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The Conflicting Demands of Exploitation and Exploration Published: Monday, April 12, 2010 1:00 am By: Ulises Pabón, Chief Operations Officer

There are two different cognitive and behavioral frameworks that can be used to describe what goes on in any business: exploitation and exploration. 

Exploitation relates to "milking" the current state of knowledge. It includes honing and refining current formulations.  Its primary concern is obtaining results within the current knowledge stage.  In this context, exploitation does not carry a negative connotation.  It equates to the term execution.  A laundry owner that uses her current process and knowledge about cleaning to remove a stain from a customer's shirt is engaged in exploitation. 

Exploration, on the other hand, relates to discovering new knowledge. Exploration is concerned with moving from the current knowledge stage to the next. While exploitation begets mastery, exploration feeds on originality.  If we were to discover the laundry owner we referred to previously experimenting with a new combination of detergents and solutions, trying to invent a quicker and better way to remove ink stains, we would have caught her in the midst of exploration.

Both exploitation and exploration are essential to business.  Exploitation produces the results.  Exploration produces the means to produce the results.

We've been recently using this conceptual framework to understand and explain various phenomena. For example, we recently published the results of a study on Lean Manufacturing that uses this framework to help explain why many Lean implementations fail.  We discovered that rather than approaching Lean from an exploration framework (which helps build a culture of curiosity and genuine interest in continuous improvement) many managers and Lean practitioners approach Lean as a set of given tools - 5S, Value Stream Maps, etc. - to be exploited.  They achieve the short-term benefits the tools are designed to deliver but they remain oblivious to Lean's potential as an engine for radical organizational transformation and entrepreneurial renewal.  Only an exploration framework will deliver that.

The importance of each of these frameworks can be visualized when we examine the extremes.  A business that marshals all of its resources towards exploration, constantly moving the current knowledge stage to the next, but that fails to consolidate, exploit, and translate this knowledge into results is destined to fail.  On the other hand, a business that focuses all of its resources towards delivering results with its current business model, "milking" its success formula until depletion, sooner or later will have to face the inevitable outcome of obsolescence and exhaustion.

Hence, businesses and organizations need to strike a dynamic balance between exploitation and exploration.  Both the administration of business and the re-invention of business are necessary for sustain growth.

The bureaucratic answer to the exploitation-exploration dilemma is to assign departments to each endeavor. There are those whose job is to invent the future while there are those whose job is to get the product out the door or service the customer coming in. The problem with this approach is that it relegates innovation to a small group and delimits it to the development of new product or service offerings.

The bureaucratic answer helps neither you nor your organization. Innovation is critical for improvement to flourish in all organizational dimensions: not only products and services, but also processes and methods, and business models and strategy.  This means promoting innovation from the top-down, across the organization, and from the bottom-up.  Hence, the spirit of exploration needs to be present throughout the organization, not just in specific pockets.  For those trapped in bureaucratic prisons a delicate mix of lots of ingenuity with a dash of disobedience may be required to break the spell. Some of the most daring bottom-up innovators I've met manage to use every single opportunity to advance their innovation agenda.

f you are unsure about where your organization's energy and effort is currently focused on, try listing all of the exploration, experimentation, improvement, and innovation efforts that are taking place in your organization.  We suggest using a matrix that allows for incremental improvement, step-function improvement, and breakthrough in one axis, and product/service focus, process focus, and business model focus on the other.  We've found this tool to be an eye opener in many organizations and a step towards achieving a balance between exploitation and exploration.

It doesn't matter whether you're a small entrepreneurial business trying to survive or a country competing in the global economy.  Balancing the conflicting demands of exploitation and exploration activities needs to be your top priority.

Copyright 2010 QBS, Inc.
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