Exploration and Exploitation Practices

The previously discussed opportunity dynamics and emotional maturity dynamics both interact with a third dynamic causal loop, which deals with the balance between exploration and exploitation. This causal loop depicts which part of the entrepreneur’s resources (e.g., time, money) are devoted to exploration or exploitation activities, which influences the entrepreneur’s tendency to act upon a particular perceived opportunity tension or not.

 

 

Untapped opportunities are the fuel for the firm growth. Untapped opportunities represent prospected demand that has not yet been approached. For example the new markets firms started to operate in, but have not approached all its customers yet. Another example can be new product the firm launched and not yet refined to appeal to all prospected customers. The stock of untapped opportunities is tapped by successful exploitation and refilled by successful exploration.

Firm’s exploitation is a relatively direct source of income, because it generates demand by making firm’s offering appealing to more customers and/or more appealing to the current customers.  Successful exploitation increases entrepreneur’s confidence and encourages hem/her to invest further in exploitation to seize more demand. 

The amount of untapped opportunities is limited, and therefore eventually the exploitation effectiveness will decrease, not because the insufficiency of the exploitation efforts, but because of the insufficiency of the opportunity to exploit. Once an entrepreneur realize lower return on investment in exploitation (s)he will reconsider his investment and priorities investing in exploration instead. Once exploration efforts yield abundance of untapped opportunities, the entrepreneur will give priority back to exploitation to support the sales effort and generate income. 

Management of exploration and exploitation is even more complex due to the competition between both orientations (exploration and exploitation) on the same limited resources. For example, both orientations are competing on investment in research development expenditure; teams and skills in the firm that can be more suitable to one orientation than the other; and even competing on entrepreneur's attention. It is likely to find shared resources are configured to facilitate exploitation of the current opportunities. Therefore, an entrepreneur needs to reconfigure firm's resources to support exploration in order  to efficiently explore new opportunities. 

The general behavior of exploration-exploitation dynamics can be over-milking opportunity by over-exploiting current opportunity; or staged growth by having several outbreaks in growth plateaus.