Exploration-Exploitation
Redirecting the discussion
Frido Smulders PhD
Strategic Product Design
Faculty of Industrial Design Engineering
Delft University of Technology
Presented at 16th IPDMC, EIASM
June 2010, Murcia
Transition NPD-Manufacturing
“… many things have been too complicated to the
people and knowledge of the people … it [the new
product] was not balanced … […] I think it was …
we were aiming too high…”
Agent from manufacturing department when he addressed the transition
from NPD to Manufacturing!
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Frido Smulders
This paper aims to illustrate that
…
… the Exploration-Exploitation literature is in need of a new
perspective
… companies seem not to care about the exploration-exploitation
distinction in the way discussed by academics
… all exploration is in need of some sort of exploitation, sooner or
later!
… exploitation is sequentially depended from exploration
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… the literature doesn’t address the transition from exploration to
exploitation
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Frido Smulders
… the perspective created could redirecting the discussion.
Set up presentation
• Brief overview of literature
• Cases to illustrate sequential dependency
• Research that aimed to describe the transition
– Approach
– Results
• Elaboration of results
• Management implications
• Future research
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Frido Smulders
Exploration - Exploitation
(March 1991)
• Exploration
– Renewing product portfolio, new products/services
– Search, experimenting, creativity, innovation, risk
taking
• Exploitation:
– Creating process reliability & product quality
– Refining, incremental improvements, efficiency
Frido Smulders
Exploration-Exploitation literature.1
It all starts with March (1991)
Adaptation by exploration and/or by exploitation
•
Adaptation by slow or fast learning
•
Knowledge equilibria
An interesting perspective triggering many other scholars to
research it. Many new and additional perspectives are introduced.
However, literature seems still to be incomplete, contradictory and
ambiguous (Gupta, Smith & Shalley, 2006)
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Frido Smulders
Exploration-Exploitation literature.2
Some perspectives and issues:
•
Ambidexterity, Tushman & O’Reilly 1996
•
Balancing (De Weerd Nederhof 2010, Corso & Pelligrini 2007)
•
Explorative & exploitative innovations (Benner & Tushman 2002,
He & Wong 2004)
•
Orthogonal or continuum (Gupta et al. 2006)
•
Balancing requires full dexterity (Corso & Pelligrini 2007)
•
H2 transform from explorative company to exploitative company
(Holmqvist 2004)
•
Balancing on higher levels, across comp. in network (Gupta et al.
2006)
No attention for transfer of ideas from one process to next
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Frido Smulders
Exploration-Exploitation literature.3
Recently Farjoun (2010) introduced an interesting perspective:
•
•
He distinguishes between mechanisms and outcomes
He transfers exploration into its derivative change and exploitation
into stability
Stability and change both could be seen as outcomes and
mechanisms
•
–
–
•
•
•
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Stability as mechanism could lead to stability ánd change
Change as mechanism could lead to change ánd stability
He questions causality between org arrangements and resulting
outcomes
He makes these two interdependent and potentially compatible
Here I will go beyond that and make exploration and exploitation
sequentially dependable
Frido Smulders
Concluding on literature:
•
•
•
Lots of perspectives
Lots of ambiguous issues & definitions
March (1991) mentions: “adaptive systems that engage in exploration at the
exclusion of exploitation are likely to find that they suffer the costs of experimentation
without gaining many of its benefits”
•
•
Transitional perspective lacks
Sequential perspective
 What is it that companies worry about? Getting return
from investment!
Transition from Exploration to Exploitation falls in between
the cracks!
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Frido Smulders
Some examples: Design
agency
• Design agency, e.g. Ideo
– Operational process is to be seen as: “Search, variation, risk
taking, experimentation, flexibility, discovery, innovation”
– Leads to new ideas for clients
– From Ideo’s perspective this is within “existing competencies,
technologies and paradigms” (March) => exploitative
adaptation
• Observation:
– Operational process is exploitation of existing competencies
however with exploratory character
– What will exploration look like for design agencies? Metaexploration …?
