Innovation can be considered as either exploitative or exploratory. The former is incremental in nature, undertaken with the purpose of meeting the needs of existing customers or markets (Benner and Tushman 2003). Exploratory innovations are radical and designed to meet the needs of emerging customers or new markets. March (1991) noted that the fundamental challenge facing firms is the need to both exploit existing capabilities and provide for sufficient exploration to avoid the organisation being adversely affected by major changes in markets or technologies. In his view, exploitation is about efficiency, control, certainty and variance reduction, whereas exploration is about search, discovery, autonomy and innovation. He expressed the view that ‘ The basic problem confronting an organisation is to engage in sufficient exploitation to ensure its current viability and, at the same time, devote enough energy to exploration to ensure its future long-term viability’ (March 1991, p. 81).
The social dynamics in which these two types of activities are embedded are very different in terms of their operational characteristics. They can be of an opposing, sometimes even disruptive, nature (Van Looy et al. 2005). Exploitation benefits from homogeneous beliefs and attitudes, whereas exploration usually requires heterogeneous approaches. As a consequence the latter activity may imply conflict and a redefinition of identities, whilst exploitation thrives on consensus and can be seen as identity confirming. It is very probable that exploration and exploitation require fundamentally different organisational architectures and necessary competencies. This can create internal paradoxical challenges.
I t is difficult for organisations to simultaneously undertake exploitation and exploration. This is because of the very different nature of the two activities and the conflict that may arise over access to scarce resources. Most entrepreneurial firms can be expected to engage in exploratory innovation during the start-up phase and then move towards an exploitative orientation as the company gains in-depth understanding of a specific market or customer group. This perspective was presented by Abernathy (1991), who argued that it is almost impossible for an organisation to be simultaneously creative and productive. This is because the two types of innovation differ in terms of their contribution to the competitive advantage of a firm, involving the use of technologies at different stages of development. As a consequence, creativity can be highly relevant in the exploratory phase but at the exploitative stage productivity will be the dominant activity (Anderson and Tushman 1991; Ghemawat 1991).
Where exploration is a priority, Christensen and Overdorf (2000) proposed the approach of complementing traditional organisational practices with the creation of new organisational structures such as spinouts and acquisitions to achieve the exploration-oriented objectives of an innovation strategy. However the rapidly changing nature of many of today’s global markets means long-term survival may require simultaneous involvement in both types of innovation. O’Reilly and Tushman (2004) suggest that what is required is an ‘ambidextrous organisation’, within which both types of innovation are being exploited, and that to be successful, such an organisation must be able to overcome the obstacles of simultaneously being engaged in incremental and radical innovation. In their view success requires the presence of a clear common vision. Figure 3.1 suggests four alternative options and revenue outcomes.
Goosen et al. (2012) concluded that firms with greater technological capabilities benefitted from ambidexterity. Geerts et al. (2010) found that ambidexterity, both sequential and simultaneous, had a positive effect on firm growth, but that service firms were more likely to rely on sequential ambidexterity. This suggests that sequential ambidexterity may be more
Fig. 3.1 Alternative innovation philosophies useful in stable, slower-moving environments, such as service industries, and for smaller firms that lack the resources to pursue simultaneous or sequential ambidexterity. O’Reilly and Tushman (2004) found that within many ambidextrous organisations, exploratory and exploitative innovation generally occur in structurally independent organisational units which nevertheless remain strategically integrated within the senior management hierarchy.
The different nature of the two types of innovation does mean that management conflicts may arise. The likelihood of conflict is further exacerbated by the fact that individual members of the senior management team are responsible for different exploratory or exploitative organisational units. This can lead to self-interested behaviour with senior managers competing with colleagues over the allocation of scarce resources. To avoid these types of tension while at the same time benefitting from crossfertilisation and synergies between the various business units, a common vision encompassing the critical need for both types of innovation is required, as is a culture based upon collaboration (Jansen et al. 2008).