Differential effects of external networks and integrative effects of employee integration on innovation ambidexterity

Innovation ambidexterity is important for firms, but their ability to develop both strategies simultaneously has been conventionally challenged. This challenge is caused by the heterogeneous demands of distinct capabilities and resources of exploratory and exploitative innovations. This paper thus investigates the interplay among internal and external collaborations, ambidextrous innovation, and absorptive capacity in small firms. Using a dataset of 228 Australian firms and applying the PLS‐SEM method, we find that supply chain networks influence only exploitative innovation, and knowledge‐oriented networks influence only exploratory innovation. However, employee engagement directly influences both exploratory and exploitative innovation. Absorptive capacity fully mediates the relationship between employee engagement and exploratory innovation and partially mediates the other relationships. The findings support the argument that balancing exploratory and exploitative innovation in firms is important instead of choosing one strategy over the other. It provides empirical evidence of employee engagement as a common antecedent of ambidextrous innovation and the differential effects of supply chain‐oriented and knowledge‐oriented networks. They will inform innovation strategy decisions of firms primarily on the need to broaden external networks and promote employee engagement in the innovation process and that the benefits of knowledge networks for exploratory innovation are realized fully through absorptive capacity.