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A recent study found that the odds of firm failure increase significantly after a firm attempts to transition between exploiting current innovations and exploring for new forms of innovation. This is because the skills required to perform one type of innovation differ from those required to perform the other. I look at two firms that failed to make the perilous leap between R&D-based exploration and exploitation, and consider what might have saved them. Firms that make the leap successfully to R&D-based exploration have a history of R&D-based learning, and firms that make the leap to exploitation are not manipulating earnings.

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