Anticipating organizational technological exploration and exploitation dynamics under varying knowledge usage rates

The central decision any organization must make is its balancing act of determining which markets to serve with what products and balancing between exploration-exploitation i.e. whether to seek new technological knowledge to develop new offering or whether to allocate scarce resources to established technological knowledge and serve current markets. This core strategic dimension can subsequently be dichotomized to a decision-making regarding exploitation versus exploration balance under the management of absorptive capacity in acquiring versus discarding new technological knowledge. We explore the dynamics of balance of innovation output regarding resulting from dichotomized strategic decisions in exploration and exploitation under the variable rate of external technological knowledge usage. We build a system dynamic model considering the process of absorptive capacity at the company level and additionally facilitate feedback loops in the process. We shed light on the dynamics of innovation creation from external technological knowledge acquisition when small initial changes in strategic decision making lead to substantial differences in company output. Our simulations illustrate in their basic form how various managerial decisions regarding exploration-exploitation dichotomies in line with the usage of acquired knowledge may influence the output of R&D.