The Right Balance Between Exploration And Exploitation

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The question that many organisation find it difficult to answer. Most of the Companies find it difficult to discover the right balance between both the activities simultaneously. It often end up concentrating on either one aspect at the expense of other which either way is detrimental to the survival and growth of the company. The following paper discusses the need for the company to become ambidextrous in this turbulent and ever-changing competitive environment for its survival and growth. It also tries to explain the management and potential implications for the organisation maintaining the balance between Exploitation and exploration.

Organisational Ambidexterity - Need & Implications on the Organisation :

How the successful Organisation survives and grows in the ever-changing face of Competition and Business Environment? - does these organisations possess capabilities and resources that majority, which failed, doesn't, e.g. A famous study of life expectancy of Fortune 500 companies by McKinsey shows that the average life expectancy of organisation was 90 years in 1935. By 1975, this has dropped to 30 years and by 2005 it was only 15 years. Another study by Wiggins and Ruefli (2004) of over 6700 companies across 40 industries over 25 years shows that majority of Companies failed and only few of them showed a superior financial performance. It is often published across in press, newspapers and television about the failure of once big and prominent Companies, e.g. Polaroid, Lloyds TSB, more recently Lehman Brothers, General Motors, and many more. This shows that being large and successful at one point of time does not guarantee of continued survival. Research suggests that these failures is associated with the Organisations being stagnant and are unable to adapt and change with the changing environment.

Although, such high rate of failures, there are examples of Companies which does not only survived but prosper over the long periods of times, companies which have adapted to change, which began in an industry different from the one they compete in today. Companies like Nokia, est. In 1865, a largest Mobile phones producing Company started with the Lumber business, American Express, est. 1850, a big name in financial service provider started as Express delivery services, Xerox, est. 1906, a large Business Equipment Co. started with producing photograph papers. Companies like Johnson & Johnson, Goodrich, Marriott Hotels, and many more. As these firms do survive in the face of the change, the question is how they manage to adapt - and why are these firms able to accomplish this while majority cannot?

Considerable research shows that the success of these organisations lies in their abilities to adapt - exploit their existing capabilities and assets in more profit producing way and simultaneously explore the new technologies and cater new markets, configure and reconfigure organisational resources to capture existing as well as new opportunities (Tushman and O'Reilly 1996). This emerging issue has gained much importance in modern research since the organisation have to cope with or balance the seemingly contradictory tension within organisations under more and more dynamic environment and severe competition. Due to the dynamism and complexity of the environment, organisations' short term success does not necessarily guarantee their long term survival. These capacities of the firm are referred to as Exploitation and Exploration or Organisation Ambidexterity. The concept of organisation ambidexterity generally have a positive relation with the organisation performance has been complemented by many large scale empirical studies (Duncan 1976, Tushman and O'Reilly 1996, Gibson and Birkinshaw 2004, He and Wong 2004). The concept of Organisation Ambidexterity has been advocated by many researches and it has been around for quite few years, but many companies find it difficult to apply it.

Companies often struggle to find the right balance between the Exploitation and Exploration. Focus too much on Exploitation would benefit the Company in the short term period by increasing the profits and gaining the market share, but the shift in the technology or change in the environment would blindside the organisation. With the Companies focus shifted on Exploitation would result in developing the competencies that improve their immediate performance which often reduced the firms' abilities to search for new competencies that hold the key for future survival. This condition is described as 'Competency Trap' (Levinthal and March 1993), e.g. the famous example for such company would be Chrysler. Chryslers, in 1980s, have introduced the minivan. The minivan has become popular, which has earned a big sales for Chrysler. Because of this Chrysler has configure its factories for producing the minivans, leaving no space for improvement or innovations. After 1980s, America's car-buying tastes change from minivans to SUVs and hybrids due spike in petrol prices and entrance of new competitors left Chrysler nowhere which was forced to merged with Daimler-Benz. Another example would be Lloyds TSB bank has delivered spectacular shareholder returns during the 1980s and 1990s, due the single minded approach of return on equity by than CEO Brian Pitman. But the Company was blindsided by the changing customer needs and morale of the workforce, and that affected the Companies performance which has seen his market share dwindled by 60 % during 1998 to 2003.

On the other hand, too much focus on Exploration means building the tomorrow's business at the expense of todays. Organisation were often lead to series of experimentation, change, innovation and ultimately to failure. The failure leads new search for change and innovation to failures and process go on. As result Organisation is often get stuck in the cycle of failure. This condition is known as 'Failure Trap' (Levinthal and March 1993). Famous example would be the case of Sweden's Ericssion. The Company was pioneered many products in the mobile and communication industry like first analog mobile systems, general packet radio systems and third-generation mobile system, which shown the impressive growth in sales for Ericssion and made the company a industry leader. But high investments on R&D facilities over its 100 technology centres and employment of over 30,000 employees with considerable duplication of effort has hit hard on its profits margins during the subsequent crash in the telecom industry. In other way, too much emphasis on exploration in the future technologies over exploitation of its current business was the reason considered behind the fall of Ericssion.

Management of Organisation Ambidexterity :

So how the Organisation get the right balance between the Exploration and Exploitation or to attain Organisation Ambidexterity? - Generally, the Organisation has to divide its attention and its scarce resources between Exploration and Exploitation activities. Organisation often faces the dilemma of choice of whether to explore the new knowledge or to focus on the existing knowledge or both. It has been observed that as exploitation generates relatively early, certain and more positive results than exploration, there is general tendency of the organisations to focus on exploitation rather than exploration and mostly end up on losing side.

Temporal Ambidexterity is structural solution suggested for achieving organisation ambidexterity. Such ambidexterity is achieved when the whole organisation moves from periods of exploration to period of exploitation in a recursive manner (Tushman and O'Reilly 1996), based on the relevant stages of an industry evolution. The Organisation goes from the stages exploration on the new technologies in the evolution phase to the exploitation of the current technology and simultaneously exploring the new technology for its future survival in the maturity phase. Thus creating a loop of exploration to exploitation and again to the evolution phase, where exploration and exploitation follows the leader-follower relationship. The argument which follows this process is whether the exploitation would lead to exploitation needs to be answered. It would need the substantial departure from existing practices, unlearning and search for the introduction of new routines from organisation point of view (Zollo and Winter 2002). However, this approach rely on the top management and unit managers judgement on how best to divide up the work and the period of time to meet those different needs.

The other perspective that has been proposed in the literature on ambidexterity is the concept of structural ambidexterity (Duncan 1976, Tushman & O'Reilly 1996, Adler et al, 1999), where the organisation creates separate structures for both type of activities. The core business is given the responsibilities for exploiting the existing business practices and processes, while the R&D team focussing on exploring on the new product and technologies for the new and emerging markets. The argument behind such structural difference is that the two activities are totally different and require different sets of settings and resources. But the division of the both the structures This sort of organisation structure creates the coordination costs. The problem with such separation can lead the isolation of the both the units where both have no linkages between them. Due to such isolation it is difficult to for the new ideas to diffuse in the core business.

Another concept has been proposed in relation to ambidexterity is Conceptual Ambidexterity (Gibson and Birkinshaw 2004). This concept calls for the individual employees to make the choices between exploitative activities and explorative activities in context of their day to day activities. In Organisations, implementing such ambidexterity, the systems and organisation structures are more flexible, allowing the employees to use their own judgement over the division of their work towards exploitative and explorative activities. For this the top management shape the organisation context through inputs in the systems, incentives and controls & aspects of the day to day working styles which is then reinforced on to the employees of the organisations through their behaviour and attitudes.