Knowledge stock, exploration, and innovation: Research on the United States electromedical device industry ☆ Jianfeng Wu a, ⁎ , Mark T. Shanley b a Business School, University of International Business and Economics, Beijing, China 100029 b University of Illinois at Chicago, United States Received 1 May 2005; received in revised form 1 November 2007; accepted 1 December 2007 Abstract This study applies the knowledge-based view of the firm to examine the relationships between exploration, characteristics of knowledge stock, and innovative performance. The article argues that the effectiveness of exploration on innovation is contingent upon two dimensions of knowledge stock: knowledge depth and knowledge breadth. Empirical findings from the US electromedical device industry between 1990 and 2000 provide support for this contingency argument. © 2008 Elsevier Inc. All rights reserved. Keywords: Exploration; Knowledge stock; Technological innovation 1. Introduction The competence–rigidity paradox is an interesting topic in strategic management research (Leonard-Barton, 1992; Levinthal and March, 1993; March, 1991). While both exploration and exploitation are essential for firm success and are dependent on each other, how to effectively balance and manage these two processes remains unclear in the literature (Atuahene-Gima, 2005). Some researchers claim that solving this paradox is one of the toughest managerial challenges in creating and sustaining competitive advantage in dynamic environments (e.g., Abell, 1999; Williamson, 1999). Previous studies attempt to resolve this paradox by examining how exploration and exploitation influence firm performance in various settings (e.g., Atuahene-Gima, 2005; Katila and Ahuja, 2002; Rosenkopf and Nerkar, 2001). For instance, Rosenkopf and Nerkar (2001) examine the effects of search behaviors in the optical disk industry and find that the impact of technological innovations depends on the degree of boundary-spanning exploration activities. Considering exploration and exploitation as two distinct processes rather than as a continuum, Katila and Ahuja (2002) find, in the robotics industry, that exploration and exploitation are comple- mentary when new products are introduced. However, while these empirical studies are illuminating, few studies have taken into consideration other contingency factors that influence the linkage between exploration–exploitation and innovative performance, such as the firm's existing knowledge stock. As Nelson and Winter (1982: 172) point out: “Real search processes take place in specific historical contexts, and their outcomes clearly depend in part on what those contexts contain in the way of problem solutions that are available to be ‘found’.” This study fills in this research gap by applying the knowledge- based view to investigate how exploration and knowledge stock interact with each other and influence firm performance. In particular, this study addresses the above question in the setting of technological innovation, and focuses on the moderating role of current knowledge stock on the effect of exploration. The recent knowledge literature suggests that the growth of firm knowledge is a function of knowledge stock as well as continuous search for new knowledge elements and potential integration opportunities (e.g., Kogut and Zander, 1992). Knowledge stock reflects the amount of knowledge elements that a firm has accumulated over Available online at www.sciencedirect.com Journal of Business Research 62 (2009) 474 – 483 ☆ This research is sponsored by the National Science Foundation of China (Grant numbers: 70502011 and 70532005) and by SRF for ROCS, SEM. ⁎ Corresponding author. Tel.: +86 10 82796763. E-mail address: wu5260@gmail.com (J. Wu). 0148-2963/$ - see front matter © 2008 Elsevier Inc. All rights reserved. doi:10.1016/j.jbusres.2007.12.004