Abstract

To create a competitive advantage, firms need to find activ-ity configurations that are not only internally consistent, but also appropriate given the firm’s current environment. This challenge is particularly acute after firms have experienced an environmental change that has shifted the existing competitive landscape and created new, high-performing sets of activity choices. How should firms organize to explore and search such an altered performance landscape? While it has been noted that adaptive entities need to maintain a balance of exploration and exploitation, little is known about how different organizational structures moderate this balance. With the help of an agent-based simulation model, we study the value of three different organizational structures: a centralized organization, in which decisions are made only at the level of the firm as a whole; a