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Frido Smulders
•
Some examples:
Shipbuilding
Shipbuilding, e.g. IHC Yard Gusto
– Specialized in design, engineering and construction of unique offshore crafts
(Drill ships, pipelay vessels, dredgers, crane vessels, etc.
– Design part of operational process is to be seen as exploratory: “Search,
variation, risk taking, experimentation, flexibility, discovery, innovation”
– Construction part is exploitative within “existing competencies, technologies
and paradigms”
– Yard closed in late 70s => Gusto Engineering part of SBM Offshore
– Change in business model: selling designs rather then vessels
– Increased amount of proprietary designs
• Observation:
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– Operational process was cut at transition from exploratory character to
exploitative character
– New business model with extended exploitative elements, selling proprietary
designs
– Different form of exploratory adaptation: developing new designs
Frido Smulders
Some examples: R&D lab
• Exploratory R&D lab to exploitative R&D, e.g. Centro Ricerche Fiat
(CRF)
– Exploratory adaptation in service of FIAT Group, no exploitation needed
– CRF’s main business: “Search, variation, risk taking, experimentation,
flexibility, discovery, innovation” => exploration
– CRF strategy in 90’s: less depended on income FIAT => turn CRF into profit
centre
– Exploitative organization needed to be build
– Additional org structures, new roles/functions, new image
– Slogan: Competitiveness for Customers at Competitive Prices (CCCP)
• Observation:
– One can not competitively sell results of exploratory adaptation
– Exploratory operational process of CRF was in need of exploitative ‘tail’
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Frido Smulders
Concluding on examples
•
•
•
•
•
Stability as process could lead to change as outcome (Farjoun 2010)
The character of process is not the indicator for kind of adaptation
March mentions: revenues of exploration are distant in time
Exploratory adaptation needs exploitative adaptation sooner or
later!
Transitional perspective needed
=> Exploitative adaptation seen as sequentially dependent
on exploratory adaptation!
Let’s have look at a well known transition:
NPD-Manufacturing
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Frido Smulders
Additional motivations
•
What is innovation? The process of the outcome?
–
–
•
Innovation is seen from perspective of observer
Innovativeness is situational
Actors engaged in innovation don’t mention the verb ‘innovating’
–
–
–
•
They engineer, the calculate, they experiment, they iterate, etc.
Are they submerged in what innovation is …
Investigate the practice (Brown & Duguid 2001)
Solo-innovators seem to have less problems
–
–
–
–
They get the idea, they design, they engineer, they produce and they use
In the process they experiment, they test, they iterate
Division of labor …! Adam Smith 1776
Many functions, many thought worlds => it is a social “process of negotiation
among disciplines” Bucciarelli 1988
=> What is the transition telling us on innovating and innovation?
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Frido Smulders
Transition NPD-Manufacturing
Exploration
Strategy
Product Management
NPD processes
Purchasing
Manufacturing ‘X’
Manufacturing ‘X’ + ∂
Sales
time
Exploitation
Frido Smulders
Foci NPD literature
• Rational-analytic perspective is dominant
– Steps and phases
– Tools and methods for development
•
•
Program of requirements
CAD-CAM
– Bringing downstream info upstream
•
•
DFX theories
Explicit information exchange
• Structural perspective, integrated NPD
•
•
Multi ‘X’ teams
Parallel development (CE, IPD)
• Time-to-market or diffusion studies
– No transition studies
Transition from exploration to exploitation was never taken.
Socio-interactive perspective is not there!
