Organizational ambidexterity, market orientation, and ﬁrm performance

J. Eng. Technol. Manage. 33 (2014) 134–153

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Journal of Engineering andTechnology Management

journal homepage: www.elsevier.com/locate/jengtecman

Organizational ambidexterity, market
orientation, and firm performance
Zelong Wei a, Jie Zhao b,*, Chenlu Zhang c

a School of Management, Xi’an Jiaotong University, Xi’an 710049, Shaanxi, Chinab

School of Economics and Management, Xidian University, Xi’an 710126, Shaanxi, Chinac

School of Economics & Management, Northwest University, Xi’an 710118, Shaanxi, China

A R T I C L E I N F O

Keywords:

Ambidexterity

Exploration

Exploitation

Market orientation

A B S T R A C T

Although ambidexterity is crucial for a firm’s long-term success,

existing literature offers conflicting views regarding the relationship

between exploitation and exploration and thus how to allocate

resources to leverage ambidexterity for firm performance. This

research aims to investigate if the effects of ambidexterity on firm

performance are different in firms with proactive or responsive

market orientations. Based on the attention-based view and

ambidexterity and market orientation literatures, we proposed six

hypotheses and examined them with data from 203 Chinese firms.

We find that, in a firm with responsive market orientation,

exploitation has a positive effect whereas exploration has an inverted

U-shaped effect on firm performance. In contrast, in a firm with

proactive market orientation, we find that exploitation has an

insignificant effect whereas exploration has a positive effect on firm

performance. We find that the interaction of exploitation and

exploration has a negative effect on firm performance in a firm with

responsive market orientation whereas it has a positive effect in a firm

with proactive market orientation. By investigating the contingent

role of strategic orientation, this research contributes to the debate on

whether exploration and exploitation are incompatible or comple-

mentary and also enriches contextual ambidexterity literature.

� 2014 Published by Elsevier B.V.

* Corresponding author. Tel.: +86 13772172695.

E-mail addresses: [email protected] (Z. Wei), [email protected] (J. Zhao), [email protected]

(C. Zhang).

http://dx.doi.org/10.1016/j.jengtecman.2014.06.001

0923-4748/� 2014 Published by Elsevier B.V.

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Z. Wei et al. / Journal of Engineering and Technology Management 33 (2014) 134–153 135

Introduction

As organizational ambidexterity is critical for a firm’s long-term success, it has attracted intensiveresearch attention. The general agreement established is that achieving organizational ambidexterityby simultaneously pursuing exploration and exploitation is both critical for long-term success anddifficult to achieve (March, 1991; Levinthal and March, 1993; Tushman and O’Reilly, 1996; He andWong, 2004; Cao et al., 2009; Laureiro-Martı́nez et al., 2014). Various approaches have been proposedto identify the ways to handle the trade-off between exploitation and exploration, among which theresource allocation perspective has been central to ambidexterity literature (March, 1991; Gupta et al.,2006; Atuahene-Gima and Murray, 2007; Cao et al., 2009; Jansen et al., 2012; Wei et al., 2014).

However, existing literature offers conflicting views on the relationship between exploration andexploitation and thus how to allocate resources to leverage ambidexterity. Based on the resource scarcityassumption, one stream of literature suggests that exploitation and exploration are fundamentallyincompatible because they compete for scarce organizational resources (March, 1991; Uotila et al.,2009). Therefore, firms should balance the resource allocation to exploration and exploitation. Incontrast, the other stream of literature argues that exploitation may complement exploration to promotefirm performance by internal resource sharing (Katila and Ahuja, 2002; Birkinshaw and Gibson, 2004;Andriopoulos and Lewis, 2009; Simsek et al., 2009), external resource accessing (Gupta et al., 2006;Atuahene-Gima and Murray, 2007; Cao et al., 2009; Li et al., 2013), or dynamic resource reconfiguring(Wei et al., 2014). Therefore, to promote firm performance, firms should allocate resources to leveragethe complementary effects between exploitation and exploration.

In spite of these insights, existing literature fails to investigate the role of strategic orientationbehind the resource allocation pattern. According to the attention-based view, strategic orientationrefers to organizational business philosophy and value system (Ocasio, 1997, 2011). It guides a firm tobalance scarce resource allocation and determines whether exploitation and exploration share orcompete for scarce resources (Atuahene-Gima and Ko, 2001; Ocasio, 1997, 2011). The effect ofambidexterity on performance may vary with a firm’s strategic orientation (e.g., market orientation),which changes the resource allocation pattern. Ambidexterity literature has called for more researchon the contextual factors that facilitate ambidexterity, such as culture, values, vision, incentives, andprocesses (O’Reilly and Tushman, 2011; Markides, 2013). However, the literature has offered littleinsight on the contingent role of strategic orientation.

Market orientation, as one of the most salient strategic orientations, describes a firm’s ‘‘orientationtoward the promotion and support for the collection, dissemination and responsiveness to marketintelligence to serve customer needs’’ (Atuahene-Gima and Ko, 2001, p. 55). Market orientation is thestrategic philosophy that focuses on identifying and meeting customers’ needs to assure bettercompetitive advantage (Narver and Slater, 1990). McCarthy et al. (2010) argue that how firmsinnovate and change is highly dependent on the conditions of markets. Therefore, market orientation,which determines how firms perceive the demand conditions and react to the market environment(Markides, 2013), may affect the resource allocation to exploration or exploitation (Menguc and Auh,2008; Tushman and Smith, 2002). Furthermore, scholars have distinguished proactive and responsivemarket orientations (Atuahene-Gima et al., 2005; Narver et al., 2004; Baker and Sinkula, 2007).Proactive market orientation addresses the latent needs of customers, whereas responsive marketorientation addresses the expressed needs of customers (Atuahene-Gima et al., 2005; Narver et al.,2004; Baker and Sinkula, 2007). Responsive and proactive market orientations may guide a firm toallocate resources in different ways to leverage exploitation or exploration for firm performance(Ocasio, 1997, 2011; McCarthy and Gordon, 2011).

Therefore, does the effect of ambidexterity on performance vary with a firm’s proactive vs.responsive market orientations? This research seeks to answer this question. Based on the attention-based view, market orientation literature, and the ambidexterity view, we investigate how the effectsof exploration, exploitation and their interaction on firm performance in firms with higher levels ofproactive market orientation differ from those in firms with higher levels of responsive marketorientation.

This research contributes to ambidexterity literature in two ways. First, we extend ourunderstanding of the debate on whether exploration and exploitation are incompatible or

Z. Wei et al. / Journal of Engineering and Technology Management 33 (2014) 134–153136

complementary by investigating the role of market orientation. We find that the effects of exploration,exploitation and their interaction on firm performance differ in firms with different marketorientations. Second, we enrich the research on contextual ambidexterity by identifying marketorientation as an important context factor. In this way, we provide more explicit knowledge about thecontextual ambidexterity.

