The interplay between exploration and exploitation, by A. Gupta, K. Smith, and C. Shalley, 2006. (review by Melissa McIntosh)
Exploration and exploitation have emerged as twinned concepts underpinning organisational adaptation research. However, there are some central issues that remain ambiguous. This study aims to answer four questions. What do exploration and exploitation mean in this context? Are they the two ends of the same continuum, or are they at odds with each other? How should organisations achieve balance between the two; is it through ambidexterity or punctuated equilibrium? And for that matter, should organisations strive for a balance, or is specialisation in either exploitation or exploration sometimes sufficient for long-term success?
While exploration has been collectively agreed to refer to learning and innovation; the pursuit of new knowledge. Exploitation, however, has no such consensus, and it is debated whether it refers to only the use of past knowledge, or whether it includes the pursuit of new knowledge, albeit of a different kind to exploration, as well. To begin any significant body of research into the subject, these terms must be clearly defined.
In this context, ambidexterity refers to the joint pursuit of both exploration and exploitation, via loosely coupled differentiated individual components that specialise in either territory. In contrast, punctuated equilibrium refers to temporal rather than organisational differentiation and suggests that cycling between exploration and exploitation over time is a more viable approach than attempting to pursue both at once.
Continuity or opposition?
It has been long argued that the scarcer the resources needed (i.e. time or energy constraints), the greater the two will be mutually exclusive. Traditional views hold that by nature they’re in opposition, and that a finite amount of energy means only one can be focussed on. No matter which option is pursued, it will lead to more of the same.
In many circumstances this may still hold true, however a division of labour may lead to an easier coexistence between the two within the same organisation.
A universal argument cannot be made in favour of one approach or the other. The relationship between the two is dependant on whether the two compete for finite resources and whether the analysis focuses on single or multiple domains.
Ambidexterity or punctuated equilibrium?
When analysis is confined to a single area (for example, per individual or subsystem,) and exploration and exploitation are considered as two ends of one continuum, logically, it would be thought that punctuated equilibrium be viewed as the appropriate balance for need for both of them.
Conversely, when analysis is engaged over multiple connected areas, exploration and exploitation are considered to be at right angles to each other. Appropriately, ambidexterity is considered to be the correct mechanism to balance the need for both.
In the end, ambidexterity and punctuated equilibrium may be easier to achieve and maintain at an organisational level rather than at an individual or subsystem level, where different groups can focus on either exploration or exploitation within the greater equilibrium.
Duality or specialisation?
Is long-term survival possible without balance? Or is it feasible that, under certain conditions, an organisation may be able to survive while being devoted entirely to either exploration or exploitation?
Organisations operate within broader social system and are interdependent on many other organisations. A balance between the exploration and exploitation could be obtained at market interface while each individual organisation focuses on only the one aspect.
Long-survival while focusing on one aspect is possible when three criteria are met:
- There are two organisations, each specialising in exploitation or exploration which control mutually complimentary resources. This ensures the exploring organisation’s output and ideas can be passed over to the exploiting organisation, while the exploiting organisation has a constant supply of new ideas
- The domain in which exploring organisation is operating within is highly dynamic, while the exploiting organisation is geared towards stability
- The degree of mutual co-specialisation in the two resources is low. This ensures that there is more likely to be a sufficient and stable market relationship between the two organisations and that both are compensated adequately for their respective contributions.
Under these specific conditions, it is feasible for an organisation to operate solely in an explorative or exploitative manner.
Exploitation, in this context, might be said to relate to maximising today’s income, while exploration might be said to relate to enabling tomorrow’s. The natural business cycle, often with “cash-cow” in the latter stages, is an example of exploitation as a normal business practice where earlier investments in R&D, infrastructure, brand and so on produce their greatest financial returns. Perhaps the biggest challenge here is that exploitation, especially when it is the focus or intent, is inherently destructive, without concern for sustainability or, often, morality. Equally, exploration needs its own boundaries to prevent it simply being a drain on resources without direction or accountability.
Bringing this to a human organisational level, the same principles apply. Organisations that don’t invest in building culture, skills, careers and employee growth generally, and who penalise failures much more fervently than they reward risk, innovation and opportunity-seeking, are highly exploitative. As such, they seek to get as much out of their people as they can with a view on immediate task execution and efficiency. This is a transactional approach that sees employees as “human resources”, as property, equipment or IP might also be categorised as other corporate resources. This approach makes management seem simple in a Victorian-esque way, but, as with exploitation generally, is not sustainable in fluid, evolving and discretionary markets.
Other organisations take a more explorative approach to their teams, in both who they employ, how their tasks are organised, the training and types of training, support and mentoring they receive, how they are engaged, managed and rewarded, and how they, and their business unit evolve together. If too much exploration occurs, there is a risk of over-investing in personal development without ongoing expectations of productive return, and at some stage losing people to competitors who, instead of investing in exploratory activities, simply paying more to employees who have been trained by previous employers. Clearly, this is more of a concern to employers who invest in training but are otherwise exploitative in how they engage and reward employees.
Reciprocity, a concept weak in individual reliability but strong across groups, suggests that employers who invest in their people can have those investments returned and engagement enhanced if they are seen and managed as a collaborative discretionary investment in individual employees, whereas where training doesn’t occur, or is non-discretionary or non-collaborative, are unlikely to see returns beyond basic compliance. Further, when competitive commercial markets coincide with labour markets where ready-made “ideal” employees and job candidates are scarce, the sole tactic of exploitation (likely linked to higher labour costs and lower employee engagement) has to be questioned in its sustainability tomorrow and in its competitiveness today. Similarly, a sole tactic of exploration risks being uncommercial today, in turn jeopardising the possibility of tomorrow.
There is a moral / cultural element to this too: Do employers have a responsibility to contribute to the ongoing personal development of their employees? Do employees have a responsibility to contribute to the ongoing success of their employers? If one is seen as exploitative, should the other respond in kind? Clearly, as the balance of power lies with the employer, the balance between exploration and exploitation, and therefore how they see their social, if not market, role, is a choice for employers.