The Paradox of Exploitation and Exploration is the third and final sub-blade of People in the Windmill Theory in Powered By Change (PBC). A paradox often involves elements that are both interrelated and contradictory. These elements endure over time and exist concurrently.
Within the Paradox sub-blade, the elements that co-exist are exploitation and exploration. Both are needed for longevity, success and utilising change as an enabler. However, there is a balance that needs to be struck between the two which enables long-term growth. A company needs the ability to exploit existing opportunities to generate revenue and at the same time it also requires the ability to explore new opportunities and innovations; some of which may later go on to become exploit, or business as usual (BAU), activities.
If a company does not have the capability to explore new opportunities, the result will be that it becomes incredibly resistant to change and will eventually stagnate or cease to exist altogether. Likewise, if a company does not have a capability to exploit existing opportunities, or has no opportunities to exploit, then it will have limited to no revenue and the outcome will again likely be insolvency. There is a balance that is essential to find between the two. Hence the usage of the terminology ‘Paradox’.
Within PBC, the analogy provided to the exploitation versus exploration paradox is that of an oil-tanker versus a speedboat. Most organisations are oil-tankers. They are moving along at a relatively slow pace whilst exploiting existing opportunities (i.e. resources, products and markets) and conducting BAU activities. They also have a view of the horizon to which they are headed. However, the ability of such companies to pivot and adapt to change is quite slow. Herein lies the problem. If the horizon fundamentally changes, as has happened recently with the global COVID-19 health pandemic and subsequent economic crisis, the oil-tanker cannot be very responsive. This means that when change occurs, their ability to react and pivot and utilise that change is severely impaired, leaving them vulnerable to disruption by competitors and disintermediation.
Unlike an oil-tanker, a speedboat organisation is one that is exploring new opportunities that could become part of the company’s core business in the future but as yet are nascent ideas needing to be explored, tested, improved and embedded. This exploration is occurring out further into the horizon than that with which the oil-tanker is concerned. Such activities are transformational and driven by change, out of either necessity or proactivity. Speedboats are much more agile and can move quickly as and when change occurs. This enables adaptability and an ability to survive long-term. As with the oil-tanker, there is a problem with a speedboat company. That is because it is exploring innovative and transformational opportunities it may not have embedded products that generate a lot of revenue long-term. On its own, without exploitation activities, the company is at risk of insolvency due to lack of cash.
Fundamentally, what is required is a balance between the two. This means essentially an oil-tanker company that possesses speedboat capabilities. There is a synchronicity between oil-tanker (exploitation) and speedboat (exploration) activities. Both activities need to exist in harmony. If there is too little time dedicated toward speedboat activities and innovation the ability of the company to adapt to change and survive long-term will be impeded. There are not many examples of companies that have achieved this balance really well. One great example is WL Gore and Associates, which is a multinational manufacturing company specialising in products derived from fluoropolymers, an example of which is Teflon. The company launches frequent speedboats while the oil-tanker chugs along. It has a divide and multiply mentality as opposed to a divide and conquer one, which enables them to manage the paradox between the oil-tanker and the speedboats. When the size of the speedboat team reaches 50 people it sets up on its own and operates independently and any surplus people spin out into more speedboats. It is up to the peers to decide who leads, with the leader staying in charge for as long as their peers leave them there.
The Paradox sub-blade is really about understanding the current split between oil-tanker, or BAU, activities and speedboat (i.e. innovation) activities and what the next target state should be. It is important to note, that if a company is spending less than 10% of its time, effort and resources on speedboat activities then it is not really innovating. Within the PBC we have a speedboat sprint process that enables companies to very quickly identify, explore and test new ideas. Through this process it is possible for companies to create additional new revenue streams by placing lots of small bets rather than a couple of big bets on untested ideas. This actually enables organisations to spread their risk and improve their chances of success, which is especially important in times of turbulence and change.
In order to do this effectively, it is necessary to have people with the Skill and Will aligned to the company’s purpose to undertake speedboat activities who possess the curiosity to look for new opportunities. These are often identified by considering what can disrupt the company, which is undertaken in the Productive Paranoia sub-blade. As the company will have elevated and specified its purpose, the horizons to be explored are unbounded by industry. This is why ensuring both the Purpose and People blades are effective and demonstrates the interoperability between them. Likewise, to execute on the idea’s resonant products are needed as well as efficient supporting processes. Product and Process make up the third and fourth Windmill Theory blades respectively and are covered in separate articles.
The benefit of improving the balance between oil-tanker (exploitation) and speedboat (exploration) activities include:
- An understanding of what changes are on the horizon that could be used by the company to supercharge its growth.
- An ability to make small bets on lots of ideas rather than one or two big ones, allows the company to hedge its bets.
- Increased adaptability and agility, which is essential when change occurs.
- Unbounded opportunity to innovate from an industry-agnostic perspective that is aligned to the company’s main thing, provided its purpose has been elevated and specified.
All of this has the effect of galvanising the company’s resilience and ability to adapt to change so it can survive and thrive.
- Companies need to strike a balance between oil-tanker and speedboat activities to ensure they have the ability to pivot when changes arise.
- Without the capability to explore new horizons and opportunities eventually the ability to exploit existing opportunities will wither away leaving the company vulnerable, especially during times of change.
- Speedboat sprints and activities enable companies to place small bets on lots of new ideas which increases their chances of success and improves resilience.