Theoretical backgrounds

Organizational ambidexterity

Organizational ambidexterity refers to simultaneously pursuing exploitation and exploration (Heand Wong, 2004). In this study, following He and Wong (2004) and also Cao et al. (2009), we focus ontechnological exploration and exploitation. Exploitation refers to the refinements and extensions ofthe existing technological base whereas exploration focuses on the development of new technologicalbase (March, 1991; He and Wong, 2004; Cao et al., 2009). Organizational ambidexterity increases afirm’s adaptability to the changing environment and thus is of importance to long-term success. Inspite of the importance of ambidexterity, exploration and exploitation form a paradox and theresearch effort to identify the ways for handling this paradox has gained prominence in ambidexterityliterature (Wei et al., 2014; Lin et al., 2013).

The resource allocation perspective has been central to the ambidexterity literature. The resourcescarcity assumption has been one of the central logics to argue that exploitation and exploration areincompatible (Gupta et al., 2006). March (1991) argues that exploitation and exploration compete forscarce resources. Firms face a trade-off in allocating scarce resources to exploitation or explorationbecause they interplay in the form of zero-sum game. In line with this logic, firm should balance therelative levels of exploitation and exploration or find the optimal point in the continuum fromexploitation to exploration where the scarce resources are optimally allocated (Gupta et al., 2006).Some empirical evidence also supports this argument. For instance, Menguc and Auh (2008) andAtuahene-Gima (2005) find that the interaction of exploration and exploitation is negatively related tofirm performance. Uotila et al. (2009) and Wei et al. (2014) find that relative share of exploration hasan inverted U-shaped effect on firm performance.

In contrast, considerable progress has been made to question the resource scarcity assumption andthe ways to allocate resources. First, Gupta et al. (2006) suggest that not all types of resources sufferfrom the constraint of scarcity. Exploitation and exploration may share these types of resources (e.g.,technologies and flexible resources). Exploitation may complement exploration by sharing relevantresources. Second, accessing to external resources may also ease the internal resource scarcity.Therefore, exploitation may complement exploration in firms with higher levels of social capital(Atuahene-Gima and Murray, 2007; Li et al., 2013) or environmental munificence (Cao et al., 2009; Liet al., 2013). Third, building dynamic resource management capabilities (e.g., resource flexibility andcoordination flexibility) may enable firms to reconfigure resource portfolio to leverage ambidexterityto promote firm performance (Wei et al., 2014). Empirical evidence also supports these arguments,finding that the interaction of exploitation and exploration has a positive effect on firm performance.In line with this logic, firms should allocate resources to leverage the complementary effects ofexploitation and exploration for firm performance.

Advances in ambidexterity literature suggest that the effects of ambidexterity on performance arecontingent on a firm’s way to allocate resources. In spite of these insights, existing literature fails toinvestigate the factors that guide a firm’s way to allocate resources. According to the attention-baseview, strategic orientation sets organizational value or priorities on the resource allocation toexploration or/and exploitation, which guides a firm’s resource allocation pattern. However, littleattention has been given to the role of strategic orientation. Although contextual ambidexterityresearch suggests that organizational context characterized by a combination of stretch, discipline,support and trust facilitates ambidexterity (Gibson and Birkinshaw, 2004; Birkinshaw and Gibson,2004; Raisch and Birkinshaw, 2008; McCarthy and Gordon, 2011), existing literature fails to answerwhether firms with different kinds of strategic orientation allocate resources to exploration orexploitation in different ways.


Attention-based view and the role of market orientation

The attention-based view of the firm aims to explain firm behavior based on the structuring oforganizational attention. This view argues that what decision makers do eventually depends on thefirm’s structural distribution of attention. Strategy is viewed as a pattern of organizational attentionon a particular set of issues (e.g., problems, opportunities, and threats) and answers (e.g., resourceallocation pattern, processes, and routines). According to the attention-based view of the firm, firmswith different strategic orientations attach different types of attention distribution to the set of issues

and answers. Strategic orientation reflects a firm’s business philosophy rooted in a set of values thatguides the firm to achieve competitive advantage (Gatignon and Xuereb, 1997). It defines the resourceallocation motivation to address the issues and offers the answers to these issues with fit resourceallocation pattern and processes.

According to the attention-based view, the firm’s strategic orientations guide the resourceallocation behaviors (Ocasio, 1997). Specifically, certain organizational norms and processes need tobe adopted to realize strategic goals, and to direct attention and resources to relevant activities. Forinstance, Ocasio (2011) proposes that the forward looking attention facilitates a firm to overcomestructural inertia and core rigidities. McCarthy and Gordon (2011) illustrate that management controlsystems can be used to allocate attention and resources to exploration or exploitation in anambidextrous R&D unit. According to McCarthy and Gordon (2011), beliefs systems and interactivesystems promote a feed-forward control orientation and are essential to exploration, while boundarysystems and diagnostic systems capture a feedback control orientation and induce exploitation.

Market orientation, as one of the most salient strategic orientations, describes a firm’s ‘‘orientationtoward the promotion and support for the collection, dissemination and responsiveness to marketintelligence to serve customer needs’’ (Atuahene-Gima and Ko, 2001, p. 55). It facilitates the acquirementand distribution of market information, and guides the firm to allocate resources to satisfy the need ofcustomers (Kohli and Jaworski, 1990). A number of studies have suggested that a strong marketorientation leads the firm to invest resources in satisfying target customers’ needs (Day, 1994). Accordingto Narver and Slater (1990), market orientation not only prompts market information accumulating,sharing, and using, but also fosters a culture that affects the utilization of valuable resources for theenhancement of communication, collaboration, and coordination among functional units.

Narver et al. (2004) extend the market orientation research by identifying proactive and responsivedimensions of market orientation. Proactive market orientation pertains to the attempt to discoverand satisfy the unarticulated or future needs of customers and to pursue new market opportunities(Jaworski et al., 2000; Narver et al., 2000; Slater and Narver, 1998; Atuahene-Gima et al., 2005; Narveret al., 2004). On the contrary, responsive market orientation pertains to the generation, dissemination,and application of market intelligence targeting the current customers and product domain (Jaworskiet al., 2000; Slater and Narver, 1995; Atuahene-Gima et al., 2005).

Responsive and proactive market orientations differ with respect to the distribution of attention tothe set of strategic issues and answers reflected in the resource allocation pattern. Responsive marketorientation, focusing on current customers or expressed needs, attaches more attention to issues suchas current competition threats and opportunities in existing market domain. Attention on existingcustomers and their expressed needs is beneficial to mitigating the likelihood of errors in problem-solving (Atuahene-Gima et al., 2005). Therefore, firms with responsive market orientation allocatemore resources to the strategic activities within existing product-market domains and those that helpfirms to handle current competition threats. Firms often build solid routines to improve the efficiencyof resource allocations. In contrast, proactive market orientation, focusing on the future or latentmarket, attaches more attention to issues such as future competition and new market opportunities.Therefore, firms with proactive market orientation attempt to allocate more resources to the strategicactivities beyond existing product-market domains. These firms often build flexible organizationalstructures or processes to facilitate resource allocation for new experiments and discoveries.

