The Perils of Progress and Pitfalls of Decline: How Innovation Performance Feedback Impacts Innovation Ambidexterity

Research on organizational ambidexterity has identified several important antecedents that impact a firm's ability to balance exploration and exploitation. However, behavioural motivations, particularly with respect to performance feedback, are largely underexplored. Drawing on the behavioural theory of the firm, this study examines how innovation performance above and below aspiration levels influences subsequent levels of innovation ambidexterity. Using patent data from 1682 US manufacturing firms between 1980 and 2003, the analysis reveals that both positive and negative innovation performance gaps reduce innovation ambidexterity. Furthermore, organizational size moderates these effects asymmetrically: while larger organizational size dampens the negative effects of performance shortfalls, the negative impact of positive performance feedback is amplified only among the largest firms. The study also finds that innovation orientation conditions firm responses to positive feedback: firms with an exploration‐oriented profile maintain stable ambidexterity, whereas exploitation‐oriented firms reduce ambidexterity in response to success. These findings offer novel theoretical and practical insights into the dynamic, context‐dependent nature of ambidexterity and extend the behavioural theory of the firm into the innovation domain.