Back to the basics: reconciling the continuum and orthogonal conceptions of exploration and exploitation

• Published in: Computational and mathematical organization theory Vol. 26; no. 2; pp. 175 - 206
• Main Authors: Chanda, Sasanka Sekhar, McKelvey, Bill
• Format: Journal Article
• Language: English
• Published: New York Springer US 01-06-2020; Springer Nature B.V
• Subjects: Artificial Intelligence; Assimilation; Business and Management; Cultivation; Equilibrium; Equilibrium conditions; Experimentation; Experiments; Exploitation; Exploration; Heterogeneity; Knowledge; Management; Methodology of the Social Sciences; Operations Research/Decision Theory; Organization theory; Prior knowledge; Sociology; Exploration and exploitation; Organizational knowledge; Managerial control; Disequilibrium; Continuum conception; Open systems; Autonomy; Organizational learning; Order creation; Orthogonal conception
• ISSN: 1381-298X; 1572-9346
• DOI: 10.1007/s10588-020-09311-y

Extant research is vertically divided on the question whether exploration and exploitation constitute two ends of a continuum or whether they are orthogonal activities. We suggest that both characterizations are admissible, albeit under different sets of assumptions. Using March’s iconic model, we demonstrate that the continuum conception concerns leveraging an organization’s internal knowledge heterogeneity where managers use their prior knowledge and experiences to formulate actions to attain the maximum possible extent of organizational knowledge at equilibrium. In contrast, the orthogonal conception mainly concerns assimilating heterogeneous knowledge from sources outside the organization through risky experimentation, leading to order-creation in systems operating in far-from-equilibrium conditions. We further demonstrate that the change in outcome obtained by switching from low to high rate of exploitation is larger—and therefore easier to detect—for the continuum conception. We speculate that many managers and researchers favor conceptualizing exploration–exploitation in the continuum sense, for this reason. Moreover, companies obtain far higher organizational knowledge by functioning in the orthogonal mode, than what is attainable by functioning in the continuum mode. Organizations should, therefore, strive to create conditions that foster cultivation of outside knowledge through autonomous actions of employees.