Balancing innovation and exploitation in the fourth industrial revolution: Role of intellectual capital and technology absorptive capacity

Industry 4.0, which features the Internet of things (IoT), cloud computing, big-data, digitalization, and cyber-physical systems, is transforming the way businesses are being run. It is making the business processes more autonomous, automated and intelligent, and is transmuting the organizational structures of businesses by digitalizing their end-to-end business processes. In this context, balancing innovation and exploitation—organization's ambidexterity—while stepping into the fourth industrial revolution can be critical for organizational capability. This study examines the role of intellectual capital (IC)—human capital, structural capital and relational capital—in balancing the innovation and exploitation activities. It also examines the role of technology's absorptive capacity in the relationship between IC and organizational ambidexterity (OA). Data were collected from 217 small and medium enterprises from the manufacturing sector of Pakistan using a closed-ended Likert scale-based questionnaire. The study employs partial least square-Structural Equation Modeling (PLS-SEM) for data analysis. Findings indicate a profound influence of all dimensions of IC, both overall and by dimensions on organizations’ ambidexterity. Findings also exhibit a significant partial mediating role of technology absorptive capacity (TAC) in the association of IC and ambidexterity. The findings of the study emphasize the creation of specific policies aimed to develop IC of a firm, which in turn can enable a firm to maintain a balance between innovation and market exploitation activities. The study integrates the TAC with the IC-OA relationship, which is the novelty of the study.