Not All Carrots—Some Sticks: The Impact of Overperformance Duration and Intensity on Firm Innovation
Xin Pan, Xuanjin Chen, Zhenzhen Xie, Hao Wang
kHUB post date: November 2025
Originally published: July 16, 2025 (PDMA JPIM • Vol. 42, Issue 6 • November 2025)
Read time: 50 minutes
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While previous studies have acknowledged the importance of underperformance duration in organizational responses, few conceptual or empirical efforts have been made to explore how overperformance duration shapes innovation strategies over time. Drawing on the behavioral theory of the firm (BTOF), this study argues that overperformance duration has a U-shaped relationship with exploratory innovation and an inverted U-shaped relationship with exploitative innovation. Additionally, the intensity of overperformance is investigated as a moderator that amplifies both nonlinear relationships. Using firm-level and patent data from 691 Chinese listed manufacturing firms between 2006 and 2018, empirical tests provide supporting evidence for these arguments. This study advances the current understanding of the BTOF by introducing and analyzing a temporal perspective on how positive performance deviations influence different types of innovation through performance feedback.
Practitioner Points
- Winning streaks follow a pattern. In the first two years of beating your targets, incremental fixes—cheaper processes, add-on features—deliver the fastest pay-off. After roughly three years those quick wins dry up; growth now comes from riskier “exploratory” plays such as unfamiliar technologies, new business models or fresh customer segments.
- Action checklist:
1) Track both the size and length of your out-performance.
2) Focus resources on incremental improvements during the first 18–24 months, but earmark funds for riskier projects well before the three-year mark—sooner if the gap is large.
3) Policymakers can reinforce this discipline by tying R&D incentives to overperformance duration.