The Long March: The quest for valid text-based indicators of exploration and exploitation

Since March outlined the importance of balancing exploration and exploitation in organizational learning, the exploration-exploitation paradigm has received substantial attention in the management literature. Recent studies have used computer-aided text analysis to construct measures of firms' inclination towards exploration or exploitation, using the original set of keywords proposed by James G. March. We propose a structured series of tests to assess the validity of computer-aided text analysis-based measures and demonstrate that the approach used in prior studies is unlikely to deliver valid indicators. We demonstrate that an alternative approach, which relies on a larger library of keywords, including synonyms of the March keywords and selects only those keywords that are informative and that pass validity tests, delivers valid computer-aided text analysis indicators - both for unstructured (news articles) and structured text-bases (annual reports). Our study contributes to the literature on construct validity and has broader implications for the development of computer-aided text analysis-based indicators in strategy and organization research.