Frido Smulders
Research approach
Grounded Theory
(Glaser & Strauss 1967, Glaser 1978, 1992, 2002)
• Under-researched area
• Discovering new theories based on empirical data
• Integrated research process of collecting & analyzing
data: Theoretical Sampling
• Ongoing sampling until ‘theoretical saturation’
– Saturation means that theory sufficiently explains recorded
behavior
– New conceptual categories or insights at any stage of process
– Written document: pause in “never ending process of generating
theory”
Frido Smulders
Schematic representation of analyzing process
Theoretical framework
Integration of categories
Properties of categories
Conceptual categories
Critical incidents
Empirical data
Frido Smulders
Research process: 3 stages
• Scanning
– Identification of symptomatic situations related to main concern
of actors
– Three companies: 65 actors
– 6 preliminary theoretical categories
• Focusing
–
–
–
–
Zooming in on actors on both sides of interface
2 companies, 4 projects, 14 actors
265 pages of transcripts
Total 37 theoretical categories
• Integrating
– Inductive leap
– Integrating categories => socio-interactive concept of transition
Frido Smulders
Exploitative state: Socio-interactive
perspective
= Volume production
• New knowledge developed
• Explicit knowledge of drawings transformed into
– Machine settings, moulds, plant layout, etc.
– Assembly & testing procedures, routines
• Interdependent routine behavior of production people
– “multi-actor, interlocking reciprocally-triggered sequences of
action” (Cohen & Bacdayan 1994, p. 554)
Frido Smulders
New construct: noetic system
Noetic system (nous (gr) = mind) is network of complementary
individually held mental models
• Mental models are deeply held internal images of how the world
around us works (Senge 1990)
• Mental models represent person’s view on world including explicit
and implicit understandings and cover knowledge structures and
activity patterns (Kim 1993)
• Noetic system becomes a noetic template if pattern of routine
actions is tightly interlocked.
Frido Smulders
Noetic template: complementary mental
models
Frido Smulders
Routines are noetic systems in action
Organizational routines
Organizational routines Organizational routines
Noetic system
Explicit,
Implicit,
Tacit
Knowledge
&
behavior
Frido Smulders
Maturing Noetic Template
Product Concept
Stage
Free Exploration
Product & Process
Development Stage
Focused Exploration
Pre-production &
0-series Stage
Bounded Exploration
Production
Ramp-up Stage
Extinctive Exploration
Explorative activities
Exploitative activities
Concepting Exploitation
Detailing Exploitation
Testing Exploitation
Implementing Exploitation
Conceptual
Noetic Template
Actionable
Noetic Template
Implantable
Noetic Template
Performing
Noetic Template
Exploration-Exploitation Transition
Transition: absorptive capacity
(Cohen & Levinthal 1990; Zahra & George 2002)
• Equals ‘elasticity’ of noetic system
– Learning process ≈ Kolb (1984)
– New knowledge, skills, attitudes in social setting
• ∂ old/new too large => absorptive capacity insufficient
 No transition
 No relation with existing knowledge
 New noetic system required
Frido Smulders
Transition: innovativeness
• Level of innovation is ambiguous
– 3M Post-it Notes, Innovation? Who’s perspective?
– Transition process was difficult
– iPad? Innovative?
• Learning
– assimilating & accommodating individual and collective mental system
 Innovare (Latin) to bring something new to existing situation
 Innovating becomes: Individual learning in a collective and
social setting that aims to develop new or adjusted noetic
systems.
Frido Smulders
Transition: integrating two ontologies
• Ratio-analytic ontology: content dynamics
– Development of ‘tangible’ dimension
– Machine settings, production & assembly line
– Development of the new product
• Socio-interactive ontology: socio dynamics
– Development of social dimension
– Routines, collaborations, behavior, embedded
knowledge
– Development of noetic system (flip-side of the product)
Frido Smulders
Summarizing
• Bridging from exploration to exploitation brings us inside the
innovation process with two dimensions:
– Ratio-analytic, content dynamics
– Socio-interactive, socio dynamics
• Innovating (innovare) is conscious and unconscious socially based
learning until new/adjusted performing noetic system is realized
• Noetic systems cover knowledge structures and organizational
routines that are embedded in individual mental models
• Innovativeness influences content induced socio dynamic
learning
Frido Smulders
Thank you!
Smulders, Van den Broek & Van der Voort
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