Exploring and yet failing less: Learning from exploration, exploitation and human capital in R&D

Exploration is both a risky activity and a key ingredient in the strategy of firms that strive for radical innovations. This paper investigates a dual facet of the exploratory component of R&D activities with regards to innovation failures: while exploration increases firms’ exposure to failure, it also provides learning opportunities to curve down innovation failures. This paper contributes to organizational learning and innovation management research by proposing that firms’ valuable learning does not automatically follow from exploration, but instead,it is conditional on reaching a threshold level of exploratory R&D activities. It is also proposed that valuable learning from exploration is enhanced when exploration is combined with other complementary sources oflearning: exploitation and human capital. Our baseline results point to an inverted U-shaped relation: investment in exploratory activities increases the rate of failure in innovation up to a point beyond which exploration is found to decrease the rate of failure. We observe this inverted U-shaped relationship both at the conception and development phases of the innovation process. We also show that firms’ commitments to exploitative R&D activities and the availability of human capital act as relevant moderators: they contribute to speed the organisational learning process enhanced by exploration and result in lowering the probability of innovation failure at the downstream and conception phases, respectively.