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Exploration refers to learning and knowledge development intended to increase organizational performance through the exploration of new possibilities.

Exploration can be though of as the invention or discovery of a new technology.

""The essence of exploration is experimentation and new alternatives. Its returns are uncertain, distant, and often negative.""(March, 1991, p. 85)

Exploration vs. exploitation --
Organizations that engage in exploration to the exclusion of exploitation are likely to find that they suffer the costs of experimentation without gaining any of its benefits. They exhibit too many undeveloped new ideas and too little distinctive competence.

Conversely, organizations that engage in exploitation to the exclusion of exploration are likely to find themselves trapped in suboptimal equilibria. As a result, maintaining an appropriate balance between exploration and exploitation is a primary factor in system survival and prosperity.

Both exploration and exploitation are essential for organizations. They both compete for scarce resources. Therefore organizations must choose effectively between them. Organizations make explicit and implicit choices between exploration and exploitation.

Investment return factors for exploration and exploitation -- The returns each vary by --

  • their expected values
  • their variability
  • their timing
  • their distribution within the organization and
  • beyond the organization

Exploration is characterized by terms such as search, variation, risk taking, experimentation, play, flexibility, discovery, and innovation.
Exploitation is characterized by terms such as refinement, choice, production, efficiency, selection, implementation, and execution.

Contextual implications --

  • What is good in the long run is not always good in the short run
  • What is good at a particular historical moment is not always good at another time
  • What is good for one part of an organization is not always good for another part
  • What is good for an organization is not always good for a larger system of which it is part

Exploitation bias - the potentially self-destructive tendency --

The reduced proximate expected value, the uncertainty, the longer lead-time, and the potential to disrupt or need to transform the existing organization or value chain produces a tendency to readily accept exploitive investments and pass up exploration. The immediate return to exploitation is nearly always greater, less risky, and less costly than the pursuit of exploration activities.

  • Compared to returns from exploitation, returns from exploration are -
    • systematically less certain,
    • more remote in time, and
    • organizationally more distant from the locus of action and adaptation.
  • The certainty, speed, proximity, and clarity of feedback ties exploitation to its consequences more quickly and more precisely than is the case with exploration.
    • Basic research has less certain outcomes, longer time horizons, and more diffuse effects than product development.
    • The search for new ideas, markets, or relations has --
      • less certain outcomes,
      • longer time horizons, and
      • more diffuse effects -- than does further development of existing ones.
  • Exploitation is more tangible and measurable - the effects of exploitation vs. exploration are
    • Temporally more proximate
    • Spatially more proximate
    • More precise
    • More interconnected with the organization and the members of the existing value system
  • Reason inhibits foolishness.
  • Learning (single loop learning) and imitation inhibit experimentation (double loop learning with curiosity).

Primary Source: March, James G. (1991), Exploration and Exploitation in Organizational Learning, Organizational Science, Vol. 2, No. 1, February 1991

Multiple Dimensions of Exploration and Exploitation --
Primary Source: Sidhu, 2007
Search strategies and context are intertwined. Variations in the combination of context and search patterns bring about different results, with some searches being more productive than others depending on the context.

Searches can be considered to be both exploratory, being non-local or outside the organization, or exploitative, being local or inside the organization. Both are required for firm survival, with exploitation providing for current competitive advantage while exploration seeks to lay the foundation for future competitive advantage.
definitionsnew of exploration and exploitation --

Exploitation includes such things such as ""refinement, choice, production, efficiency, selection, implementation, and execution"" (March 1991, p. 71).

Exploration, includes -

  • ""things captured by terms such as search, variation, risk taking, experimentation, play, flexibility, discover, innovation"" (March 1991, p. 71).
  • ""innovation, basic research, invention, risk taking, building new capabilities, and investments in the firm's absorptive capacity.
  • ""pursuit of new knowledge, of things that might come to be known"" (Rothaermel, 2001, p. 689)

Exploration-exploitation and Search --
Evolutionary economics provides a more precise approach to describing exploration-exploitation based on the notion of search. The operationalization of exploration-exploitation is specifically in terms of nonlocal and local information- or knowledge-search behavior to discover fresh approaches to technologies, products, and businesses; pursue new knowledge; and experiment with new alternatives.

Exploitive search - searches that are exploitive or local imply that search efforts are relatively closely restricted around the domain of extant (existing) knowledge and competencies, or local search.

Explorative search - searches that are explorative or nonlocal extend into adjoining domains - it may cover technologies used in the industry but not within the organization, it may envelop rivals' marketing strategies, or it may span developments in the whole geographic market in which the firm is active

Search types -- searches can be classified as three types, with those types revealing differences in search fruitfulness and effectiveness based on context of the technological surroundings -

  • supply-side search - firms are likely to search in the vicinity of current technological capabilities, a supply-side aspect vital to a firm's ability to create new offerings.
  • demand-side (market) search - this search is often motivated by the potential discovery of innovation opportunities through such things as brand extension, product repositioning, and targeting of new customer groups based on an improved understanding of the customer need being served, market preferences, and product use and substitution patterns.
  • spatial (geographic) search - this is the search for opportunities in different geographic regions. Even if a firm does not actually expand geographically, is may still engage in boundary-spanning search to gain access to external production and marketing knowledge.

