Navigating a crisis: do exploration and exploitation help SMEs when they respond to COVID-19 disruption?

This study investigates the validity of exploitation and exploration when small- and medium-sized enterprises (SMEs) navigate a highly uncertain time. Although balancing the two strategies has been thought to lead to improved firm performance in general, a combined approach appears to be problematic for SMEs due to a lack of feasibility. We theorise that the effectiveness may vary depending on a fit between the strategies and the environmental contingencies. In doing so, we considered two potential environmental contingencies of a crisis for SMEs: loss of demand and loss of supply. To put our theory to the test, we gathered 224 responses from business leaders and key individuals from Korean start-ups and tested the effectiveness of crisis management strategies. Our findings support the validity of both exploitation and exploration when firms face a loss of demand, but not a loss of supply. It implies that the effectiveness of exploration and exploitation is contingent upon a specific form of crisis experienced at the firm level.