Based on above discussion, we propose that the effects of ambidexterity on performance arecontingent on a firm’s responsive or proactive market orientation. Therefore, based on ambidexterityliterature, the attention-based view, and market orientation literature, we build a theoretical model asFig. 1 shows.

[(Fig._1)TD$FIG]

Firm performance

Market orientation (Responsive / Proactive)

H1a: + / H2a: -

H1b:∩ / H2b: +

H1c: - / H2c: +

Exploitation

Exploration

Fig. 1. Theoretical model.


Hypothesis development

Ambidexterity and firm performance under responsive market orientation

To leverage ambidexterity for firm performance, a firm should allocate enough resources tosupport exploitation or/and exploration (March, 1991; Gibson and Birkinshaw, 2004; Cao et al., 2009;Wei et al., 2014). Responsive or proactive market orientation guides resource allocation motivation toexploitation or/and exploration, and also the ways to use these resources. Therefore, the effects ofexploitation, exploration, and also their interaction on firm performance may vary with the change ofmarket orientation.

First, firms with high responsive market orientation allocate more resources to exploitationbecause exploitation fits their strategic focus. These firms aim to obtain competitive advantage bysatisfying customers’ current needs (Atuahene-Gima et al., 2005; Narver et al., 2004). Responsivemarket orientation concentrates on the firm’s existing domain of knowledge and experience, andoffers an in-depth understanding of current customers’ expressed needs (Berthon et al., 1999). Itemphasizes organizational learning only within traditional boundaries (Day, 1994; Kohli andJaworski, 1990), and thus is congruent with exploitation in nature (Atuahene-Gima et al., 2005). Firmswith this strategic attention often allocate more resources to strategic activities which can meet theexisting demand of customers (Christensen, 1997; Ocasio, 1997). Exploitation places emphasis onimprovement or refinement of current products or services (March, 1991; He and Wong, 2004). Theseimprovements are easily to be accepted and valued by customers. Therefore, in firms with high levelsof responsive market orientation, exploitation fits the strategic orientation and thus may obtain morecomplementary resources (Ocasio, 1997; Cho and Hambrick, 2006; Bolivar-Ramos et al., 2012).

Second, firms with high responsive market orientation are capable of using these resources toleverage exploitation for firm performance. The refinement or extension of existing technological basealso fits the current procedural and communication channels (Jansen et al., 2006). Exploitationsearches new resources in local supply, demand, and spatial network (Sidhu et al., 2007). Therefore,firms rely on existing routines, processes or structures to allocate and use the resources to supportexploitation. Furthermore, the market intelligence, generated by responsive market orientation,complements exploitation. Responsive market orientation embraces information highly relevant tothe firm’s existing knowledge base and experience (Atuahene-Gima et al., 2005). The deepunderstanding of customers’ requirements for product or service enables a firm to improve theeffectiveness and efficiency of technological refinements (Zahra and Nielsen, 2002). Finally, becauseresponsive market orientation advances the firm’s familiarity with the existing domain of knowledgeand experience, it enhances the firm’s absorptive capacity and increases the efficiency of exploitation(Cohen and Levinthal, 1990). Hence, with abundant resource support, exploitation may be realizedfaster and more sufficiently. Therefore, we propose that:


Hypothesis 1a. Exploitation has a positive effect on firm performance under responsive market orientation.

Compared with exploitation, exploration introduces radically new products or services (March,1991; He and Wong, 2004), and brings in new technologies, skills and processes. Departing from theexisting technological trajectory, exploration is more flexible to environmental changes, and thus iscrucial to sustainable competitive advantage in dynamic environments (Floyd and Lane, 2000; March,1991; Levinthal and March, 1993; Benner and Tushman, 2003; Chen and Jaw, 2009).

In firms guided by responsive market orientation, strategic attention has been attached to activitiessatisfying the expressed needs of customers. Firms often allocate resources to exploration to meetcurrent needs (Voss and Voss, 2013). With the deeper understanding of current knowledge andexperience, firms are better able to combine knowledge differently in order to solve customers’problems and reduce the risks of exploration (Atuahene-Gima et al., 2005). Therefore, firms oftenallocate and use resources relying on current routines or processes to leverage exploration to meetcurrent needs. In this case, exploration may have a positive effect on firm performance in a firm withhigh responsive market orientation.

However, we posit that this positive effect may decline when exploration increases. First, too high alevel of exploration may experience difficulties in obtaining enough resources because it does not fitthe strategic focus of the firm (Ocasio, 1997; Cho and Hambrick, 2006). When exploration is at a highlevel, more resources are needed for R&D, new distribution channel, manufacturing and so on (March,1991; Teece, 1986; Tripsas, 1997). However, firms with high levels of responsive market orientationmay underestimate the value of exploration, and thus allocate fewer resources for it (Christensen,1997; Ocasio, 1997).

Second, the resources allocated to support exploration often do not fit the demand of highexploration. High exploration often provides breakthroughs that are different from existing productsor services (Zahra and Nielsen, 2002). It may need new resources beyond the current product-marketdomain. These new resources are often out of the local search scope of the firm with responsive marketorientation (Christensen, 1997). Responsive market orientation narrows the information collection tocurrent market demand, while ignoring potential market demand (Li et al., 2010; Kohli and Jaworski,1990; Slater and Narver, 1995). Knowledge associated with responsive market orientation may be tooclose to the existing operational domain and thereby undermines the success of exploration whichgoes beyond the scope of current knowledge and experience.

Therefore, in firms with high levels of responsive market orientation, when exploration is low, ithas a positive effect on firm performance. However, when it is high, exploration may not obtainabundant complementary internal resources or useful market information because it does not fit thestrategic attention of the firm. In this case, exploration often fails to achieve target performance.Therefore, we propose that:

Hypothesis 1b. Exploration has an inverted U-shaped effect on firm performance under responsivemarket orientation.

The interactive effect of exploration and exploitation has attracted intensive research attention. Byinvestigating the role of strategic orientation, we posit that in firms with high levels of responsivemarket orientation, exploration and exploitation are substitutive. First, responsive market orientationmay fuel internal organizational conflicts between exploration and exploitation (Christensen, 1997;Hamel, 2000). Because exploration departs from current knowledge and paradigms, it challenges theexisting dominant logics centering on current needs or markets and thus holds low legitimacy in a firmwith high responsive market orientation. Responsive market orientation guides the strategic focus,organizational processes, routines and resource allocation to satisfy customers’ existing needs(Atuahene-Gima et al., 2005; Narver et al., 2004; Talke, 2007). Skills and procedures to understand andsatisfy the expressed needs of current customers are more likely to highlight the importance ofexisting knowledge and experience. In this situation, high levels of exploration may confrontorganizational resistance from other departments that are bounded to exploiting existing marketdemand (Leonard-Barton, 1992; Atuahene-Gima, 2005).

