items Full sample (N=203) Response market orientation (N=101) Proactive market orientation (N=102) Loadings Reliability Loadings Reliability Loadings Reliability Exploration (1) Our company is the creator of new technologies and/or process. 0.60 Alpha=0.84 C.R=0.76 0.55 Alpha=0.84 C.R=0.78 0.64 Alpha=0.82 C.R=0.73 (2) Our company introduced many new series of products/services over the last five years. 0.85 0.87 0.84 (3) Our company made major changes to products/services over the last five years. 0.74 0.72 0.76 (4) Our company developed and sold brand new products/services over the last five years. 0.79 0.70 0.86 (5) Our company made every effort to achieve technological leadership position over the last three years. 0.60 0.63 0.56 Exploitation (1) Over the last three years, our company consolidated knowledge and skills relative to current products. 0.69 Alpha=0.89 C.R=0.84 0.70 Alpha=0.88 C.R=0.84 0.70 Alpha=0.89 C.R=0.85 (2) Over the last three years, our company devoted resources to application of mature technologies to improve productivity. 0.78 0.79 0.77 (3) Over the last three years, our company gradually improved solutions of current problems from customers. 0.82 0.80 0.85 (4) Over the last three years, our company consolidated current processes of new product development. 0.78 0.82 0.75 (5) Over the last three years, our company increased knowledge and skills to improve efficiency of current innovative activities. 0.84 0.86 0.82 Proactive market orientation (1) Over the last three years, our company often explored new market. 0.69 Alpha=0.88 C.R=0.84 0.67 Alpha=0.86 C.R=0.81 0.66 Alpha=0.84 C.R=0.81 (2) Over the last three years, our company often explored new customers. 0.70 0.62 0.71 (3) Over the last three years, our company helped our customers anticipate developments in their markets. 0.79 0.77 0.78 (4) Over the last three years, our company continuously tried to discover additional needs of our customers of which they were unaware. 0.80 0.82 0.79 (5) Over the last three years, our company incorporated solutions to unarticulated customer needs in our new products and services. 0.78 0.72 0.80 (6) Over the last three years, our company searched for opportunities in areas where customers had a difficult time expressing their needs. 0.70 0.72 0.63 Z.Weietal./JournalofEngineeringandTechnologyManagement33(2014)134–153144
  12. 12. Responsive market orientation (1) Over the last three years, our company freely communicated information about our successful and unsuccessful customer experiences across all business functions. 0.73 Alpha=0.90 C.R=0.89 0.74 Alpha=0.90 C.R=0.88 0.69 Alpha=0.92 C.R=0.89 (2) Over the last three years, our strategy for competitive advantage was based on our understanding of customers’ needs. 0.80 0.84 0.72 (3) Over the last three years, our company measured customer satisfaction systematically and frequently. 0.86 0.86 0.85 (4) Over the last three years, our company was more customers focused than our competitors. 0.84 0.83 0.81 (5) Over the last three years, this business existed primarily to serve customers. 0.78 0.74 0.80 (6) Over the last three years, data on customer satisfaction were disseminated at all levels in this business unit on a regular basis. 0.83 0.81 0.83 Firm performance (1) Sales growth 0.84 Alpha=0.85 C.R=0.79 0.74 Alpha=0.90 C.R=0.85 0.90 Alpha=0.82 C.R=0.72(2) Return on assets 0.78 0.72 0.82 (3) Market share growth 0.81 0.76 0.84 (4) Overall performance/success 0.72 0.61 0.64 Z.Weietal./JournalofEngineeringandTechnologyManagement33(2014)134–153145
  13. 13. elements. This satisfies Fornell and Larcker’s (1981) criterion for discriminant validity. Taken together, these results show that the measures in this study possess adequate reliability and validity. Common method bias We undertook several procedures recommended by Podsakoff et al. (2003) to examine the severity of common method bias. First, we conducted Harman’s one-factor test on all items in the full sample, proactive market orientation sample and responsive market orientation sample. Significant common method variances would result in one general factor accounting for the majority of covariance in the variables. Therefore, we conducted an un-rotated explorative factor analysis with all the items of both independent and dependent variables entered. In the full sample, proactive market orientation sample and responsive market orientation sample, the largest factor explains 33.9%, 36.7% and 34.3%, which indicates little threat of common method variance. Second, we used a CFA approach to further test common method variance. Because of the limits of the sample, we performed CFA only with the full sample. A model positing that a single factor that underlies all the variables was assessed by linking all items of the dependent and independent variables to a single factor. This model does not fit the data well and is not acceptable (Chi-square/ df=4.69, RMSEA=0.17, CFI=0.84, NFI=0.80, IFI=0.84). When the common factor was removed and all items were assigned to their theoretical constructs, the model fits the data well (chi-square/df=2.27, RMSEA=0.079, CFI=0.95, NFI=0.91, IFI=0.95). Therefore, the results of this CFA test show that no serious threat of common method bias exists. Table 3 Means, standard deviations, and correlations. Mean S.D. 1 2 3 4 5 6 7 8 Full sample (203) 1. Industry N/A N/A N/A 2. Firm size 5.00 1.58 0.09 N/A 3. Competitive intensity 3.47 1.02 À0.06 À0.09 N/A 4. Government policy change 4.10 1.95 À0.11 0.16* 0.09 N/A 5. Government policy predictability 4.02 1.95 À0.08 0.03 0.11 0.63*** N/A 6. Exploitation 4.91 1.40 À0.06 0.01 0.07 0.13+ 0.14* 0.74 7. Exploration 4.45 1.40 À0.03 À0.04 0.17* 0.15* 0.12+ 0.61*** 0.78 8. Firm performance 3.14 0.64 0.00 0.13+ À0.09 0.17* 0.11 0.38*** 0.36*** 0.80 Proactive market orientation sample (102) 1. Industry N/A N/A N/A 2. Firm size 4.70 1.52 0.09 N/A 3. Competitive intensity 3.55 1.03 À0.24* À0.07 N/A 4. Government policy change 3.89 1.94 À0.11 0.23* 0.09 N/A 5. Government policy predictability 4.10 1.97 À0.06 0.04 0.11 0.62*** N/A 6. Exploitation 4.98 1.35 À0.11 0.12 0.09 0.16 0.07 0.79 7. Exploration 4.61 1.32 0.00 0.12 0.29** 0.30** 0.15 0.65*** 0.70 8. Firm performance 3.16 0.53 0.10 0.16 À0.03 0.28** 0.10 0.33*** 0.39*** 0.73 Responsive market orientation sample (101) 1. Industry N/A N/A N/A 2. Firm size 5.30 1.60 0.10 N/A 3. Competitive intensity 3.40 1.01 0.13 À0.08 N/A 4. Government policy change 4.32 1.94 À0.13 0.05 0.09 N/A 5. Government policy predictability 3.94 1.94 À0.11 0.05 0.11 0.56*** N/A 6. Exploitation 4.83 1.46 À0.01 À0.07 0.04 0.12 0.21 0.78 7. Exploration 4.28 1.48 À0.05 À0.14 0.04 0.04 0.09 0.58*** 0.72 8. Firm performance 3.13 0.74 À0.06 0.14 À0.14 0.10 0.12 0.42*** 0.34*** 0.83 Notes: (a) +p<0.1 (2-tailed test), *p<0.05 (2-tailed test), **p<0.01 (2-tailed test), ***p<0.001 (2-tailed test); (b) the diagonal elements in bold are square roots of average variance extracted for constructs measured with multiple items; (c) N/A refers to this item is not adaptive to analysis. Z. Wei et al. / Journal of Engineering and Technology Management 33 (2014) 134–153146
  14. 14. Table 4 Regression analysis. Responsive market orientation sample (N=101) Proactive market orientation sample (N=102) Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7 Controls 1. Industry À0.247(0.091)** À0.262(0.086)*** À0.243(0.086)*** À0.349(0.101)*** 0.172(0.100)* 0.166(0.099)* 0.193(0.102)* 2. Firm size 0.214(0.090)** 0.214(0.086)** 0.215(0.085)* 0.209(0.088)** 0.081(0.104) 0.115(0.104) 0.107(0.102) 3. Competitive intensity À0.366(0.090)*** À0.311(0.085)*** À0.319(0.084)*** À0.261(0.089)*** À0.420(0.102)*** À0.257(0.103)** À0.322(0.100)*** 4. Government policy change 0.183(0.092)* À0.122(0.090) À0.114(0.087) À0.160(0.103)+ 0.421(0.122)*** 0.315(0.118)*** 0.301(0.123)*** 5. Government policy predictability 0.243(0.092)** 0.223(0.089)** 0.203(0.087)** 0.082(0.100) À0.182(0.120) À0.187(0.114)* À0.232(0.116)* Predictors 6. Exploitation 0.271(0.117)** 0.178(0.120) 0.232(0.113)* 0.062(0.124) 0.193(0.131) 7. Exploration 0.118(0.115) 0.064(0.089) 0.298(0.108)*** 0.348(0.123)*** 0.240(0.123)* Interactions 8. Exploration2 À0.233(0.115)* À0.153(0.093)+ 9. ExplorationÂexploitation À0.378(0.097)*** 0.261(0.104)*** F value 5.873*** 5.379*** 5.700*** 3.363*** 2.855** 2.219** 2.416** R square 0.413 0.518 0.533 0.559 0.329 0.401 0.438 Adjusted R square 0.343 0.422 0.439 0.393 0.214 0.220 0.257 Notes: (a) +p<0.1, *p<0.05, **p<0.01, ***p<0.001; (b) standard errors are in parentheses. Z.Weietal./JournalofEngineeringandTechnologyManagement33(2014)134–153147
  15. 15. Third, we followed the latent variable approach suggested by Podsakoff et al. (2003). We specified the items to load on their theoretical constructs, as well as on a latent common methods variance factor. Then we examined the significance of the structural parameters both with and without the latent common methods variance factor in the model. We found that all significant relationships held after controlling for the latent common methods variance factor, which indicates that common method variance is not an issue in this study. Overall, these results suggest little threat of common method bias and provide support for the validity of our measures. Analysis and results Multiple regression analysis was employed to test the hypotheses. The independent variables were mean-centered prior to the formation of interaction terms as recommended by Aiken and West (1991). Table 3 provides the descriptive statistics and zero-order correlations among the variables used in the regression analysis. Correlations are all below the marginal threshold of 0.70. Table 4 reports the hierarchical regression analysis results step by step. We examined our hypotheses with two subsamples. We first entered the control variables, then the predictors, and finally the interactions. We assessed the variance inflation factor (VIF) values in all regression models. All the VIFs are lower than 3.2, which are well below the recommended cut-off of 10 (Neter et al., 1990). This indicates that there is no serious problem of multicollinearity. The results are reported in Table 4. In order to test Hypothesis 1a, Hypothesis 1b and Hypothesis 