Exploration versus exploitation: The differential impact of historical and social comparison performance feedback on executives' cognitive orientation

In this study, we relate to the growing research interest for integrating assumptions on managerial cognition in organizational research by examining the effect of performance feedback on executives' cognitive orientations. We furthermore extend prior performance feedback literature by explicitly distinguishing between (1) the effects of performance feedback on two types of cognitive orientations-exploratory and exploitative; and (2) the influence of two types of performance feedback-historical and social comparison. We propose that historical performance feedback-as an internal, self-reflective type of feedback-stimulates executives' exploitative cognitive orientation, but discourages their exploratory cognitive orientation. In contrast, social comparison performance feedback which refers to the organization's position in the social ranking is anticipated to engender exploratory, but hamper exploitative cognitive orientations.

We use an initial empirical study including longitudinal data of 35 U.S. industrial organizations (2000-2009) to test these propositions. In general, the pattern of our results provides support for our anticipations, as we find that executives' exploratory orientation is affected positively by social comparison performance feedback, and negatively by historical performance feedback. Furthermore, but to a lesser extent, executives' exploitative orientation appears to be stimulated only by historical performance feedback.

With this study, we do not only contribute to the emerging research stream on behavioral strategy and the integration of cognitive assumptions into organizational research, but also to the extant literature on exploration and exploitation and on the effects of performance feedback.