Managing strategic contradictions: A resource allocation mechanism for balancing ambidextrous innovation

Improving and innovating are key strategies for organizations to meet both strengthening and sustainable developing. How to address resource-allocation contradiction given balancing ambidextrous innovation has remained largely unexplored. This paper develops a new mathematical model considering the expected profit of exploitation and exploration, success rate of exploitation and exploration, and discount factor. Findings are summarized as follows: 1) The larger the ratio (the cash flow from exploitation divides by that from exploration), the more resource is allocated to exploitation, which is the opposite case for exploration; 2) The larger the success rate of exploitation or exploration, the smaller amount of resource allocation. And the relationship between the allocation and success rate follows the rule of diminishing marginal return; 3) Profit maximization does not sacrifice the balance of exploitation and exploration innovation. This model is easy to be understood and operated by top managers, specifically the decision variables in the model are close to company's operation and easy to be measured or evaluated.