Exploration-Exploitation and Innovation --
Innovation is an outcome of exploration. Exploration increases organizational variety and generates new knowledge -- the precursors of innovation. See innovation.

Strategic Implications - Environment Moderates the Exploration-Exploitation and Innovation Relation --
Firm's do not search in a vacuum. They search within the context of a specific technological phase that carries implications with regard not only to the level of environmental dynamism, but also to innovative opportunities and the kind of new knowledge that can help firms take advantage of those opportunities.

Greater nonlocal supply-side search is positively associated with innovativeness under more-dynamic conditions characteristic of the entrepreneurial regime phase and is negatively associated with innovativeness in less-dynamic environments typical of the routinized regime phase. The opposite is true for nonlocal demand-side searches. Spatial search has a positive effect on innovativeness regardless of dynamism levels.

Effective management of search is vital to an organizations existence. Search choices influence innovativeness and hence the ability to adapt. The management of search goes beyond finding the right balance of exploitation to appropriate returns from yesterday's explorations and exploration to create tomorrow's revenue flows. Three types of search, supply-side, demand-side, and spatial need to be addressed. The effectiveness of these three search types varies by the dynamic context of the firm. Firm's that understand the dynamics of these relationships have a competitive advantage.

More-dynamic environments -- where basic product and process technologies are in a state of ferment and there are plenty of unexploited opportunities (Dosi 1998, Sahal 1985). This is the case in the early dynamic stages of a technological paradigm. This is sometimes called the entrepreneurial regime phase. In this context -

  • supply-side search --
    • more nonlocal supply-side search promotes innovativeness
    • searching in external technological, production, and other supply-side domains can provide new knowledge elements that foster product and process innovation by increasing variation in the problem-solving repertoire and raising chances of finding valuable new combinations.
    • when a large number of product variants coexist, firms experiment with many different unfamiliar technologies in a bid to synthesize these into creative new successful designs.
  • demand-side search --
    • greater amounts of non-local demand-side search have a negative impact on innovativeness.
    • greater demand-side search should be of less value to successful innovation, and may indeed harm it. Typically, at higher dynamism levels uncertainty exists about technological possibilities and the path of further technological evolution, the market is ill defined, and customers do not have well crystallized needs and preferences. Under these conditions, the demand-side is unlikely to be the best source of innovative insights.
    • while boundary-spanning demand-side search can be expected to absorb resources in a changing context, it is unlikely to endow firms with new knowledge elements that result in successful innovations.
    • Indeed, in an environment of technical change, Christensen and Bower's (1996) analysis ascribes the failure of previously successful firms to an excessive demand-side orientation, which - because managers believe in the continued demand for products that meet needs their customers can specify in the context of current technical possibilities - induces investments in projects emphasizing traditional technical approaches.
  • spatial search --
    • greater geographic search should have a positive effect on innovativeness at higher as well as lower levels of dynamism. Boundary-spanning spatial search can contribute useful new knowledge elements both when the environment is technologically stable, or when it is changing.
    • In dynamic contexts specifically, greater nonlocal spatial search can expand the knowledge set by exposing organizations to innovative efforts, technical insights, and problem solving procedures that are new to the firm and may, hence, provide a competitive advantage relative to competitors whose search efforts are more localized.

Less-dynamic environments -- where basic product and process technologies in use have survived the onset of a technology paradigm. This is the case in the later dynamic stages of a technological paradigm. This is sometimes called the routinized regime phase. In this context -

  • supply-side search --
    • a great deal of nonlocal supply-side search may affect innovativeness negatively.
    • the odds of a promising innovation through external knowledge are now reduced, because what has potentially could be discovered through nonlocal search has probably been discovered in the initial search period when technology went through the first more-dynamic evolutionary stages.
    • While further boundary-spanning supply-side search may not deliver useful new knowledge, it would certainly entail knowledge acquisition and integration costs.
    • Because knowledge integration problems are more complex if knowledge scope is wider, extensive supply-side search can harm the ability to develop successful new products because the knowledge-acquisition and integration difficulties and costs outstrip the benefits from nonlocal supply-side knowledge.
    • local search gains in importance due to experience effects derived from applying more proximate or familiar knowledge to attain successful incremental modifications and refinements that build on established competencies.
  • demand-side search --
    • greater amounts of non-local demand-side search have a positive impact on innovativeness.
    • demand-side search that spans market niches occupied by rivals, changes in customer preferences, new sets of potential customers, other ways to satisfy customer needs, value-chain activities of customers, and so on is likely to sharpen awareness and knowledge about the needs and preferences of current as well as potential customers, provide insight into customer product-use and substitution patterns, and give exposure to new-to-the-firm, customer-driven solutions to issues associated with the product offering.
    • In less-dynamic environments this should engender innovativeness b improving ability to refine, adjust, or recombine product offerings in ways that enable provision of greater value to customers by meeting their needs better or by being able to satisfy new customer segments.
  • spatial search --
    • greater geographic search should have a positive effect on innovativeness at higher as well as lower levels of dynamism. Boundary-spanning spatial search can contribute useful new knowledge elements both when the environment is technologically stable, or when it is changing.
    • Comprehensive search in the firm's own and foreign geographic regions, cross-border sales experimentation, maintaining a presence in multiple regions, and so on as vehicles of spatial search - can foster innovativeness in less-dynamic contexts as well as dynamic contexts.