Second, responsive market orientation amplifies resource competition rather than resourcesharing between exploration and exploitation. Responsive market orientation leads the firm to use


the enhanced understanding of current knowledge and experience for exploitation to meet theexpressed customer need rather than for exploration to discover the unexpressed customer need.Thus, this strategic focus makes it more difficult for exploration to share resources with currentexploitation because of the lower internal legitimacy (Christensen, 1997; Ocasio, 1997). Actually,high levels of exploration may lead to high levels of resource competition with exploitation, andsuffer a more severe shortage of resources since large quantities of resources are dedicated toexploitation.

Third, the synergic effects of exploration and exploitation are reduced under responsive marketorientation. On the one hand, exploitation is easily self-reinforced and develops to an over-high level.Focusing too much on exploitation makes the firm unable to effectively adapt to the emerging needs ofthe market, because it relies too much on existing knowledge but fails to generate novel ideas andstrategies. The firm is likely to be locked in the existing scope of experiences and confront the risk ofobsolescence (March, 1991). On the other hand, because exploration is constrained, it fails to increasethe economics of exploitation (Cao et al., 2009). Underdeveloped exploration cannot enlarge the poolof new knowledge for exploitation. Meanwhile, although exploitation leads to a deep understanding ofexisting knowledge, exploration is insufficient to take full advantage of this. As a result, firms are notcapable of triggering new discoveries and creations based on reconfigurations of current knowledge(Cao et al., 2009). Therefore, we propose that:

Hypothesis 1c. The interaction of exploration and exploitation has a negative effect on firm performanceunder responsive market orientation.

Ambidexterity and firm performance under proactive market orientation

From the resource allocation perspective, we posit that exploitation may have a negative effect onfirm performance in firms with high proactive market orientation. First, firms with high proactivemarket orientation may allocate fewer resources to support exploitation because exploitation doesnot fit the firm’s strategic focus. These firms aim to obtain competitive advantage by satisfyingcustomers’ new needs or latent market demand (Atuahene-Gima et al., 2005; Narver et al., 2004).Proactive market orientation mainly focuses on creating superior customer value based on knowledgederived from new market demand, new customer and latent demand analysis (Narver et al., 2004;Baker and Sinkula, 2005). Firms with this strategic attention often allocate more resources to strategicactivities which can meet the demand of new or latent customers (Christensen, 1997; Ocasio, 1997).However, exploitation generates performance by improving products or services (March, 1991; Heand Wong, 2004) based on existing offerings that have been accepted by customers. Therefore, a firmwith high proactive market orientation may allocate fewer resources to leverage exploitation for firmperformance.

Second, proactive market orientation often fails to provide complementary market intelligencefor exploitation. Attention on latent market needs entails the search for new and diverse marketinformation beyond the firm’s existing scope of knowledge and experience. A firm with highproactive market orientation emphasizes the experimentation that leads to variation inorganizational activities (Atuahene-Gima et al., 2005). Proactive market orientation emphasizeslearning beyond traditional boundaries, and guides the firm to collect information about newdemand and potential competition (Atuahene-Gima et al., 2005; Slater and Narver, 1998). Therefore,the information of potential market demand and emerging opportunities makes no contribution toexploitation. For exploitation, possible information overload associated with proactive marketorientation may increase the difficulty of coordination, causing unexpected contradiction amongfunctional units. Therefore, we propose that:

Hypothesis 2a. Exploitation has a negative effect on firm performance under proactive marketorientation.

Different from exploitation, exploration may have a positive effect on firm performance in a firmwith high proactive market orientation. First, a firm with high proactive market orientation may


allocate more resources to leverage exploration for firm performance. When a firm is prone toproactive market orientation, the resource is allocated to the strategic activities that enable the firm tomeet the latent needs of customers (Narver et al., 2004). Exploration leads to breakthroughs andradically new attributes of products or services (March, 1991; He and Wong, 2004) and this enables afirm to meet future or latent market needs. Therefore, exploration is consistent with the strategicattention of the proactive market oriented firms (Ocasio, 1997; Cho and Hambrick, 2006). In thissituation, exploration fits the strategic focus of the firm and thus may obtain more complementaryresources (Ocasio, 1997; Teece, 1986). These complementary resources such as distribution channels,manufacturing facilities and organizational support reduce the commercial risk of exploration (Teece,1986; Tripsas, 1997; Zahra and Nielsen, 2002; Lai et al., 2010).

Second, proactive market orientation provides fit market intelligence for exploration. Proactivemarket orientation attempts to identify and satisfy customers’ latent or unexpressed needs (Narveret al., 2004). Therefore, firms with proactive market orientation often collect more complementarymarket information, which increases the effectiveness of exploration in improving firm performance(Christensen, 1997). Specifically, proactive market orientation entails behaviors such as investigatingcustomers’ unexpressed needs to discover new market opportunities, cooperating with lead users tounderstand the market demand, or implementing experiments to test future needs (Atuahene-Gimaet al., 2005; Jaworski et al., 2000; Narver et al., 2000; Slater and Narver, 1998). Emphasis onunexpressed customer needs brings new variants of market information to the firm, which alerts thefirm to emerging market trends (Atuahene-Gima et al., 2005). Proactive market orientation enablesthe firm to nurture creative ideas that challenge existing cause-effect relationships, and improves thefirm’s problem-solving capacity, thus advancing the effectiveness of exploration (Atuahene-Gimaet al., 2005). Therefore, we propose that:

Hypothesis 2b. Exploration has a positive effect on firm performance under proactive market orientation.

We posit that the interaction of exploration and exploitation has a positive effect on firmperformance in firms with high proactive market orientation. First, proactive market orientationmay reduce the conflicts between exploration and exploitation. Proactive market orientationattaches more strategic attention to emerging market demand and thus reduces the internalresistance to radical change (Christensen, 1997; Ocasio, 1997; Cho and Hambrick, 2006). In firmswith high levels of proactive market orientation, exploration obtains its legitimacy and thusexperiences less organizational resistance from exploitative departments (Leonard-Barton, 1992;Atuahene-Gima, 2005). Resource competition is eased because exploration fits the strategicattention of the firm (Christensen, 1997; Ocasio, 1997). In this case, firms with proactive marketorientation are able to leverage both exploratory and exploitative technologies to explore newmarkets (Tushman and Anderson, 1986; Atuahene-Gima, 2005). Furthermore, proactive marketorientation encourages a firm to search beyond existing product-market domains for newresources. Therefore, a firm with proactive market orientation may access more external resources,which extends the resource portfolio and thus reduces resource competition between exploitationand exploration.

