When innovation backfires: reversing the performance impact of exploration and exploitation across multi-environmental contingencies

Purpose Although exploration and exploitation are widely studied, the contextual boundary conditions under which innovation strategies succeed or fail remain unclear. Drawing on resource dependence theory and contingency theory, this study investigates how three critical environmental contingencies – munificence, dynamism and complexity – moderate the relationship between innovation strategies and firm performance. Design/methodology/approach Using a sample of 382 publicly listed Chinese firms across five innovation-intensive industries, the study applies hierarchical regression and pick-a-point analyses to explore both curvilinear and reversal effects. Findings (1) In resource-rich environments, exploration drives superior performance, while exploitation is more effective under resource-constrained conditions. (2) Under high environmental dynamism, both innovation strategies yield diminishing returns. (3) In highly complex environments, exploitation outperforms exploration, but neither strategy improves performance under low complexity. Originality/value This study advances the literature by: (1) introducing a multi-contingency model of strategic fit for innovation, (2) uncovering nonlinear and reversal effects in the performance outcomes of exploration and exploitation and (3) considering simultanely three environmental contingencies in the explanation how firms can dynamically align innovation strategies with environmental characteristics.