Patents as measures of exploration and exploitation strategy: The case of CVC investments

This paper enlarges the scope of inter-organizational learning and strategic renewal research to the ongoing debate on whether companies should mainly try to exploit current trajectories rather than explore new opportunities. Scholars studying exploration and exploitation have been highlighting for long the essential trade-offs firms make in undertaking these activities offering significant support for models in which exploration and exploitation need not always be competing activities, but can and should be complementary. Little is known, however, about the specific mechanisms that drive firms’ tendencies to engage in either activity or about whether and how they actually balance the two across organizational boundaries. Being an assortment of boundary spanning operations, the Corporate Venture Capital (CVC) context allows us to analyze how focal firms can articulate explorative and exploitative activities through internal and external resources. More precisely, we propose that firms could use CVC investments to resolve the exploration-exploitation tension overtime across their organizational boundaries. We test our theoretical model using patent and financial performance data for the entire population of U.S. public firms active in CVC investments over the period 1996-2006.