Linking Multidimensional Performance Feedback and the Type of Exploration

The behavioral theory of the firm proposes that performance–aspiration gaps significantly affect search behavior. While the theory proposes that various performance dimensions matter in organizations, in the context of innovation the research has predominantly focused on financial performance metrics. In this study, we draw on insights from the ‘multiple performance dimension’ perspective to examine how technological performance and financial performance simultaneously determine a firm’s exploration behavior through shaping organizational states. We first introduce four types of organizational state by combining technological and financial performance feedbacks. Then, we propose that while financial performance feedback delimits the scope of technological boundary of exploration (technological domain) while technological performance feedback influences the organizational emphasis toward organizational boundary of exploration (Knowledge base). Using patent and financial data from 150 firms in high-tech industries of the U.S. during 1995-2002, we provide support for our arguments. We find that different organizational state leads organizations to focus more on a certain types of exploration. Therefore, a firm’s exploration behavior can vary in accordance to organizational states conjointly formed by feedbacks from financial performance and technological performance. Our study offers the potential for bridging two theoretical perspectives, the behavioral theory of the firm and explorative search with a richer range of organizational states and actual technological trajectory of exploration.