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Exploring and Exploiting – Striking the Right Balance

In 1913, Henry Ford implemented one of the greatest innovations ever seen in manufacturing: the moving production line. Before this change, workers would move from car to car within Ford’s factory, performing their various functions before moving on. This was highly inefficient and wasted a lot of time.

The production line changed all that. Under this new system, inspired by Chicago meat packers, the cars themselves moved and the workers remained in place. The impact was dramatic. Production time for the Model T, Ford’s main product at the time, dropped from twelve hours to ninety minutes. The retail price plummeted from $850 to $300. By 1927, this had taken Ford from being just another car maker to selling 15 million Model Ts annually—half of all cars sold at the time. Ford had found a way to make its car more quickly and cheaply than its competitors. Through its huge efficiency gains, Ford was able to maximise profits from its flagship product, the Model T. In short, Ford had mastered the art of exploiting.

This was a highly successful strategy for Ford. The early
twentieth century saw the end of the Second Industrial Revolution, and the ability to succeed in the exploit domain was key. Because various products, services, and business models already existed and had been validated, managers needed to focus their attention solely on how to squeeze the most out of them. A competitive advantage could be achieved through economies of scale, increased productivity, operational efficiency, and incremental improvements to products and services. The work was wellunderstood and predictable, and forecasting was accurate. All that remained was to execute effectively toward a known goal. If an organisation could make a known product more cheaply than its competitor, that organisation would win. Specialisation, division of labour, and standardisation become commonplace in the pursuit of achieving the highestquality output with the minimum input of time, money, and effort. This approach was highly effective in a largely stable market such as that of a century ago. The Model T remained a leading automobile for nearly two decades, and nearly every organisation followed Ford’s production lead.

Toward the end of the twentieth century, something changed. The market became far less stable, far less easily understood, and far less predictable. Technological advances, deregulation, and lower barriers to entry led to hyper-competition. High levels of VUCA—volatility, uncertainty, complexity, and ambiguity—meant that markets were extremely fast-moving and unpredictable. Once-successful business models could quickly become obsolete as nimble start-ups disrupted markets. Organisations like Blockbuster, Nokia, Kodak, and Borders fell foul of this, and the average organisation’s lifespan plummeted from sixty years to just fifteen. 

In this new business climate, mastering the exploit domain was no longer enough. Organisations now needed to master a new type of work: exploring. This occurs when organisations are able to seek out new products, services, and even entire business models to create engines for growth. This is the explore domain, and it has become as important as exploiting, if not more so. This type of work is creative, innovative, and highly experimental. It involves creating new knowledge rather than implementing existing knowledge.

Unfortunately, the approaches that work well in the exploit domain tend to fare badly in the explore domain. With a known outcome, efficient execution is all-important. Many traditional organisations are still designed for the Industrial Revolution, a time when exploiting was enough. When the outcome is unknown, however, trying new things, seeking fast feedback and continually course-correcting with agility are a far more effective approach.

And yet few organisations are set up for this. The efficiency trap tends to destroy all hope of innovation, an inherently uncertain and creative endeavour. For exploring to succeed, radically different leadership styles, organisational cultures, structures, policies, and investment approaches are required. There can be no one-size-fits-all approach. Organisations must learn to be ambidextrous, exploiting their current products with efficiency, while exploring new products with agility. They must balance the management of todays revenue streams with the creation of tomorrow’s.

When an old business model becomes obsolete, revenues can dry up fast. To survive and thrive in today’s business climate, finding the next great product is the only way to stay relevant. If you don’t do this, an efficient production line will not be enough to save you.

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