March 1991 - Exploration and exploitation in organizational learning

Google Scholar Link

March, J. G. (1991). Exploration and exploitation in organizational learning. Organization science, 2(1), 71-87.

Summary

Organizations must balance exploration, a search for uncertain alternatives, with exploitation, refining existing methods or products. Exploration is characterized by uncertainty regarding both whether a new discovery will be better and when it will be discovered. It also takes resources away from refining current processes. Exploitation can cause increased reliance on a possibly inferior activity.

In the context of organizational learning, new members are socialized to an organizational code while the organizational code is adapting to the beliefs of new members (ideally incorporating an individual’s superior beliefs and replacing their inferior ones). These beliefs converge over time and a stable equilibrium is reached. Thus, employees learn more, but their knowledge is homogenous - they all know the same thing. In slower socialization, more of the individual’s beliefs are retained. In faster socialization, more of the organization’s beliefs are retained. Slower socialization leads to a higher measure of knowledge in the equilibrium state. Though faster socialization ultimately results in lower organizational knowledge, organizations should ideally have both fast and slow learners. Knowledge gains are brought about by slow learners, but they are realized by fast learners. Turnover is also a source of new knowledge, though too much turnover results in a loss of organizational knowledge. Because of changing environments, a truly stable organizational knowledge equilibrium degrades over time (this is avoided through turnover).

In the context of organizational competition, increases in organizational knowledge carry a competitive advantage. Knowledge growth reduces variability in performance. This results in a higher chance of not being the worst performer in a market, which is balanced by a reduced chance of not being the best performer in a market.

Application

It’s important to learn from new employees before they are completely socialized to the organization (and thus join in a homogenous knowledge base).