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Purpose This study aims to clarify how companies should manage exploration and exploitation in the long term, and particularly whether companies should dynamically change their resource allocation related to exploration and exploitation activities. Design/methodology/approach To demonstrate the effect of shifts in focus between exploration and exploitation on financial performance and market evaluation, an empirical examination was conducted using secondary panel data for Japanese manufacturers from 2000 to 2014, which was analyzed by fixed-effect estimation with a control function approach considering the problem of endogeneity. Findings The empirical results suggest that companies should change their resource allocation related to exploration and exploitation in the long term. Long-term focus shifts between exploration and exploitation activities enhance not only future financial performance (return on assets and return on sales), but also future market evaluations (Tobin’s Q). Research limitations/implications This paper showed a pathway connecting technological knowledge searches to the company’s future performance. With reference to the discussion of existing research, it remains unclear what kind of management is required for company activities related to exploration and exploitation. This study showed that companies can improve their profitability and market evaluations by changing their resource allocation for exploration and exploitation activities over time. Originality/value While most research on exploration and exploitation is from a static perspective, this study simultaneously incorporated focus balance and focus shifts into the empirical model and thereby examined exploration and exploitation from a dynamic perspective. Even when considering the effects of balancing exploration and exploitation, this study confirmed that organizational vacillation will improve financial performance and market evaluation.

While existing studies regarding organizational vacillation theory have focused on examining how vacillation may lead to ambidexterity, few studies have focused on how vacillation itself happens and whether it happens symmetrically or not. To bridge this research gap, this paper analyzed organizational vacillation over time with two canonical cases while examining patterns of organizational structure over time. Unlike previous studies that only revealed the existence of vacillation between centralization and decentralization, this study revealed that vacillation is observed with an asymmetric ratio of duration in the business world by finding that each company within the same industry spends a greater portion of time in a certain organizational structure than the other. By analyzing these changes throughout the business history, this study found that organizational vacillation happens asymmetrically while alternatively shifting between centralization and decentralization. Based on the case study result, this study draws propositions that can enable future researchers to advance theoretical and empirical understanding toward asymmetric vacillation.

While sustainable high performance requires the capacity to simultaneously explore and exploit, the management literature is divided on the most feasible and efficient route toward this end. We review two proposed approaches for achieving simultaneously high levels of exploration and exploitation: organizational ambidexterity and organizational vacillation. To facilitate comparison, we map these approaches onto a common performance landscape, making precise the empirical question of which delivers superior long run performance. We then analyze canonical cases from both literatures, examining patterns of decision making and corresponding performance over time. These cases suggest that vacillation may offer higher long run performance than ambidexterity, while ambidexterity enhances performance on the margin when utilized within larger epochs of vacillation. We conclude that ambidexterity and vacillation are complements with respect to performance, albeit through different mechanisms.

Research summary: Since Nickerson and Zenger (2002) proposed how vacillation may lead to organizational ambidexterity, large-sample empirical tests of their theory have been missing. In this paper, we empirically examine the performance implications of vacillation. Building upon vacillation theory, we predict that the frequency and scale of vacillation will have inverted U-shaped relationships with firm performance. We test our hypotheses using patent-based measures of exploration and exploitation in the context of technological innovation and knowledge search. Managerial summary: Firms often shift their focus on technological innovation and knowledge search from seeking new and novel knowledge (i.e., exploration) to extending and refining existing knowledge (i.e., exploitation) or vice versa. We examine how the frequency and scale of firms vacillating between exploration and exploitation may affect their performance. We find that both too infrequent or too frequent changes and a too small or too large scale of changes are not desirable.