Second, proactive market orientation may improve the synergic effects of exploitation andexploration. Proactive market orientation facilitates resource sharing between exploration andexploitation. According to Ocasio (2011), as a forward-looking attention perspective, proactive marketorientation increases a firm’s capability to overcome structural inertia by building flexible structures.Therefore, in firms with proactive market orientation, flexible organizational structures or processesfacilitate the resource sharing between exploitation and exploration (Wei et al., 2014). Hence,proactive market orientation enhances the firm’s abilities of reconfiguring current resources andensures the effectiveness of exploration by reducing the risks in the firm’s attempt to satisfy new anddistant customer needs (Atuahene-Gima et al., 2005). It is easier for firms with high proactive marketorientation to integrate exploration and exploitation to yield complementary effects on firmperformance (Simsek et al., 2009; Castiaux, 2007). Therefore, we propose that:

Hypothesis 2c. The interaction of exploration and exploitation has a positive effect on firm performanceunder proactive market orientation.


Methodology

Sample and data collection

Data for this study were collected through a survey. To reduce system error caused by differencesamong districts, we chose firms from four provinces, Shaanxi, Guangdong, Jiangsu and Shandong,covering a broad geographic scope of China. The sample was randomly selected from a registered firmlist provided by local governments. A pilot test was conducted with 12 managers whose responseswere excluded from the final sample. During the process, the interviewers made sure that each itemwas understood accurately. Modifications were made according to the suggestions made by thesemanagers. The pre-commitment approach was undertaken to increase response rate, and 489 firmsagreed to answer the questionnaire. The respondents were senior executives who possessed enoughinformation.

Finally, we received 203 complete and valid questionnaires with an effective response rate of 41.5%(203/489). 78.8% of the respondents had a bachelor’s, a master’s or a doctor’s degree, and therespondents had worked for 4.29 years on average in the target firms. Therefore, the respondents wereable to well understand the items and accurately respond to them. We also collected R&D investmentinformation of the target firms, but only 103 firms provided qualified data, that 7.99% of sales onaverage were invested into R&D activities in these firms. To ensure the validity of the sample, wechecked non-response bias. We tested the differences in firm size and age between the responding andnon-responding firms with t-tests, and compared the distribution of ownership in the two groups withChi-square test. Both t-statistics and Chi-square test were insignificant, which suggested that non-response bias was not a problem. Table 1 reports the sample profile.

It is noteworthy that in this study, we argue that ambidexterity has different effects on firmperformance under proactive market orientation and under responsive market orientation. Thus, wecalculated relative proactiveness index as proactive market orientation divided by the sum ofproactive market orientation and responsive market orientation. Based on the median of relativeproactiveness index, we divided our full sample into two parts: proactive market orientation samplewith 102 firms and responsive market orientation sample with 101 firms.

Table 1Sample profile.

Frequency Percentage

1. Industry type

Electronics 16 7.88%

Machinery manufacturing 57 28.08%

Software development and IT service 19 9.36%

Agricultural product manufacturing 15 7.39%

Service 32 15.76%

Real estate 14 6.90%

Chemical & pharmaceutical 20 9.85%

Others 30 14.78%

2. Firm age

�5 54 26.60%

6–10 67 33.00%

11–15 35 17.24%

16–20 17 8.37%

>20 16 7.88%

Missing 14 6.90%

3. Firm size (number of employees)

�50 50 24.63%

51–250 55 27.09%

251–500 27 13.30%

501–1000 11 5.42%

>1000 26 12.81%

Missing 34 16.75%


Measures

The measures in our study were compiled based on established scales in existing literature.Questionnaire items were measured on a 7-point Likert scale in which ‘‘1’’ represents ‘‘stronglydisagree’’ and ‘‘7’’ represents ‘‘strongly agree’’, unless state otherwise.

Exploration and exploitation

Based on the work of March (1991), He and Wong (2004), and also Cao et al. (2009), we adopted fiveitems to measure exploration and five items to measure exploitation (see Table 2).

Proactive market orientation and responsive market orientation

Using the primary scale validated by Narver et al. (2004) with some modification, we adopted sixitems to measure proactive market orientation and six items to measure responsive marketorientation (see Table 2).

Firm performance

Based on previous literature (e.g., Dess and Robinson, 1984; Li and Zhang, 2007), we used fouritems to measure firm performance (see Table 2). The respondent was asked to rate the firm’sperformance compared to its competitors over the last three years from ‘‘1’’ (‘‘very low’’) to ‘‘5’’(‘‘very high’’) on these items.

Control variables

Five control variables were introduced in our analysis to account for the alternativeexplanations. First, firm size has been used as a basic control variable in a number of studies dueto its strong impact on performance. We measured firm size by calculating the nature logarithm ofthe number of full-time employees. Second, considering the pressure brought by the industrialcompetition (Auh and Menguc, 2005), we controlled competitive intensity by rating the extent ofcompetition from ‘‘1’’ (‘‘very weak’’) to ‘‘5’’ (‘‘very strong’’). Third, institutional uncertainty has beenemphasized to affect firm performance (Li and Zhang, 2007), and thus was taken as a controlvariable by two items: (1) the government policy relevant to enterprises changes fast; and (2) thechange of government policy is difficult to predict. Fourth, we also controlled the influence ofindustry. Following the approach of Zahra and Nielsen (2002), we controlled industry by subtractingan industry’s average score of firm performance from a firm’s score, and then dividing this differenceby the industry’s average score.

Construct reliability and validity

We tested construct reliability and validity of the full sample and the two subsamples. First, asTable 2 shows, most item loadings in the full sample, proactive market orientation sample andresponsive market orientation sample are above 0.70. Only a few loadings are below 0.70 but they aresignificantly above the requisite level of 0.40 suggested by Fornell and Larcker (1981), indicating goodconvergent validity of each construct. The Cronbach’s alpha values and composite reliability values areall greater than the cut-off of 0.70. Thus, all the constructs demonstrate adequate reliability andconvergent validity.

Second, we evaluated the discriminant validity of the constructs using the confirmatory factoranalysis (CFA) method and the average variance extracted (AVE) method with the full sample,proactive market orientation sample and responsive market orientation sample. First, we performed10 pairwise tests with each pair of construct chosen from 5 constructs. In a pairwise test, we compareda restricted model (correlation fixed to 1) with a freely estimated model (correlation estimated freely).The significant chi-square difference indicates a high level of discriminant validity. The chi-squaredifference test for all the constructs in pairs showed that in each case a two-factor model had a betterfit than a single-factor model, which indicates good discriminate validity. Second, we calculatedsquare root of AVE and compared them with correlations. As Table 3 shows, the diagonal elementsrepresenting the square roots of AVE for each construct are significantly greater than the off-diagonal

Table 2Constructs reliability and validity.

Factors Items Full sample (N=203) Response market

orientation (N=101)

Proactive market

orientation (N=102)

Loadings Reliability Loadings Reliability Loadings Reliability

Exploration (1) Our company is the creator of new technologies and/or

process.

