Exploration and Exploitation

Exploration and Exploitation is related to Firm Knowledge and learning. This perspective deals with the decision a firm makes to either seek new knowledge or to use current knowledge.  It is related to learning in that this decision represents the presence or absence of learning. This perspective came about with March (1991) where he points out an inherent tension between exploration and exploitation in adaptive processes.

Exploitation involves refinement and extension of existing competences, technologies and paradigms whereas exploration involves experimentation with new alternatives. The returns from exploitation are positive, proximate and predictable whereas returns from exploration are uncertain, distant and often negative. March argues that adaptive processes, by refining exploitation more rapidly than exploration, are likely to become effective in the short run but self-destructive in the long run because it degrades organizational learning in a mutual learning situation. And it also compromise competitive position because ultimately competitive advantages come from the relationship between knowledge and discovery.

Two important concepts relate to the decision firms make to pursue both activities:

  • Ambidexterity:
    • Finding a balance between exploration and exploitation
  • Punctuated Equilibrium:
    • Temporal cycling through short bursts of exploration and exploitation
Furthermore, there is the question of whether these activities are compatible. Some researchers view them as two ends of a continuum while others see them as orthogonal:
  • If both activities are seen as fundamentally incompatible, then it means that
    • The activities compete for scarce resources
    • That activities are self-reinforcing
    • That it requires different mindsets for organizational routines
    • This suggests that they are two ends of a continuum
  • However, some note that:
    • Information and knowledge are infinite
    • External environment also has resources (public goods or alliances)
    • This suggests that they may be orthogonal
  • So:
    • The scarcer the resources, the greater the likelihood  exploration and exploitation are mutually exclusive
    • Within a single domain,  exploration and exploitation will be mutually exclusive
    • Across different, loosely coupled domains,  exploration and exploitation will be orthogonal
(Adapted from course notes)
(Flashcards and other resources here)

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