When Do Sustainability Tensions Harm or Benefit Innovation Portfolios? A Paradoxical Perspective

ABSTRACT The coexistence of a competitive and sustainability strategy often introduces tensions within organizations. These tensions, if not appropriately managed, can lead to defensiveness and destruction, while they also have the potential to drive creativity and foster sustainability. This study examines how these strategic tensions affect innovation portfolio decision‐makers, specifically their decision to select more or less innovative projects. Drawing on paradox theory and innovation management literature, the study investigates the role of contextual factors in moderating the influence of strategic sustainability tensions on portfolio innovativeness. When faced with sustainability tensions, we posit that a firm's entrepreneurial orientation and innovation climate act as contextual factors shaping decisions toward more innovative projects. We test our hypotheses through a multi‐informant cross‐industry survey of 106 innovation portfolios. Our findings reveal that strategic sustainability tensions are associated with higher portfolio innovativeness only when entrepreneurial orientation and innovation climate are high. Conversely, strategic sustainability tensions are associated with lower portfolio innovativeness when these contextual factors are low. The study adds empirical evidence to organizational context factors in paradox theory and contributes to the literature on innovation portfolio decision‐making. Finally, the results add to the importance of sustainability as a strategic orientation in innovation management. Decision‐makers are encouraged to recognize and harness strategic tensions in sustainability, fostering an environment where challenges are transformed into opportunities enhancing the portfolio's innovativeness.