Firms employing exploitative and exploratory actions

By BTM Institute Staff Writer Print this article Print

A conversation with V. Sambamurthy, Eli Broad Professor of IT and executive director, Center for Leadership of the Digital Economy, Eli Broad Graduate School of Management, Michigan State University.

Q. What are the differences and the needs of a firm employing both exploitative and exploratory strategic actions?

Exploitative strategic actions focus on developing world-class capabilities in specific domains and building business partnerships to gain access to complementary capabilities. With exploitative actions, firms focus on: (1) developing deep expertise in the areas of competency where the firm excels, and (2) developing business partner networks for access to other capabilities.

For example, Wal-Mart’s exploitative actions leverage its significant capabilities in logistics and merchandizing. As a result, it continues to invest in process excellence and technological sophistication for logistics capability. Note its leadership in RFID [radio-frequency identification] adoption, a technology particularly important for the logistics process.

Similarly, in an exploitative strategic action, a firm will focus on developing deep relationships with a few business partners who will provide it access to the complementary capabilities─logistics, product manufacturing or customer service. These deep relationships are utilized to motivate the partners toward continuous improvement in the associated capabilities and processes.

Exploratory strategic actions focus on developing future opportunities through innovations in business models, products, services or customer segments. Such firms need to develop a broader business partnership network. Compared to exploitative actions, firms seek to partner with firms that might have innovative capabilities or who might not have had a history of prior collaborations with the firm.

The number of business partnerships is also larger because they allow the firm to remain connected to promising ideas without being locked in by a limited number of new ideas. With an exploratory focus, firms must be far more active in scanning the external environment, not just for new ideas, but also for companies that might have new technologies or capabilities that could be important in the future.

Q. How is it possible for an organization to demonstrate both leanness and agility?

Managing leanness and agility simultaneously is not easy. Leanness requires an emphasis on continuous improvement and process excellence. Agility requires an emphasis on continuous innovation, creation of new processes and capabilities, as well as room for strategic experimentation. Both leanness and agility require investments and management attention, but the nature of these investments is different. Leanness focuses on standardization and reduction of variety in processes.

Further, external business partnerships are focused on the leverage of current capabilities and on motivating the business partners to invest in continuous improvement, [i.e.,] speed, cost, and quality. Agility focuses on a willingness to pursue new opportunities, often at the risk of cannibalizing existing business opportunities, and exploring new business partnerships that might bring new ideas.

To facilitate both leanness and agility, firms should recognize that their needs are different. Therefore, they must design appropriate organizational structures that facilitate attention toward leanness and agility in their process- and technology-management activities. For example, within the key processes, identifying responsibilities for process improvement and process excellence will ensure that certain executives are enhancing leanness. At the same time, having other executives responsible for process innovation facilitates agility. The activities of these executives should be supported through appropriate funding mechanisms.

This article was originally published on 2008-07-09
The BTM Institute (www.btminstitute.org) brings together the academic, corporate, government and thought-leadership communities as a multi-disciplinary research think tank to address the need to integrate business and technology.
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