1c, we ran Models 1, 2, 3 and 4 with responsive market orientation sample. In Model 1, we entered only control variables, which together explain a significant share of the variance (R2 =0.413, p<0.001). In Model 2, we added exploitation and exploration. Model 2 shows that the coefficient of exploitation is significantly positive (b=0.271, p<0.01) while that of exploration is insignificant (b=0.118, p>0.1). Therefore, Hypothesis 1a is supported. In order to test if there is an inverted U-shaped effect of exploration on firm performance, we added squared exploration in Model 3. Model 3 shows that the coefficient of squared exploration is significantly negative (b=À0.233, p<0.05), which supports Hypothesis 1b. Fig. 2 depicts the effect of exploration on firm performance. As shown in Fig. 2, firm performance rises with the increase of exploration to a certain threshold, and after that it begins to decline, taking the form of an inverted U-shape. In other words, at lower levels, exploration fosters firm performance, while at higher levels, it inhibits firm performance. In order to test the interactive effect of exploitation and exploration, we added the interaction in Model 4. Model 4 shows that the coefficient of the [(Fig._2)TD$FIG] -3 -2 -1 0 1 2 3 4.442.961.480-1.48-2.96-4.44 Exploration Firmperformance Fig. 2. The effect of exploration on firm performance. Z. Wei et al. / Journal of Engineering and Technology Management 33 (2014) 134–153148
  16. 16. interaction is significantly negative (b=À0.378, p<0.001), which indicates that exploration and exploitation has a substitutive effect on firm performance in firms with responsive market orientation. Therefore, Hypothesis 1c is also supported. In order to test Hypothesis 2a, Hypothesis 2b and Hypothesis 2c, we ran Models 5, 6 and 7 with proactive market orientation sample. In Model 5, we entered only control variables, which together explain a significant share of the variance (R2 =0.329, p<0.001). In Model 6, we added exploitation and exploration. Model 6 shows that the coefficient of exploitation is insignificant (b=0.062, p>0.1) while that of exploration is significantly positive (b=0.348, p<0.001). Therefore, Hypothesis 2a is not supported while Hypothesis 2b is supported. In order to test the interactive effect of exploitation and exploration, we added the interaction in Model 7. Model 7 shows that the coefficient of the interaction is significantly positive (b=0.261, p<0.001), which indicates that exploration and exploitation has a complementary effect on firm performance in firms with proactive market orientation. Therefore, Hypothesis 2c is supported. Discussion Although ambidexterity is crucial for a firm’s long-term success, existing literature offers conflicting views regarding the relationship between exploitation and exploration and thus how to allocate resources to leverage ambidexterity for firm performance. This study argues that investigating the role of strategic orientation deepens our understanding about the effects of ambidexterity. Specifically, this research aims to investigate if the effects of ambidexterity on firm performance are different in firms with proactive or responsive market orientations. We find that ambidexterity has different effects on firm performance in firms with responsive or proactive market orientations. By considering the role of strategic orientation, this research contributes to the ambidexterity research from the resource allocation perspective and also the contextual ambidexterity literature. Our findings also offer important managerial implications. Contributions This research contributes to ambidexterity literature in two ways. First, this research contributes to the ambidexterity research from the resource allocation perspective by investigating the contingent role of strategic orientation. Existing literature offers conflicting views regarding how to allocate resources to leverage ambidexterity for firm performance. The incompatible view argues that firms should attach more attention to balancing scarce resources to exploration and exploitation (March, 1991; Uotila et al., 2009). However, this line of ambidexterity literature offers little insight regarding how firms allocate scarce resources to leverage exploitation or exploration. Based on the attention- based view, we argue that strategic orientation guides firm’s choice to allocate more resources to support exploitation or exploration. Specifically, we investigate if the effects of exploitation or exploration on firm performance vary with the type of market orientation. We find that in a firm with responsive market orientation, exploitation has a positive effect whereas exploration has an inverted U-shaped effect on firm performance. In contrast, in a firm with proactive market orientation, we find that exploitation has an insignificant effect whereas exploration has a positive effect on firm performance. Our findings suggest that in a firm with responsive market orientation, more resources are allocated to support exploitation because exploitation fits the firm’s strategic focus better