|Ph.D Student||Dothan Ari|
|Subject||Capability Development: Learning from Performance|
|Department||Department of Industrial Engineering and Management||Supervisor||Professor Dovev Lavie|
|Full Thesis text|
This study introduces a behavioral theory of capability development. It suggests that a firm’s efforts to develop its explorative and exploitative capabilities are driven by performance feedback, and subsequently enhance performance. This full feedback loop is tested with a sample of U.S. firms in the electronics industry during 1993-2001. The findings reveal reduced investment in exploitative capability when performance exceeds aspirations, yet investment in explorative capability increases following such performance gap. In addition, environmental munificence and uncertainty attenuate these effects. The firm’s exploitative capability enhances performance in the short term, while its explorative capability undermines it in the short-term but improves it in subsequent periods. Finally, availability of resources and business relatedness enhance these performance effects. Accordingly, this study integrates theories on learning from performance feedback with the resource-based view while informing research on the balance between exploration and exploitation.