In the sprawling industrial landscape of Indonesia’s manufacturing sector, a pivotal question has emerged that challenges conventional wisdom in organizational strategy: How can firms optimally balance their efforts between exploiting existing assets and exploring new opportunities to maximize performance? A groundbreaking study recently published in Humanities and Social Sciences Communications sheds new light on this strategic paradox, revealing that the most successful companies are those that maintain an almost equal equilibrium between exploitation and exploration, with at least a third of their resources focused on innovation and adaptation.
The research, deeply entrenched in the theoretical frameworks of organizational learning, paradox theory, and upper-echelon theory, dissects the strategic renewal process within Indonesian firms, highlighting a nuanced but critical insight. Rather than over-investing in refining current processes and products—known as exploitation—business leaders should commit significant attention to exploration. This entails venturing into novel technologies, products, and markets, fostering a culture of innovation that can respond swiftly to the volatile shifts characteristic of emerging economies.
Central to this strategic balancing act is the role of the Chief Executive Officer (CEO), whose influence proves indispensable in fine-tuning the balance between these dual renewal efforts. The study’s findings suggest that CEO power functions as a moderator, influencing how effectively firms manage the tensions between exploiting existing competencies and exploring new avenues. This dynamic is especially pronounced in Indonesia’s basic and chemical industries, where the CEO’s leadership style and authority can either reinforce or weaken a company’s capacity to align resources strategically.
One of the most compelling aspects of this research lies in its empirical examination of the interplay between CEO power and top management team (TMT) diversity. The composition of executive leadership, with its varying backgrounds and experiences, emerges as a decisive factor in achieving strategic renewal balance. The study advocates for a context-sensitive approach, emphasizing that firm size mediates how TMT diversity impacts strategic agility and performance outcomes.
For larger Indonesian manufacturing firms, a diverse TMT fosters balanced renewals predominantly through formalized institutional processes and integrative mechanisms. These organizations benefit from robust governance frameworks that support complex coordination across departments, ensuring that both exploitation and exploration efforts are systematically embedded within the firm’s strategic agenda. Such institutionalization promotes stability while enabling incremental innovation in a controlled manner.
Conversely, in smaller firms, the influence of TMT diversity manifests differently. With fewer hierarchical layers and streamlined decision-making processes, diverse executive teams in smaller companies enhance agility. These leaders can more easily pivot between optimizing existing resources and experimenting with new initiatives. This fluidity allows small-scale manufacturers to remain agile in a competitive landscape without the inertia often associated with larger organizational structures.
The study’s strategic blueprint has profound implications for managerial practice, suggesting that firms must adopt a tailored approach when balancing exploitation and exploration. This balance is not a one-size-fits-all formula but necessitates attention to organizational context, industry specifics, and leadership dynamics. By calibrating renewal strategies in alignment with CEO influence and team heterogeneity, firms stand to elevate their performance substantially.
From a theoretical standpoint, the research contributes significant insights to paradox theory by empirically validating the importance of simultaneously managing competing demands within organizational renewal. It challenges traditional dichotomous perspectives that advocate for prioritizing either exploitation or exploration. Instead, it reinforces the strategic value of ambidexterity—the ability to pursue both strategies in tandem without compromising performance.
Moreover, the integration of upper-echelon theory enriches our understanding of how executive-level characteristics shape firms’ strategic trajectories. The research underscores that the CEO’s power is not merely a function of authority but a strategic lever that can facilitate or impede innovation and optimization efforts. This nuanced view positions leadership empowerment as a crucial factor in the orchestration of balanced renewals.
Indonesia’s manufacturing sector, characterized by rapid industrialization and intense global competition, provides an exemplary context in which these dynamics unfold. The sector faces pressure to adapt quickly to technological advancements while maximizing existing strengths. By elucidating how strategic renewal processes can be effectively governed, the study offers actionable insights that extend beyond academic discourse into practical arenas.
This comprehensive framework encourages organizational leaders to rethink resource allocation strategies. Rather than defaulting to conservative, exploitation-heavy models, firms should allocate a significant portion—around 33% or more—to exploring new frontiers. This guideline challenges entrenched business paradigms and calls for a recalibration of innovation budgets and strategic priorities.
Furthermore, the findings invite a reevaluation of board composition and executive recruitment. Emphasizing diversity within TMTs becomes critical for fostering a culture capable of sustaining strategic balance. The study links demographic and cognitive variety in leadership teams directly to the capacity for both incremental improvement and radical innovation across firm sizes.
Notably, the research highlights differences in organizational processes contingent on firm scale, revealing that institutionalization and integration mechanisms play complementary roles to leadership and diversity factors. These structural elements provide a stabilizing infrastructure for larger companies, while smaller firms leverage flexibility and quick decision-making to maintain equilibrium.
The implications extend to policymaking as well, suggesting that fostering leadership development programs and diversity initiatives tailored to firm characteristics can enhance industry-wide competitiveness. This approach aligns with the broader objectives of national economic development, particularly in fast-growing emerging markets like Indonesia.
In sum, this pioneering study presents a robust strategic blueprint for managing the exploitation-exploration paradox within Indonesia’s manufacturing sector. By intricately mapping the interactions between CEO power, top management team diversity, and firm size, it offers a holistic view of strategic renewal that is both empirically grounded and practically relevant. Its insights pave the way for enhanced strategic agility and superior firm performance, resonating across academic, managerial, and policy spheres in an increasingly complex industrial landscape.
Subject of Research:
The research investigates strategic renewal in the Indonesian manufacturing sector, focusing on achieving a balanced approach between exploitation and exploration efforts and examining the moderating roles of CEO power and top management team (TMT) diversity on firm performance.
Article Title:
Balancing exploration-exploitation renewal and Indonesian firm performance: do CEO power and TMT diversity matter?
Article References:
Maharani, I.A.K., Sukoco, B.M., Usman, I. et al. Balancing exploration-exploitation renewal and Indonesian firm performance: do CEO power and TMT diversity matter?. Humanit Soc Sci Commun 12, 1872 (2025). https://doi.org/10.1057/s41599-025-06139-2
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