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Despite the theoretical assumption that balancing exploration and exploitation is important for long-term performance and survival, previous studies have provided few insights into these relationships because they have focused mainly on the short-term financial performance of organizations. In addition, balancing exploration and exploitation is a critical challenge for small- and medium-sized enterprises (SMEs) that lack the resources, capabilities, and experience necessary to achieving ambidexterity. In this regards, this study empirically explores the relationship between the exploration–exploitation balance and SMEs’ longevity in order to address two important questions from the ambidexterity perspective: (1) How does the balance between exploration and exploitation influence organizational survival? (2) How is the appropriate balance between exploration and exploitation influenced by an organization’s internal and external contexts?

An analysis of 1981–2012 data from the Korean SMEs in IT industry reveals an inverted U-shaped curvilinear relationship between the extent of exploratory innovation and organizational longevity, providing support for the ambidexterity perspective. We further examine the moderating effects of financial slack and environmental dynamism on the relationship between exploratory innovation and organizational longevity. The results indicate that financial slack moderated the exploration–longevity relationship and call for a contingency approach for a better understanding of performance implications of the exploration–exploitation balance.

Despite a growing body of research on exploration and exploitation, scholars have tended to study the phenomena from a narrow perspective mostly within larger, well-established organizations. However, it is still far from obvious how top management within small-to-medium sized enterprises (SMEs) are to address the liability of newness and seek access to resources and capabilities relevant for the pursuit of exploration and exploitation. Resource sourcing and allocation decisions are particularly critical in SMEs and must be aligned with the firm’s fundamental strategic intent and growth model. For example, organizations following a stage model by first developing a domestic market and then expanding globally will require different bundles of resources and capabilities than organizations that are designed to conquer the global arena. Indeed, management systems will likely need to adapt across the firm life cycle such that it can fulfill an explorative function in the earlier stages and an exploitative function in later ones. Hence, early-stage ventures have to master the resource reallocation process which is contingent on their access to capital. Across the firm life cycle, venture capitalists can tap into the growth potential of early-stage ventures is a key factor behind their successful short-term innovative performance as well as long-term survival.