‘Exploit’ vs. ‘Explore’: How to Build Innovation into Your Organization
Successful organizations face a challenging paradox—they must develop the capacity to exploit their core business today while keeping an eye (and funding) on exploring opportunities for tomorrow.
The chief strategy officer (CSO) is uniquely placed between the ‘exploit’ and ‘explore’ functions, with a sound understanding of core operations combined with a remit to push the boundaries and explore into the future.
Fifteen members of the Outthinker Strategy Network—all CSOs and heads of strategy for Fortune 500 companies—met last week in Boston, Massachusetts, to discuss these challenges of realizing innovation inside of legacy companies. They were joined by Harvard Business School professor Michael Tushman and co-founder of strategic advisory firm Change Logic Andrew Binns, both of whom recently co-authored the book Corporate Explorer: How Corporations Beat Startups at the Innovation Game. Across industries—consulting, healthcare, pharmaceuticals, publishing, software, etc.—they found their organizations face similar difficulties when it comes to exploring beyond the core.
Why organizations resist innovation
Most incumbent organizations follow the same trajectory: They find success with a core product or service—things are going well, then a disruption happens that throws them off-course. Burdened by hierarchies, bureaucracies, or sheer size, they aren’t able to incorporate the disruption and instead double down on what they were doing to be successful in the past. These efforts to apply the old ways to the new world fail, and eventually the board decides to replace the C-level execs and institute transformation.
For an organization, the CSO role presents a solution. CSOs are tasked with predicting and preparing for that inevitable disruption before it happens. A massive part of their job is to seek out innovative ideas that proactively allow the organization to disrupt itself, before it’s too late. However, according to Tushman and Binns’ research, the obstacles CSOs are up against make their job one of the most difficult in the organization.
Structural issues also abound. Most organizational incentives are aligned to quarterly results—if an organization is doing well today and people are making money, there is less motivation to try something new that is not guaranteed to work. The core business has its appealing predictability, market maturity, known customer needs, operational effectiveness, and clear competitors. A new business brings uncertainty, lack of data, emerging customer needs, new entrants, and small-scale operations.
The CSO bumps up against resistance as they attempt change efforts. As Tushman stated to the group, it would be easier to reinvent a lifeless organization than to be a CSO of a successful company that needs to proactively transform.
Confronting the ‘explore’ challenge
As the pace of change and advancement of technology accelerate, the challenge is for organizations to live in two distinct, inconsistent strategies. Tushman described the dichotomy: “To do today’s work better than anyone in your industry and to figure out the future before you get disrupted.”
1. Act on a broad purpose
If your purpose is tied too tightly to the current core business, it leaves little room for growth and innovation. A purpose designed to explore is one that remains broad. For example, Ball Corporation began as a producer of glass jars and lids. Since then, it has expanded into the aerospace industry.
Tushman interviewed the company’s senior leaders who say, “We aspire to be the world’s greatest container organization.” Ball likely would not have been around since 1880 if it had limited its purpose to making glass jars.
2. Appoint a chief storyteller
The chief strategy officer is often required to influence the organization without official authority or reporting structure to do so. Many fall back on data and logic to make their point clear. According to Tushman and Binns, it’s more productive to appeal to emotion and storytelling.
One strategy executive said, “We’re starting to see a new breed of leader, one who knows the data and can make model-informed decisions but who can infuse their message with passion and switch back and forth appropriately.” This storyteller may be the CSO, CEO, or someone else in the organization.
3. Build coalitions
When it comes to transformation and innovation, CSOs have found there are equal parts strategy, emotion, and politics involved. If innovation/explore functions sit isolated away from the core business, innovators are less likely to gain buy-in for their pursuits.
Tushman and Binns’ research has found the biggest determinant of successful corporate explorers is their ability to build a circle and movement around them. The CSO must possess this ability and also be able to activate it in others.
4. Establish mutual responsibility
Companies who succeed at innovation set up structures that give both the exploit and explore sides mutual “skin in the game.” One CSO explained her organization’s structure: “For core, there’s an expectation of innovation growth. And for innovators, they have incentive to show results for their innovation. They need to show frequency and strike rate for innovation.”
5. Empower internal innovators
Tushman and Binns’ work could inspire many additional articles on how to empower these corporate explorers. And at Outthinker, we’ve been researching for years on the best ways to unleash the creativity of internal innovators.
6. Lay out a path to scale
Organizations that are serious about empowering corporate explorers must also give them a path to scale. This includes allowing them to establish hypotheses and experiment with small bets to achieve it, then giving access to core resources.
On the other hand, this can also include shutting down experiments after a determined amount of time to get the learnings, celebrate failure, and transition focus to the next idea.
Most top-down corporate innovation initiatives are destined to fail when they bump up against a foundation that exclusively supports the core business. Organizations that want to become truly ambidextrous, maintaining a thriving core business while launching high-growth innovations, must start with purpose and storytelling that inspires emotion while leaving room for transformation. They must examine and revise their structures to support cross-functional coalitions and establish mutual skin in the game. And finally, they must empower the corporate explorers in their organizations and provide them with the support and path to scale.