16. Exploration and exploitation
In
exploitation, existing fundamental mental, technological, commercial and
organizational frameworks, logics, architectures or competencies are preserved.
It is aimed at improved efficiency, fine-tuning, or optimization. Learning is first
order. In exploration, by contrast, the fundamental frameworks etc. are
broken, lifted, or replaced. It is aimed at new functions, new ways to perform
existing functions, new products and processes, new forms of organization, new
roles, new designs, logics and architectures. Learning is second order.
In the
past, whether the challenge lay in exploitation or exploration depended on the life
cycle of the industry. In the initial phase of take-off the emphasis lies
on exploration, where the focus lies on technical and commercial viability, and
the struggle for a dominant design. Later, in the growth and
stabilization, after the establishment of a dominant design, the emphasis lies
on exploitation, and the focus shifts to efficient production and distribution,
and competition on price.
The problem
for organizations now is this. In present times they must achieve,
simultaneously, some combination of exploitation, needed to survive in the
short term, and exploration to survive in the long term, in what has been
called (with a rather ugly term) ambidexterity (‘combining both hands’).
However, combination of the two in one organization is difficult because they
have different requirements. Exploitation requires stability of basic logics,
architecture, linkages, focus, meanings, roles, competencies etc. while
exploration requires that they be opened up or loosened for change. How can one
combine the two? They entail different mentalities, cultures, and structures.
In the terminology
of the preceding item in this blog, exploitation requires a relatively small
cognitive distance, with shared ideas on priorities, positioning in markets,
ways of doing things, skills, knowledge, technology, and ways of dealing with
each other, while exploration requires more scope for variety, for cognitive
distance, difference of view, novel meanings of established concepts. How can
one combine order and chaos?
The problem
is manifest in tensions between departments of production and departments of
R&D and marketing. R&D and marketing people chide production management
for conservatism and lack of appreciation for novel technical or commercial
opportunities. Production people chide R&D and marketing for having no
sense of how things are made.
An crucial
complication is that the two need to be connected not only to carry on the
operational process of innovation, with exploitation following upon
exploration, but also vice versa, with exploration feeding upon the insights
gained from exploitation.
Note that
this is particularly salient from the perspective of philosophical pragmatism
that I employ in this blog, according to which ideas arise from experience in
practice.
[1] March, J. (1991). ‘Exploration
and exploitation in organizational learning’, Organization Science,
2/1, 101-123.
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