Tuesday, April 24, 2018

Winning the explore:exploit game

So we come to the ultimate post on explore and exploit, at least for now.  In past posts we've looked at the origin of explore and exploit, the emergence of true innovation explorers like Edison, Bell and a host of others.  We've noticed the rise of the corporation to exploit the discoveries of said explorers.  Last but not least we touched on the future of explore and exploit and how it might upset existing business models and organizational structures.

With all of this insight, we must ask:  how can a business win as the explore:exploit model continues to change?  Herewith, some of the answers. 

How might we win as the explore:exploit model changes?

We've examined the fact that existing business models place far more emphasis on exploiting existing ideas than they do on discovering new ones.  Much of the last 30 years of management thought has been consumed with improving exploitation skill - Six Sigma, Lean, Outsourcing and right-sizing are all efforts to improve the efficiency and effectiveness of the exploiting portion of your business.

Those are sunk costs, and should not direct the future direction of your strategy or organizational structure.  But for your emphasis to change to focus more on exploring rather than exploiting, a couple of things must change:

First, your organization must recognize the shift in power from exploiting to exploring.  If you look at the high tech industry, almost every handheld device manufacturer has recognized this shift.  Product development cycle times are now longer than shelf lives.  You simply cannot crank enough efficiency in the development, launch and marketing phases to win back enough revenue to account for a poorly constructed exploration phase.  Yes, you need to improve the efficiency and effectiveness of your exploitation phase, but putting increasingly poor product ideas into a reasonably efficient development process isn't the answer.  Instead you must shift people, resources and focus to the exploration phase.  Acknowledge the shift, communicate it to your people, embed it in your culture.

Second, decide who is going to do exploration.  While there are many people who are good at and appreciate the work in exploitation, there are far fewer people who are good at and enjoy exploring.  This is because of personality traits, comfort with risk and ambiguity, the work associated with exploring and the way we've educated and trained people for the last several decades.  You've got to find the right people and incentivize them in the right ways to improve exploration, and those people are very likely not working for you now.  You can either outsource exploration to others or you can place a capable leader in charge of exploration who will accelerate the build out of your exploration team.  I'd recommend the latter, because outsourcing exploration may benefit you at first but it does not build skills or competence.  Find the right people and put them to work.

Third, rework your financial models. Determine to make money from better exploration, rather than from better exploitation.  There are no longer long product cycles, except in industries that can protect products with long patents (pharma) and we can expect that these protections will be chipped away.  Learn how to make money from shorter exploitation cycles and how to renew or even replace and destroy your own products more rapidly.  Decide how to gain more revenue and profit from the insights and ideas you discover.  You don't have to commercialize your discoveries yourself - leverage the innovation ecosystem to generate licensing or even IP sales revenue for ideas you cannot exploit yourself.  Be ready to change your revenue and business models.

Fourth, be ready for resistance.  The existing business as usual (BAU) won't appreciate these changes one bit and will fight back, mostly through resistance and inertia.  Sloth, resistance and inertia in an age of accelerating change leaves you far behind, decelerating while everyone else accelerates.  The ultimate challenge leaders face when shifting the explore:exploit model is in the day to day operations and corporate culture.  This is the "resistance", and it must be addressed.  Provide rationales, paint the picture of the future corporation.  Change incentive models.  Hire new people and, probably, let a few people go who resist or aren't willing to change.  Culture will either be your friend or your enemy in this shift.

Finally, do it now.  We can argue about how fast this impending shift in explore:exploit will occur, but you can't change an existing organization as fast as the markets and technologies will thrust change upon you.  Debating about timing is like dancing about architecture - it's nonsensical at this point.  The change is starting and won't be slowing.  Assign good people to start thinking about this shift now.  Waiting makes you Kodak in the early 1990s as everything moves to digital while you hold many of the patents.

While this series of blog posts may seem like a thought exercise, this shift is happening. More value is being extracted from the explore phase and the exploit phase is growing ever shorter and less profitable.  Will your organization be ready when exploring becomes more important than exploiting?
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posted by Jeffrey Phillips at 10:41 AM


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