EXPLORATION AND EXPLOITATION IN ORGANIZATIONAL LEARNING

by: James G. MarchStanford University

Maria Lourdes Santiago-AgustinStudent

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About the article: The interplay of exploration and exploitation in an organization BUT compete with scarce resources.

Ontologically : Describes organizational change in evolutionary manner by striking a balance between efficiency and flexibility. Though exploration and exploitation are related dialectically.

Research Methodology : Mixed –Method ( individual and group behaviors of employees/personnel is observed and analyzed how it affects organization in terms of space and time) ASSUMPTION:

1. Adaptive processes by refining exploitation more rapidly than exploration, are likely to become effective in the short run but self destructive in the long run. What is good in the long run is not always good in the short run!

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EXPLORATION (efficiency) EXPLOITATION (flexibility)

Deals with dynamic efficiency deals with static efficiency

Searching for new options Refining existing procedures

Experimenting, Discovering new possibilities, conducting research,

Doing the same things only better

varying product lines, risk taking, innovation

Reaping value from already known

refinement of current procedures: efficiency, production, execution

long-term process, with a risky, uncertain outcome.

by contrast is short-term, with immediate, relatively certain benefits

The interplay of exploration and exploitation

Exploration - long term process with a risky uncertain outcome. Experimentation with new alternatives. Its returns are UNCERTAIN, DISTANT, and often NEGATIVE.

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EXPLOITATION –refinement and extension of existing competences , technologies and paradigms . Its return is positive proximate, and predictable.

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The Exploration and Exploitation Trade -Off

Corporation should select an appropriate level of exploration and exploitation on the desired distribution of output through time.

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Reality ca be described in terms of M binary components, representing facts about the world.Each component is represented as +1, or -!.Thus the environment in which the organization exists is an M COMPONENT VECTOR.

Components of reality are random and independent

ORGANIZATIONS or society has a population agents with a particular set of beliefs about reality.An agent beliefs consist of a +1,a-1 , or a 0REPRESENTING A NEUTRAL BELIEF.

N VECTORS with M componentswith equal probability to the components1,0,-1.

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M COMPONENT VECTOR – ORGANIZATIONAL CODE Suppose: All with neutral belief

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Summing up

• Organization affects the amount of exploration and exploitation that they conduct by providing incentives to agents to conform to social code and by controlling the amount of AGENT TURNOVER and the recruitment strategy.

• Without EXPLORATION stagnation develops limiting output especially in dynamic environment.It is also destructive as resources become under-exploited.

• SELECTING AN APPROPRIATE LEVEL OF EXPLORATION and EXPLOITATION depends on the desired distribution of output through time.

KNOWLEDGE TENDS TO INCREASE OVER TIME

• Code Accuracy and Average Agent Accuracy.• Agent accuracy is consistently lower than the code of accuracy.• Each of the steps acts to bring agent beliefs and the code

beliefs cluster. Thus,after a time an EQULIBRIUM IS REACHED.Hence, agents and the code share the same belief vectors.