How do young firms manage product portfolio complexity? The role of absorptive capacity and ambidexterity

Abstract Building a complex portfolio of products can be beneficial for young firms due to increased sales growth and competitiveness. Yet, the benefits from product portfolio complexity (PPC) are often outweighed by rising costs, leading to an inverted U‐shaped relationship between PPC and performance. Recent research has called for an increased understanding of how firms are able to better manage higher levels of PPC. We suggest that absorptive capacity and ambidexterity are vital to enhancing the benefits and mitigating the costs of increasing PPC. Using a sample of 215 young high technology firms, we find support for positive moderating effects of absorptive capacity and ambidexterity on the inverted U‐shaped relationship between PPC and firm performance. Copyright © 2012 John Wiley & Sons, Ltd.