1 Organizational exploration, exploitation, and performance differential: A simulation model of Formula 1 competition 1970-2013 George Papachristos TU Eindhoven School of Innovation Sciences 5600 MB Eindhoven The Netherlands g.papachristos@tue.nl Fernando F. Suarez Northeastern University D’Amore McKim School of Business 360 Hungtinton Avenue, 471 Dodge Hall Boston, MA 02115 fsuarez@northeastern.edu Abstract Technological innovation can disrupt the competitive landscape of an industry and the performance differential of incumbents and their challengers. The challenge for both is to adapt to their changing competitive conditions and environmental dynamics. Adaptation necessitates timely responses, rapid and flexible product innovation, and ambidexterity i.e. managing over time the tension between exploitation for short term gains and exploration for long term improvement in performance. This paper develops a model of innovation and competition in Formula 1 racing where technology development, new team entry, organizational and supplier changes, and annual regulation changes place a premium on ambidexterity as a dynamic capability for firm adaptation. Simulation results show how firm level and environmental changes such as organizational changes and resource acquisition, influence team capability development and erosion and can alter the intra industry performance differential in favour of incumbents or their challengers. 1 Introduction Innovations are crucial to organizations, they change the performance differential in an industry and can transform competitive landscapes (Abernathy and Clark, 1985; Anderson and Tushman, 1990; Tushman and Anderson, 1986). The literature discusses the threat of innovations to incumbents (Anderson and Tushman, 1990; Henderson and Clark, 1990), and why challengers have often an advantage (Christensen et al., 2018; Christensen and Rosenbloom, 1995). Nevertheless, competitive threats do not always bring about incumbent decline as suggested in the literature (Tripsas and Gavetti, 2000; Tushman and Anderson, 1986; Utterback, 1994). Incumbents may adapt and survive because an innovation typically affects the performance of a few key technology components or provides a new alternative, but it rarely renders obsolete the