than exploration. Furthermore, responsive market orientation also generates complementary market intelligence for exploitation (Atuahene-Gima et al., 2005). However, although firms often allocate and use resources to leverage exploration to meet current market demand, the positive effect of exploration on firm performance declines when exploration is too high. High exploration does not fit the strategic focus of a firm with high responsive market orientation and thus abstracts fewer resources. Furthermore, the resources allocated to support exploration in a firm with high responsive market orientation often misfit the demand of high exploration. In contrast, in a firm with high proactive market orientation, exploration fits the firm’s strategic focus better. Therefore, this kind of firm allocates more resources to support exploration whereas fewer resources to exploitation. Furthermore, market intelligence generated from proactive market Z. Wei et al. / Journal of Engineering and Technology Management 33 (2014) 134–153 149
  17. 17. orientation is often complementary for exploration whereas misfits exploitation. However, Hypothesis 2a is not supported and we do not find a negative effect of exploration on firm performance in a firm with proactive market orientation. The possible explanation may lie in our sample from China, where most firms rely more on exploitation to promote firm performance. In this case, a firm with high proactive market orientation may not withdraw too much resource from exploitation activities. More important, this study also extends the ambidexterity literature on the debate on whether exploration and exploitation are incompatible or complementary. We find that the interaction of exploitation and exploration has a negative effect on firm performance in a firm with responsive market orientation whereas it has a positive effect on firm performance in a firm with proactive market orientation. Our findings suggest that in a firm with responsive market orientation, exploitation competes with exploration for scarce resources. Responsive market orientation amplifies resource competition rather than resource sharing between exploration and exploitation. Further- more, responsive market orientation also reduces synergic effects of exploration and exploitation. In contrast, proactive market orientation reduces resource competition whereas it increases resource sharing between exploration and exploitation. Our findings contribute to the debate on the relationship between exploration and exploitation by identifying the type of market orientation as a contingency factor. Specifically, our findings indicate that, in firms with responsive market orientation, exploration and exploitation are incompatible, whereas in firms with proactive market orientation, exploration and exploitation are complementary to each other. Second, this research also contributes to contextual ambidexterity literature. Although existing research has recognized the importance of organizational context to ambidexterity (Gibson and Birkinshaw, 2004), further investigation is called for to explore the specific influence of certain ingredients of organizational context. This study identifies market orientation as a critical contextual element, and finds the different influence of proactive and responsive market orientation on the ambidexterity-performance link. Our findings prove that besides their direct effects, proactive and responsive market orientations as important organizational norms and beliefs can affect the effects of exploration and/or exploitation on firm performance. Hereby, this study enriches existing research on organizational ambidexterity by adding an important but previously neglected contextual component, thus offering new insights into the contextual approach to organizational ambidexterity. Managerial implications Besides theoretical contributions, this study also provides important managerial implications. First, firms should be aware of the significant influence of strategic orientation on the effects of ambidexterity. Managers should be aware that strategic orientation is the more fundamental factor, which guides a firm’s resource allocation pattern. Therefore, when a firm decides to leverage ambidexterity for firm performance, managers should start with revisiting the firm’s market orientation and align with the characteristics of its strategic orientation to balance resource allocations or/and create resource sharing processes. Second, our findings suggest that, in responsive market oriented firms, managers should attach more resources to exploitation because exploitation is fit with the firm’s strategic focus and can complement the market intelligence generated by responsive market orientation. In proactive market oriented firms, managers should attach more resources to exploration because exploration is fit with the firm’s strategic focus and can complement the market intelligence generated by proactive market orientation. Third, managers should be aware that responsive market orientation may constrain the effects of exploration by reducing resource allocation and/or providing misfit complementary resources. Managers also should pay more attention to find the ways to control organizational conflicts and resource competition between exploration and exploitation. Our results indicate that fostering proactive market orientation may help firms to reduce organizational conflicts between exploration and exploitation. Fostering proactive market orientation also improves the synergic effects of exploration and exploitation by facilitating resource sharing. Z. Wei et al. / Journal of Engineering and Technology Management 33 (2014) 134–153150
