On Resolving the Exploitation/Exploration Paradox
Organizations experience intense pressure to exploit their existing knowledge and capabilities. However, exploitation tends to drive out exploration and render organizations rigid and inflexible. Hence the paradox of the highly disciplined organization: exploitation leads to success in the short term, but undermines survival in the long term. Many existing resolutions to the paradox rely on isolating exploration and exploitation in separate organizational units. We propose a model of organizational activity as hierarchically nested cycles of exploration and exploitation. In this model, exploration and exploitation are complementary and feed into each other continuously through control and perturbation. Perturbation shakes organizations out of established processes and creates opportunities for learning and exploration. We suggest that highly disciplined organizations may sustain the exploration-exploitation cycle by deliberately perturbing their own processes. We illustrate the model using an empirical example of how Toyota uses perturbation to maintain organizational flexibility and then sketch a theory of perturbation that characterizes perturbations as organizational responses to signals.