Drawing on the knowledge-based view and the dynamic capability framework, we argue that a firm’s broad knowledge base is a critical source of dynamic capabilities that enables it to sense and seize opportunities and reconfigure resources to realize such opportunities, thereby facilitating exploration. Data from strategic alliances of incumbent biopharmaceuticals suggest that firms with a broad knowledge base can use more exploration alliances because they have a lower need to compensate for their exploration with exploitation, can shift faster from exploitation to exploration, and suffer less severe detrimental effects on firm performance, even if they explore beyond an optimal level.