0.60 Alpha=0.84

C.R=0.76

0.55 Alpha=0.84

C.R=0.78

0.64 Alpha=0.82

C.R=0.73

(2) Our company introduced many new series of products/services

over the last five years.

0.85 0.87 0.84

(3) Our company made major changes to products/services over

the last five years.

0.74 0.72 0.76

(4) Our company developed and sold brand new products/services

over the last five years.

0.79 0.70 0.86

(5) Our company made every effort to achieve technological

leadership position over the last three years.

0.60 0.63 0.56

Exploitation (1) Over the last three years, our company consolidated

knowledge and skills relative to current products.

0.69 Alpha=0.89

C.R=0.84

0.70 Alpha=0.88

C.R=0.84

0.70 Alpha=0.89

C.R=0.85

(2) Over the last three years, our company devoted resources to

application of mature technologies to improve productivity.

0.78 0.79 0.77

(3) Over the last three years, our company gradually improved

solutions of current problems from customers.

0.82 0.80 0.85

(4) Over the last three years, our company consolidated current

processes of new product development.

0.78 0.82 0.75

(5) Over the last three years, our company increased knowledge

and skills to improve efficiency of current innovative activities.

0.84 0.86 0.82

Proactive market

orientation

(1) Over the last three years, our company often explored new

market.

0.69 Alpha=0.88

C.R=0.84

0.67 Alpha=0.86

C.R=0.81

0.66 Alpha=0.84

C.R=0.81

(2) Over the last three years, our company often explored new

customers.

0.70 0.62 0.71

(3) Over the last three years, our company helped our customers

anticipate developments in their markets.

0.79 0.77 0.78

(4) Over the last three years, our company continuously tried to

discover additional needs of our customers of which they were

unaware.

0.80 0.82 0.79

(5) Over the last three years, our company incorporated solutions

to unarticulated customer needs in our new products and

services.

0.78 0.72 0.80

(6) Over the last three years, our company searched for

opportunities in areas where customers had a difficult time

expressing their needs.

0.70 0.72 0.63

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Responsive market

orientation

(1) Over the last three years, our company freely communicated

information about our successful and unsuccessful customer

experiences across all business functions.

0.73 Alpha=0.90

C.R=0.89

0.74 Alpha=0.90

C.R=0.88

0.69 Alpha=0.92

C.R=0.89

(2) Over the last three years, our strategy for competitive

advantage was based on our understanding of customers’

needs.

0.80 0.84 0.72

(3) Over the last three years, our company measured customer

satisfaction systematically and frequently.

0.86 0.86 0.85

(4) Over the last three years, our company was more customers

focused than our competitors.

0.84 0.83 0.81

(5) Over the last three years, this business existed primarily to

serve customers.

0.78 0.74 0.80

(6) Over the last three years, data on customer satisfaction were

disseminated at all levels in this business unit on a regular

basis.

0.83 0.81 0.83

Firm performance (1) Sales growth 0.84 Alpha=0.85

C.R=0.79

0.74 Alpha=0.90

C.R=0.85

0.90 Alpha=0.82

C.R=0.72(2) Return on assets 0.78 0.72 0.82

(3) Market share growth 0.81 0.76 0.84

(4) Overall performance/success 0.72 0.61 0.64

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Table 3Means, standard deviations, and correlations.

Mean S.D. 1 2 3 4 5 6 7 8

Full sample (203)

1. Industry N/A N/A N/A

2. Firm size 5.00 1.58 0.09 N/A

3. Competitive intensity 3.47 1.02 �0.06 �0.09 N/A

4. Government policy change 4.10 1.95 �0.11 0.16* 0.09 N/A

5. Government policy predictability 4.02 1.95 �0.08 0.03 0.11 0.63*** N/A

6. Exploitation 4.91 1.40 �0.06 0.01 0.07 0.13+ 0.14* 0.747. Exploration 4.45 1.40 �0.03 �0.04 0.17* 0.15* 0.12+ 0.61*** 0.788. Firm performance 3.14 0.64 0.00 0.13+ �0.09 0.17* 0.11 0.38*** 0.36*** 0.80

Proactive market orientation sample (102)


2. Firm size 4.70 1.52 0.09 N/A

3. Competitive intensity 3.55 1.03 �0.24* �0.07 N/A

4. Government policy change 3.89 1.94 �0.11 0.23* 0.09 N/A


6. Exploitation 4.98 1.35 �0.11 0.12 0.09 0.16 0.07 0.797. Exploration 4.61 1.32 0.00 0.12 0.29** 0.30** 0.15 0.65*** 0.708. Firm performance 3.16 0.53 0.10 0.16 �0.03 0.28** 0.10 0.33*** 0.39*** 0.73

Responsive market orientation sample (101)


2. Firm size 5.30 1.60 0.10 N/A

3. Competitive intensity 3.40 1.01 0.13 �0.08 N/A

4. Government policy change 4.32 1.94 �0.13 0.05 0.09 N/A


6. Exploitation 4.83 1.46 �0.01 �0.07 0.04 0.12 0.21 0.787. Exploration 4.28 1.48 �0.05 �0.14 0.04 0.04 0.09 0.58*** 0.728. Firm performance 3.13 0.74 �0.06 0.14 �0.14 0.10 0.12 0.42*** 0.34*** 0.83

Notes: (a) +p<0.1 (2-tailed test), *p<0.05 (2-tailed test), **p<0.01 (2-tailed test), ***p<0.001 (2-tailed test); (b) the diagonal

elements in bold are square roots of average variance extracted for constructs measured with multiple items; (c) N/A refers to

this item is not adaptive to analysis.


elements. This satisfies Fornell and Larcker’s (1981) criterion for discriminant validity. Taken together,these results show that the measures in this study possess adequate reliability and validity.

Common method bias

We undertook several procedures recommended by Podsakoff et al. (2003) to examine the severityof common method bias. First, we conducted Harman’s one-factor test on all items in the full sample,proactive market orientation sample and responsive market orientation sample. Significant commonmethod variances would result in one general factor accounting for the majority of covariance in thevariables. Therefore, we conducted an un-rotated explorative factor analysis with all the items of bothindependent and dependent variables entered. In the full sample, proactive market orientation sampleand responsive market orientation sample, the largest factor explains 33.9%, 36.7% and 34.3%, whichindicates little threat of common method variance.

Second, we used a CFA approach to further test common method variance. Because of the limits ofthe sample, we performed CFA only with the full sample. A model positing that a single factor thatunderlies all the variables was assessed by linking all items of the dependent and independentvariables to a single factor. This model does not fit the data well and is not acceptable (Chi-square/df=4.69, RMSEA=0.17, CFI=0.84, NFI=0.80, IFI=0.84). When the common factor was removed and allitems were assigned to their theoretical constructs, the model fits the data well (chi-square/df=2.27,RMSEA=0.079, CFI=0.95, NFI=0.91, IFI=0.95). Therefore, the results of this CFA test show that noserious threat of common method bias exists.

