Optimal exploration and exploitation: the managerial intentionality perspective

TLDR: This study investigates organizational outcomes when such predictions are not possible and managers intentionally focus their firm on either exploratory or exploitative innovation, and finds that multiple exploration–exploitation combinations lead to equivalent, maximum organizational knowledge.

Abstract: Extant research has provided ambiguous answers to the question as to what constitutes an ideal balance between exploration and exploitation, in stable and turbulent environments. Much of the literature emphasizes controlling organizational actions by means of predictions based on historical knowledge. In our study, we investigate organizational outcomes when such predictions are not possible and managers intentionally focus their firm on either exploratory or exploitative innovation. Using March's iconic computational simulation model, we find that multiple exploration---exploitation combinations lead to equivalent, maximum organizational knowledge, establishing a rational basis for managerial intentionality toward exploratory or exploitative innovation. We further find that onset of environmental turbulence impacts an organization focusing on exploratory innovation in a way that is different from the way an organization focusing on exploitative innovation is impacted. The former is enabled to carry out an increasing level of its core activity, exploration. The latter is required to dial down its core activity, exploitation. Our findings suggest a resolution to conflicting prescriptions regarding appropriate response to onset of environmental turbulence endemic in the literature.