Exploration and Exploitation

1. 策略性知識管理 Exploration and Exploitation 企博二 蔡旻恭 R48951143

2. The Concepts of Exploration & Exploitation • A central concern of studies of adaptive processes is the relation between the exploration of new possibilities and the exploitation of old certainties (in organizational learning). • Exploration includes things captured by terms such as search, variation, risk taking, experimentation, play, flexibility, discovery, innovation. • Exploitation includes such things as refinement, choice, production, efficiency, selection, implementation, execution. March, 1991, Exploration and Exploitation in Organizational learning, Organization Science, V2, p71.

3. The Concepts of Exploration & Exploitation • They are in terms of (or defined as) • Actions (Behaviors) ? • Capabilities ? • Norms (Culture, Climate) ? • Processes ? • Strategies ? • Structures (Functions) ?

4. The Concepts of Exploration & Exploitation • Exploration implies firm behaviors characterized by search, discovery, experimentation, risk taking and innovation, while exploitation implies firm behaviors characterized by refinement, implementation, efficiency, production and selection. He & Wong, 2004, Exploration vs. Exploitation: An Empirical Test of the Ambidexterity Hypothesis, Organization Science, V15, p481.

5. The Concepts of Exploration & Exploitation • Exploration and exploitation require substantially different structures, processes, strategies, capabilities, and cultures to pursue and may have different impacts on firm adaptation and performance (He & Wong, 2004). • Exploration is associated with organic structures, loosely coupled systems, path breaking, improvisation, autonomy and chaos, and emerging markets and technologies. • Exploitation is associated with mechanistic structures, tightly coupled systems, path dependence, routinization, control and bureaucracy, and stable markets and technologies

6. The Concepts of Exploration & Exploitation • The returns associated with exploration are more variable and distant in time, while the returns associated with exploitation are more certain and closer in time (He & Wong, 2004). • In other words, explorative firms generate larger performance variation by experiencing substantial success as well as failure, while exploitative firms are likely to generate more stable performance.

7. The Concepts of “Balance” • Maintaining an appropriate balance between exploration and exploitation is a primary factor in system survival and prosperity (March, 1991). • Firms need to achieve a balance between exploration and exploitation to achieve superior performance (Tushman and O’Reilly, 1996).

8. The Concepts of “Balance” • Ambidexterity refers to the synchronous pursuit of both exploration and exploitation via loosely coupled and differentiated subunits or individuals, each of which specializes in either exploration or exploitation. (Gupta, Smith & Shalley, 2006).

9. The Concepts of “Balance” • Punctuated equilibrium (or temporal cycling) refers to temporal rather than organizational differentiation and suggests that cycling through periods of exploration and exploitation is a more viable approach than a simultaneous pursuit of the two (Gupta, Smith & Shalley, 2006).

10. Issues of Exploration & Exploitation • Definitions and connotations • The central ambiguity regarding the definition and implications of exploration and exploitation lies in whether the two are distinguished by differences in thetype of learning or by the presence versus the absence of learning. Gupta, Smith & Shalley, 2006, The Interplay Between Exploration and Exploitation, Academy of Management Journal, V49, pp693-706.

11. Issues of Exploration & Exploitation • Orthogonality vs. continuity • Are exploration and exploitation two ends of a continuum, or two different and orthogonal aspects of organizational behavior?

14. Issues of Exploration & Exploitation • Ambidexterity vs. punctuated equilibrium • Are these two mechanisms equally viable, so that an organization can pick one or the other at will? • Should exogenous or endogenous contextual factors drive the choice between the two mechanisms?

15. Issues of Exploration & Exploitation • Duality vs. specialization (nested system) • Is it logical to predict that, under certain conditions, long-term survival may be feasible without balance—that is, by dedicating an organization or system solely to exploration or solely to exploitation.

16. He & Wong • H1a: There is a positive interaction effect between explorative and exploitative innovation strategieson firm performance. • H1b: The relative imbalance (absolute difference) between explorative and exploitative innovation strategies is negatively related to firm performance.

19. He & Wong • H2: Firms that specialize in explorative innovation strategy exhibit larger intragroup variation in performance, relative to their mean values of performance, than firms that specialize in exploitative innovation strategy. • H3: Ambidextrous firms (scoring high on both explorative and exploitative innovation strategies) exhibit smaller intragroup variation in performance, relative to their mean values of performance, than firms that specialize in explorative innovation strategy.

21. Greve • H1a: When performance relative to the aspiration level decreases, the rates of launching exploration innovations and exploitation innovations increase. • H1b: Performance relative to the aspiration level has a stronger effect on exploration innovations than on exploitation innovations.

22. Greve • H2a: When absorbed and unabsorbed slack resources increase, the rates of launching exploration innovations and exploitation innovations increase. • H2b: Absorbed and unabsorbed slack resources have a stronger effect on exploration innovations than on exploitation innovations.

23. Greve • H3a: The rate of launching exploration innovations decreases with the duration since the last exploration innovation. • H3b: The rate of launching exploitation innovations decreases with the duration since the last exploitation innovation. • H4: The rate of launching exploration innovations decreases with the proportion of recent exploitation innovations.