Alliance Ambidexterity and Innovation

The role of ambidexterity in boosting firm innovation has not received sufficient attention in the exploration-exploitation literature. In this study we provide both theoretical arguments and empirical tests of how alliance ambidexterity improves a focal firm's innovative performance. By decomposing alliance ambidexterity into balanced and combined dimensions respectively, we untangle the different underlying mechanisms for these two dimensions' effect on a focal firm's innovation. Balanced alliance ambidexterity as the absolute difference between exploration and exploitation provides the firm with a moderate level of knowledge diversity that facilitates innovation. It also enables the firm to avoid either the 'failure trap' or the 'competence trap'. The combined alliance ambidexterity as the multiplication of exploration and exploitation builds knowledge complementarity between a firm's technological and functional knowledge that enhances innovation. A synthesizing effect of exploratory learning and exploitative learning also increases absorptive capacity, which in turn boosts innovation. Following the logic of routine rigidity we further argue that younger firms benefit more from exercising both dimensions of alliance ambidexterity than older firms. Empirical tests based on a sample of 352 firm-year observations from China’s information and electronic manufacturing industries support our hypotheses.