The Exploration–Exploitation Dilemma: A Review in the Context of Managing Growth of New Ventures

 -Vikalpa: The Journal for Decision Makers

The metaphor of ambidexterity has been used by researchers to refer to the ability of the organization to maintain dual attention on exploration and exploitation activities in order to survive and excel the present, and secure the future, by creating potential for sustainable growth in future.

Managing this duality is a challenge as often the needs of both these activities are contradictory. With business environment becoming increasingly dynamic, it is becoming more essential for start-up firms to balance their attention and resource allocation for exploration and exploitation activities.

In our interaction with several start-up founders for another research, we found that at times start-ups were too focused on exploring the new, and engaged in too much experimentation, and in the process lost the scope of exploiting the outputs of their exploration activities. At the same time, we found start-up firms which seemed to be getting over-engaged in exploitation. However, it is unclear how start-ups cope with the dilemma of exploration and exploitation. In this article, we raise the need for investigating the mechanisms of how ambidexterity is managed in the growth phase of start-up firms.

The article starts with the discussion on why focusing on exploration and exploitation at the same time in the organization is so challenging. Thereafter, the discussion extends to how the theme of ambidexterity has developed drawing from different streams of literature and the mechanisms of managing ambidexterity. The article then looks into how this dilemma operates in the case of start-up firms in their growth phase, the role of top management teams (TMTs) in the process of managing ambidexterity and the effect of ambidexterity on firm performance.

THE CONFLICT BETWEEN EXPLORATION AND EXPLOITATION ACTIVITIES

Exploration refers to the discovery of new products, resources, knowledge and opportunities, and it is associated with radical changes and learning through experimentation. Exploitation refers to the refinement of existing products, resources, knowledge and competencies, and is associated with incremental changes and learning through local search (Benner & Tushman, 2003; March, 1991).

The unknown needs to be discovered or explored, and the known needs to be exploited, to generate more rents for the organization. Exploration involves activities such as search, variation, risk taking, experimentation, discovery, and innovation. Exploitation involves activities such as refinement, efficiency, selection, implementation, and execution (March, 1991). The activities of exploration and exploitation are also different in terms of their organizational structures, processes, cultures, and capabilities (Ghemawat & RicartCosta, 1993).

The learning process in exploration and exploitation follows two different trajectories: exploration involves following a new trajectory, while exploitation follows an existing trajectory. While exploration involves double-loop learning, exploitation involves single-loop learning (Gupta, Smith, & Shalley, 2006). Exploitation and exploration have different characteristics in terms of timeline, risk, and potential return.

In the case of exploration, returns are less certain and more distant in time, whereas in the case of exploitation, the returns are more certain and achievable in a shorter timeframe. Thus, as described by March (1991), exploration and exploitation place essentially conflicting demands on organizational resources, and so trade-offs between exploration and exploitation are seen as unavoidable.

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