Table 4Regression analysis.

Responsive market orientation sample (N=101) Proactive market orientation sample (N=102)

Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7

Controls

1. Industry �0.247(0.091)** �0.262(0.086)*** �0.243(0.086)*** �0.349(0.101)*** 0.172(0.100)* 0.166(0.099)* 0.193(0.102)*

2. Firm size 0.214(0.090)** 0.214(0.086)** 0.215(0.085)* 0.209(0.088)** 0.081(0.104) 0.115(0.104) 0.107(0.102)

3. Competitive intensity �0.366(0.090)*** �0.311(0.085)*** �0.319(0.084)*** �0.261(0.089)*** �0.420(0.102)*** �0.257(0.103)** �0.322(0.100)***

4. Government policy change 0.183(0.092)* �0.122(0.090) �0.114(0.087) �0.160(0.103)+ 0.421(0.122)*** 0.315(0.118)*** 0.301(0.123)***

5. Government policy predictability 0.243(0.092)** 0.223(0.089)** 0.203(0.087)** 0.082(0.100) �0.182(0.120) �0.187(0.114)* �0.232(0.116)*

Predictors

6. Exploitation 0.271(0.117)** 0.178(0.120) 0.232(0.113)* 0.062(0.124) 0.193(0.131)

7. Exploration 0.118(0.115) 0.064(0.089) 0.298(0.108)*** 0.348(0.123)*** 0.240(0.123)*

Interactions

8. Exploration2 �0.233(0.115)* �0.153(0.093)+

9. Exploration�exploitation �0.378(0.097)*** 0.261(0.104)***

F value 5.873*** 5.379*** 5.700*** 3.363*** 2.855** 2.219** 2.416**

R square 0.413 0.518 0.533 0.559 0.329 0.401 0.438

Adjusted R square 0.343 0.422 0.439 0.393 0.214 0.220 0.257

Notes: (a) +p<0.1, *p<0.05, **p<0.01, ***p<0.001; (b) standard errors are in parentheses.

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Third, we followed the latent variable approach suggested by Podsakoff et al. (2003). We specifiedthe items to load on their theoretical constructs, as well as on a latent common methods variancefactor. Then we examined the significance of the structural parameters both with and without thelatent common methods variance factor in the model. We found that all significant relationships heldafter controlling for the latent common methods variance factor, which indicates that commonmethod variance is not an issue in this study. Overall, these results suggest little threat of commonmethod bias and provide support for the validity of our measures.

Analysis and results

Multiple regression analysis was employed to test the hypotheses. The independent variables weremean-centered prior to the formation of interaction terms as recommended by Aiken and West(1991). Table 3 provides the descriptive statistics and zero-order correlations among the variablesused in the regression analysis. Correlations are all below the marginal threshold of 0.70.

Table 4 reports the hierarchical regression analysis results step by step. We examined ourhypotheses with two subsamples. We first entered the control variables, then the predictors, andfinally the interactions. We assessed the variance inflation factor (VIF) values in all regression models.All the VIFs are lower than 3.2, which are well below the recommended cut-off of 10 (Neter et al.,1990). This indicates that there is no serious problem of multicollinearity. The results are reported inTable 4.

In order to test Hypothesis 1a, Hypothesis 1b and Hypothesis 1c, we ran Models 1, 2, 3 and 4 withresponsive market orientation sample. In Model 1, we entered only control variables, which togetherexplain a significant share of the variance (R2 =0.413, p<0.001). In Model 2, we added exploitation andexploration. Model 2 shows that the coefficient of exploitation is significantly positive (b=0.271,p<0.01) while that of exploration is insignificant (b=0.118, p>0.1). Therefore, Hypothesis 1a issupported. In order to test if there is an inverted U-shaped effect of exploration on firm performance,we added squared exploration in Model 3. Model 3 shows that the coefficient of squared exploration issignificantly negative (b=�0.233, p<0.05), which supports Hypothesis 1b.

Fig. 2 depicts the effect of exploration on firm performance. As shown in Fig. 2, firm performancerises with the increase of exploration to a certain threshold, and after that it begins to decline, takingthe form of an inverted U-shape. In other words, at lower levels, exploration fosters firm performance,while at higher levels, it inhibits firm performance. In order to test the interactive effect of exploitationand exploration, we added the interaction in Model 4. Model 4 shows that the coefficient of the
[(Fig._2)TD$FIG]
-3

-2

-1

0

1

2

3

4.442.961.480-1.48-2.96-4.44

Exploration

Firm

per

form

ance

Fig. 2. The effect of exploration on firm performance.


interaction is significantly negative (b=�0.378, p<0.001), which indicates that exploration andexploitation has a substitutive effect on firm performance in firms with responsive market orientation.Therefore, Hypothesis 1c is also supported.

In order to test Hypothesis 2a, Hypothesis 2b and Hypothesis 2c, we ran Models 5, 6 and 7 withproactive market orientation sample. In Model 5, we entered only control variables, which togetherexplain a significant share of the variance (R2 =0.329, p<0.001). In Model 6, we added exploitation andexploration. Model 6 shows that the coefficient of exploitation is insignificant (b=0.062, p>0.1) whilethat of exploration is significantly positive (b=0.348, p<0.001). Therefore, Hypothesis 2a is notsupported while Hypothesis 2b is supported. In order to test the interactive effect of exploitation andexploration, we added the interaction in Model 7. Model 7 shows that the coefficient of the interactionis significantly positive (b=0.261, p<0.001), which indicates that exploration and exploitation has acomplementary effect on firm performance in firms with proactive market orientation. Therefore,Hypothesis 2c is supported.

Discussion

Although ambidexterity is crucial for a firm’s long-term success, existing literature offersconflicting views regarding the relationship between exploitation and exploration and thus how toallocate resources to leverage ambidexterity for firm performance. This study argues thatinvestigating the role of strategic orientation deepens our understanding about the effects ofambidexterity. Specifically, this research aims to investigate if the effects of ambidexterity on firmperformance are different in firms with proactive or responsive market orientations. We find thatambidexterity has different effects on firm performance in firms with responsive or proactive marketorientations. By considering the role of strategic orientation, this research contributes to theambidexterity research from the resource allocation perspective and also the contextualambidexterity literature. Our findings also offer important managerial implications.

Contributions

This research contributes to ambidexterity literature in two ways. First, this research contributes tothe ambidexterity research from the resource allocation perspective by investigating the contingentrole of strategic orientation. Existing literature offers conflicting views regarding how to allocateresources to leverage ambidexterity for firm performance. The incompatible view argues that firmsshould attach more attention to balancing scarce resources to exploration and exploitation (March,1991; Uotila et al., 2009). However, this line of ambidexterity literature offers little insight regardinghow firms allocate scarce resources to leverage exploitation or exploration. Based on the attention-based view, we argue that strategic orientation guides firm’s choice to allocate more resources tosupport exploitation or exploration. Specifically, we investigate if the effects of exploitation orexploration on firm performance vary with the type of market orientation.