  18. 18. Fourth, according to our findings, to leverage ambidexterity to promote firm performance, managers should start with fostering proactive market orientation rather than reducing resource scarcity. Even though abundant resources are available, responsive market orientation may guide the resource allocation in a wrong way and thus undermines the value of ambidexterity. In contrast, even though resources are scarce, proactive market orientation may guide the resource allocation in a right way and thus leverages ambidexterity to promote performance. Our findings suggest that fostering proactive market orientation contributes to leverage ambidexterity to promote firm performance. Limitations and future research Despite theoretical contributions and managerial implications, this study has some limitations that should be addressed in future research. First, our results are based on data from China, and it is in doubt whether the findings generalize to other emerging economies and developed economies. Future research may examine our theoretical speculations in other economies, concerning different characteristics of other contexts. Second, the cross-sectional data used in this study could possibly discount the causal statements supported by our empirical results. Future research is recommended to take a longitudinal approach. Finally, this study identifies the importance of market orientation and its match with ambidexterity, but the processes and systems needed to realize such a match call for further investigation. Future research should probe into the mechanisms that promote the match between technological innovation and market orientation. Conclusions This study argues that investigating the role of strategic orientation deepens our understanding about the effects of ambidexterity on firm performance. Specifically, this research aims to investigate if the effects of ambidexterity on firm performance are different in firms with proactive or responsive market orientations. Our results show that exploration has a positive effect on firm performance under proactive market orientation whereas it has an inverted U-shaped effect under responsive market orientation; and that exploitation has an insignificant effect on firm performance under proactive market orientation, but it has a positive effect under responsive market orientation. Furthermore, we find that the interaction of exploration and exploitation has a positive effect on firm performance under proactive market orientation, but it has a negative effect under responsive market orientation. By considering the contingent role of market orientations, this research extends the ambidexterity literature on the debate on the incompatible or complementary relationship between exploration and exploitation, and also enriches contextual ambidexterity literature. Acknowledgements We gratefully thank the editors and two anonymous reviewers for their helpful comments on the earlier version of this article. We also acknowledge National Natural Science Foundation of China for financial support (No. 71102096 and No. 71132006). References Aiken, L.S., West, S.G., 1991. Multiple Regression: Testing and Interpreting Interactions. Sage Publication, Newbury Park. Andriopoulos, C., Lewis, M.W., 2009. Exploitation–exploration tensions and organizational ambidexterity: managing paradoxes of innovation. Organ. Sci. 20 (4) 696–717. Atuahene-Gima, K., 2005. Resolving the capability–rigidity paradox in new product innovation. J. Mark. 69 (4) 61–83. Atuahene-Gima, K., Ko, A., 2001. An empirical investigation of the effects of market orientation and entrepreneurship orientation alignment on product innovation. Organ. Sci. 12 (1) 54–74. Atuahene-Gima, K., Murray, J.Y., 2007. Exploratory and exploitative learning in new product development: a social capital perspective on new technology ventures in China. J. Int. Mark. 15 (2) 1–29. Atuahene-Gima, K., Slater, S.F., Olson, E.M., 2005. The contingent value of responsive and proactive market orientations for new product program performance. J. Product Innovat. Manag. 22 (6) 464–482. Auh, S., Menguc, B., 2005. Balancing exploration and exploitation: the moderating role of competitive intensity. J. Bus. Res. 58 (12) 1652–1661. Baker, W.E., Sinkula, J.M., 2005. Market orientation and the new product paradox. J. Product Innovat. Manag. 22 (6) 483–502. Z. Wei et al. / Journal of Engineering and Technology Management 33 (2014) 134–153 151
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