Exploration and exploitation in organizational learning
Citation: James G. March (1991) Exploration and exploitation in organizational learning. Organization Science (RSS)
Internet Archive Scholar (search for fulltext): Exploration and exploitation in organizational learning
Tagged: Business (RSS) Organization Theory (RSS)
Exploration and exploitation in organizational learning is simulation based paper on organizational learning. It framed around the idea of exploring new possibilities versus exploiting existing ones but focuses primarily on two sets of models of organizational learning.
The paper first introduces what it calls the "exploration / exploitation trade-off" which is connected to a wide variety of existing innovation literatures on product versus product innovation, on dominant designs, and even to the role of targets and aspirations from Cyert and March. There are limited resources which will be devoted to either exploring new possibilities or to exploiting existing ones. March uses this as the framing for his discussion of learning processes.
Marches first set of models is a model of mutual learning with an organization. Essentially, he assumes that organizations learn routines based on the knowledge of its members and that members also learn from the organization through a process of socialization. He conclusion is that, "the gains to individuals from adapting rapidly to the code (which is consistently closer to reality than the average individual) are offset by second-order losses stemming from the fact that the code can learn only from individuals who deviate from it."
March models both a closed system and a more open system. In a turbulent environment (i.e., one in which the ground truth is shifting) organizations with any socialization are doomed unless turnover is introduced where new ideas can come in and keep the organization on at least part of a search path.
March's second model attempts to capture the effect of competition between organizations on learning and shows an important effect of competition. He explains that, "as the number of competitors increases, the contribution of the variance to competitive advantage increases until at the limit, as N goes to infinity, the mean becomes irrelevant."
Marches takeaways are connected to "old wisdom." Adjustment to codes within organization is a threat to learning that can have bad effects. In general, "the returns to fast learning are not all positive, that rapid socialization may hurt the socializers even as it helps the socialized, that the development of knowledge may depend on maintaining an influx of the naive, and ignorant, and that the competitive victory does not reliably got to the properly educated."
Theoretical and Practical Relevance
Marches article has been cited more than 6,000 times and is one of the most highly cited articles in the organizations literature. It is a critical piece in the literature on organization learning. Moreover, it is a go-to citation for anybody talking about exploration and exploitation -- a framing which has become key and frequently present and has even found its way into the titles of hundreds of papers.