How Firms shape knowledge to explore and exploit: A Study of Knowledge Flows, Knowledge Stocks and innovative performance across units

We examine how firms may accumulate and apply knowledge through their units at different locations. To that end, we assess the mediating role of units' knowledge stocks and disentangle how firms accumulate knowledge stocks through knowledge inflows and how they apply such stocks to innovative purposes at the unit level. Based on a questionnaire administered to branches of a large European financial services firm, our findings confirmed that horizontal knowledge flows develop units' breadth of knowledge stocks, which in turn positively relates to exploratory innovations. Contrary to expectations, depth of units' knowledge stocks was not fostered by vertical knowledge inflows, but instead by decentralising units. Depth of knowledge contributed not only to exploitative innovations, but also to exploratory innovations. Based on these results, our study illustrates how firms may create competitive advantage by developing and balancing distinct types of knowledge stocks at the unit level.