EXPRESS: The Long March: The Quest for Valid Text-Based Indicators of Exploration and Exploitation

Since March (1991) outlined the importance of balancing exploration and exploitation in organizational learning, the exploration-exploitation paradigm has received substantial attention in the management literature. Recent studies have used computer-aided text analysis (CATA) to construct measures of firms’ inclination towards exploration or exploitation, using the original set of keywords proposed by March. We propose a structured series of tests to assess the validity of CATA-based measures and demonstrate that the approach used in prior studies is unlikely to deliver valid indicators. We show that an alternative approach, which relies on a larger library of keywords including synonyms of the March keywords and selects only those keywords that are informative and that pass validity tests, delivers valid CATA indicators – both for unstructured (news articles) and structured text bases (annual reports). Our study contributes to the literature on construct validity and has broader implications for the development of CATA-based indicators in strategy and organization research.Keywords: exploration, exploitation, ambidexterity, content analysis, computer-aided text analysis (CATA), firm performance