Powered By Change

The Paradox Of Exploitation Versus Exploration

By March 25, 2018 No Comments

Plato wrote about a paradox that some call “Meno’s Problem” in which Socrates and Meno are engaged in a conversation about the nature of virtue. Meno offers a series of suggestions, each of which Socrates shows to be inadequate. Socrates says he doesn’t actually know what virtue is. How then, asks Meno, would you recognise it, if you ever encounter it? How would you see that a certain answer to the question “What is virtue?” is correct unless you already knew the correct answer? Socrates’suggests that basic elements of knowledge, enough to recognise a correct answer, can be “recollected” from a previous life, given the right kind of encouragement – and Recollection Theory was born.

Unfortunately, as very few philosophers believe in reincarnation, the theory died (never to return), yet Socrates’ assertion that knowledge is latent in each individual is now widely (though not universally) accepted, at least for some kinds of knowledge. Even Noam Chomsky in the 1950s said, famously, that the basic elements of the grammars of all human languages are innate, ultimately a genetic endowment reflecting the cognitive evolution of the human species.

Shifting from life in general into the corporate world, could it be the case that businesses who struggle to innovate and pro-actively grow, actually have the innate capability to do so; they just don’t have the right kind of encouragement? I believe so. However, they face a paradox. On one hand they should be concentrating on exploiting the existing assets, yet on the other hand they need to be exploring the horizon of opportunities. I call this the Paradox Of Exploitation Versus Exploration.

In my latest book, Powered By Change, I tackle this paradox in detail. Here I’ll use a few of the concepts to give you a general overview.

Many businesses are like an oil tanker. They move slowly and make the most of all the existing assets and resources that are already in place. Organisations have a requirement to make what they normally make, sell what they normally sell, but yet at the same time need to be thinking in a more agile and change-driven way. These companies need to simultaneously be exploring new ideas and territories in a faster way, just like launching a speedboat.

Paradoxes are different from problems. A problem has a solution or an answer, whereas a paradox can’t be solved in a binary way, so therefore needs balance. If this tension between exploitation and exploration were a problem, then you could say something like: “Sink the oil tanker!” Yet what you might then end up with is a potentially unprofitable speedboat with none of the experience and benefit that the oil tanker brings. Another answer could be: “Drown the speedboat!”, but then you find yourself in a prime position just waiting to be disrupted by the perpetual winds of change, while comfortable on your comfortable tanker—which in reality is exactly the same as building a wall to resist change. Instead what we have here is a paradox that requires balance. We need to balance these two requirements and find the most effective way to exploit what we already have and do, while exploring the new.

There are very few companies that have done this really well. One great example of a business that has created an amazing balance of exploitation and exploration is W. L. Gore and Associates. This Delaware company, best known for its invention of the Gore-Tex waterproof breathable fabric membrane used in all-weather clothing, is a sizeable organisation, but somehow it balances the paradox so well that it launches frequent speedboats while the oil tanker chugs along. It uses little innovation teams that act fast, exploring new innovations and approaches. The teams achieve this by establishing a number of enabling structures. The first one is that information-sharing and peer-review are the norm. There’s no hierarchical review; the main review is from your colleagues. Also, there’s no protectionism of information, so everybody shares all information at once. There’s no mention of: “Well you’re not going to see what I’m working on because you’ll take the credit for it,” which I’m sure is an attitude we’ve all seen in many companies.

It’s all about a strong focus on getting the environment right. The teams spend a lot of time in the best physical spaces that allow their staff to work together. They have team coaches rather than bosses. These coaches are people who have experienced more, not chosen because they’re more senior, or they earn more money; they’ve just experienced more about the particular problem they are trying to solve. This organisation has the belief that giving people the tools and the knowledge will bring out their best. Everyone is given the best tools to do the job. They trust people to do the right thing, and the culture creates the opportunity for everyone to make a meaningful contribution.

I go far deeper into this case study in Powered By Change, but the conclusion is that Gore is a great example of balancing the paradox of exploitation versus exploration.

For those struggling to achieve such lofty heights as Gore, I have two pieces of advice that I would strongly encourage you to put into place as soon as humanly possible so that you can begin to balance this paradox yourself.

First, it is absolutely vital to have senior stakeholder buy-in, because if you’re going to build a speedboat, you need to have a senior stakeholder in the oil tanker who can campaign for not sinking the speedboat. Otherwise, the speedboat always gets run over and sunk. This happens all the time when the people in charge of the oil tanker don’t believe in, or buy into, the idea of the speedboat.

Second, you need financial redesign. You need to decouple the profit-and-loss sheet used for the oil tanker’s business as usual, from the profit-and-loss sheet for the new, innovative approaches of the speedboat. If you don’t unlink these sheets, the new business exploration looks too costly and expensive, and the existing business looks as if it’s losing focus due to the investment in these new experiments. Remember, you can’t actually do the financial redesign unless you have senior stakeholder buy-in. Ultimately then, these two pieces of advice are in strict order.

In summary, and to tip my hat again to Chomsky, I genuinely believe that the plurality of oil tankers and speedboats is something innate within business knowledge. It is up to every single one of us in business to remind leaders that one of their primary responsibilities is to continue the exploration even (and most importantly) when the share price is growing out of the exploitation endeavours. Balancing the paradox is the only way of leveraging the vast opportunities on the horizon.

Leave a Reply