Balancing exploration and exploitation: The moderating role of competitive intensity

Abstract Drawing on Miles and Snow's classification of strategy type, this paper addresses the contingency role that competitive intensity plays in explaining the relationship between exploration/exploitation and firm performance. We further refine our firm performance measure into separate measures of effective and efficient firm performance. Our conceptual argument posits that for defenders, exploration will be positively related to effective firm performance while exploitation will be negatively related to efficient firm performance as competitive intensity increases. Conversely, for prospectors, we assert that exploration will be negatively related to effective firm performance, whereas exploitation will be positively associated with efficient firm performance as competition intensifies. Empirical results provide general support for our predictions. The implications for business theory and practice are discussed.