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As the economy shows signs of revival CEO's are wondering how to restructure and reorganize around potential innovation and growth opportunities. A great way to do so is to consider the organization's capabilities and relationships and re-organize to exploit and explore opportunities.
Exploration and exploitation are organization learning ideas first explained by James March in 1991 and very influential, since then, in academic circles . These ideas appear to be less vigorously applied in real organizations. In the context of innovation organizations need to answer two sets of questions questions:
- What are our capabilities? What do we do better than competitors? Do we have some new technologies that can create new markets?
- What are our relationships ? With suppliers and distributors ?
Next organizations need to create a list of capabilities and relationships that sustain most of their market. Here organizations should be thinking of "exploiting" or improving performance. Initiatives like lean,six sigma and total quality is appropriate for these categories.
Then,there might be a small market where leading edge capabilities are deployed and current revenues are low. There is huge potential for growth and yet people are too busy with the "exploiting" and keeping an handle on existing business to think of creating new ones. Only by balancing the need for exploiting and exploring capabilities and relationships can the organization enable innovation and learning.