We find that in a firm with responsive market orientation, exploitation has a positive effectwhereas exploration has an inverted U-shaped effect on firm performance. In contrast, in a firm withproactive market orientation, we find that exploitation has an insignificant effect whereas explorationhas a positive effect on firm performance. Our findings suggest that in a firm with responsive marketorientation, more resources are allocated to support exploitation because exploitation fits the firm’sstrategic focus better than exploration. Furthermore, responsive market orientation also generatescomplementary market intelligence for exploitation (Atuahene-Gima et al., 2005). However, althoughfirms often allocate and use resources to leverage exploration to meet current market demand, thepositive effect of exploration on firm performance declines when exploration is too high. Highexploration does not fit the strategic focus of a firm with high responsive market orientation and thusabstracts fewer resources. Furthermore, the resources allocated to support exploration in a firm withhigh responsive market orientation often misfit the demand of high exploration.

In contrast, in a firm with high proactive market orientation, exploration fits the firm’s strategicfocus better. Therefore, this kind of firm allocates more resources to support exploration whereasfewer resources to exploitation. Furthermore, market intelligence generated from proactive market


orientation is often complementary for exploration whereas misfits exploitation. However,Hypothesis 2a is not supported and we do not find a negative effect of exploration on firmperformance in a firm with proactive market orientation. The possible explanation may lie in oursample from China, where most firms rely more on exploitation to promote firm performance. In thiscase, a firm with high proactive market orientation may not withdraw too much resource fromexploitation activities.

More important, this study also extends the ambidexterity literature on the debate on whetherexploration and exploitation are incompatible or complementary. We find that the interaction ofexploitation and exploration has a negative effect on firm performance in a firm with responsivemarket orientation whereas it has a positive effect on firm performance in a firm with proactivemarket orientation. Our findings suggest that in a firm with responsive market orientation,exploitation competes with exploration for scarce resources. Responsive market orientation amplifiesresource competition rather than resource sharing between exploration and exploitation. Further-more, responsive market orientation also reduces synergic effects of exploration and exploitation. Incontrast, proactive market orientation reduces resource competition whereas it increases resourcesharing between exploration and exploitation. Our findings contribute to the debate on therelationship between exploration and exploitation by identifying the type of market orientation as acontingency factor. Specifically, our findings indicate that, in firms with responsive marketorientation, exploration and exploitation are incompatible, whereas in firms with proactive marketorientation, exploration and exploitation are complementary to each other.

Second, this research also contributes to contextual ambidexterity literature. Although existingresearch has recognized the importance of organizational context to ambidexterity (Gibson andBirkinshaw, 2004), further investigation is called for to explore the specific influence of certainingredients of organizational context. This study identifies market orientation as a criticalcontextual element, and finds the different influence of proactive and responsive marketorientation on the ambidexterity-performance link. Our findings prove that besides their directeffects, proactive and responsive market orientations as important organizational norms andbeliefs can affect the effects of exploration and/or exploitation on firm performance. Hereby, thisstudy enriches existing research on organizational ambidexterity by adding an important butpreviously neglected contextual component, thus offering new insights into the contextualapproach to organizational ambidexterity.

Managerial implications

Besides theoretical contributions, this study also provides important managerial implications.First, firms should be aware of the significant influence of strategic orientation on the effects ofambidexterity. Managers should be aware that strategic orientation is the more fundamental factor,which guides a firm’s resource allocation pattern. Therefore, when a firm decides to leverageambidexterity for firm performance, managers should start with revisiting the firm’s marketorientation and align with the characteristics of its strategic orientation to balance resourceallocations or/and create resource sharing processes.

Second, our findings suggest that, in responsive market oriented firms, managers should attachmore resources to exploitation because exploitation is fit with the firm’s strategic focus and cancomplement the market intelligence generated by responsive market orientation. In proactive marketoriented firms, managers should attach more resources to exploration because exploration is fit withthe firm’s strategic focus and can complement the market intelligence generated by proactive marketorientation.

Third, managers should be aware that responsive market orientation may constrain the effects ofexploration by reducing resource allocation and/or providing misfit complementary resources.Managers also should pay more attention to find the ways to control organizational conflicts andresource competition between exploration and exploitation. Our results indicate that fosteringproactive market orientation may help firms to reduce organizational conflicts between explorationand exploitation. Fostering proactive market orientation also improves the synergic effects ofexploration and exploitation by facilitating resource sharing.


Fourth, according to our findings, to leverage ambidexterity to promote firm performance,managers should start with fostering proactive market orientation rather than reducing resourcescarcity. Even though abundant resources are available, responsive market orientation may guide theresource allocation in a wrong way and thus undermines the value of ambidexterity. In contrast, eventhough resources are scarce, proactive market orientation may guide the resource allocation in a rightway and thus leverages ambidexterity to promote performance. Our findings suggest that fosteringproactive market orientation contributes to leverage ambidexterity to promote firm performance.

Limitations and future research

Despite theoretical contributions and managerial implications, this study has some limitations thatshould be addressed in future research. First, our results are based on data from China, and it is indoubt whether the findings generalize to other emerging economies and developed economies. Futureresearch may examine our theoretical speculations in other economies, concerning differentcharacteristics of other contexts. Second, the cross-sectional data used in this study could possiblydiscount the causal statements supported by our empirical results. Future research is recommendedto take a longitudinal approach. Finally, this study identifies the importance of market orientation andits match with ambidexterity, but the processes and systems needed to realize such a match call forfurther investigation. Future research should probe into the mechanisms that promote the matchbetween technological innovation and market orientation.

Conclusions

This study argues that investigating the role of strategic orientation deepens our understandingabout the effects of ambidexterity on firm performance. Specifically, this research aims to investigateif the effects of ambidexterity on firm performance are different in firms with proactive or responsivemarket orientations. Our results show that exploration has a positive effect on firm performance underproactive market orientation whereas it has an inverted U-shaped effect under responsive marketorientation; and that exploitation has an insignificant effect on firm performance under proactivemarket orientation, but it has a positive effect under responsive market orientation. Furthermore, wefind that the interaction of exploration and exploitation has a positive effect on firm performanceunder proactive market orientation, but it has a negative effect under responsive market orientation.By considering the contingent role of market orientations, this research extends the ambidexterityliterature on the debate on the incompatible or complementary relationship between exploration andexploitation, and also enriches contextual ambidexterity literature.

Acknowledgements

We gratefully thank the editors and two anonymous reviewers for their helpful comments on theearlier version of this article. We also acknowledge National Natural Science Foundation of China forfinancial support (No. 71102096 and No. 71132006).

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