1. Stanford GSB Sloan Program Stramgt 258 Strategic Management 6. Explorers and Exploiters 3M

2. January 24, 2003John Roberts2 Organizational Learning and Innovation Variation Selection Retention ArchitectureRoutines/ Culture ( open information sharing, role of stories, etc., bootlegging ) Leadership ( symbolic behavior, setting up system) Organizational Attributes (size, homogeneity) (decentralized structure + linking mechanisms+ weak incentives)

3. January 24, 2003John Roberts3 Two Models of Organizational Learning: Exploitation vs. Exploration Kaizen (Continuous Improvement) Model -- Organizational Exploitation Variation-Selection-Retention (VSR) Model -- Organizational Exploration Role of Search

4. January 24, 2003John Roberts4 Two reasons why organizations are typically poor learners Reasons 1: Organizations are unwilling to experiment –Strong incentives tend to undercut because hard to design incentives for exploratory activity –Most cultures punish failure –Most organizations want to forget failures

5. January 24, 2003John Roberts5 Two reasons why organizations are typically poor learners Reason 2: Learning requires “slack” in organization, and there is generally a lack of tolerance for slack –Variation requires resources devoted to “deviant” activities Example: “bootlegging” at 3M, RISC at Intel –Selection/transfer cannot occur without organizational resources dedicated to transfer Example: peer assists at BP

6. January 24, 2003John Roberts6 Slack and the Cost/Quality Frontier Trade-off between learning and operating efficiency Slack necessary for learning takes an organization off of the efficiency frontier defined in terms of current performance Quality Low Cost

7. January 24, 2003John Roberts7 Learning Dilemma (I) These reasons why organizations are poor learners can be understood in terms of a single learning dilemma: There exists a trade-off between devoting resources to long term learning benefits and short-term operating efficiency benefits

8. January 24, 2003John Roberts8 Learning Dilemma (II) Success weakens the internal selection environment –Greater the organization’s positional success, the worse that the organization is going to be at responding to environment, especially when high uncertainty Example: HP brand

9. January 24, 2003John Roberts9 Learning Dilemma (III) Inherent tension in stages of learning –Variation requires decoupling of organizational units –Efficient knowledge transfer requires tight coupling of organizational units –There is thus a tension between organizational design that facilitates the emergence of new ideas organization design that allows the effective dissemination and refinement of the best ideas

10. January 24, 2003John Roberts10 Learning Dilemma: (IV) Deciding on the right amount of slack to be devoted to learning Beware of tightly coupled imitators! A fast, tightly- coupled second mover can overwhelm a (slack) learning organization

11. January 24, 2003John Roberts11 Organizational Solutions to Learning Dilemma Solution to learning dilemma is creation of loosely-coupled organization (“variegated coupling”) –Large number of semi-autonomous units –Multiple mechanisms for lateral information flow personal networks and federated structure IT for benchmarking and knowledge transfer –Cultural and process-based supports

12. January 24, 2003John Roberts12 Different Types of Loosely- Coupled Organization 3M Model –strong cultural support of innovator/pathbreaker, informal, grass-roots coalition building around projects, “make-a-little, sell-a-little” seems not to work as well when investments are large or markets move quickly (e.g., DEC) Cisco Model –let market provide variance –organization builds up capability –very dependent on having positional advantage (otherwise, not able to derive synergistic benefit above acquisition price)

13. January 24, 2003John Roberts13 Different Types of Explorers Pharma/Biotech Model –loose coupling comes from “network of alliances” –like Cisco, pharma can only participate to the extent that it has positional advantage (pharmas must generally place bets earlier) Skunk works –objective given by center –separate unit from rest of organization –if purpose is to start and independent project, then fine (assuming corporate really knows best where to explore) –if purpose is to transform organization, then problematic Examples: Saturn

14. January 24, 2003John Roberts14 Different Types of Explorers: A Proposition The greater a firm’s positional advantage, the more that it can allow VS stages to take place in market outside of boundaries of firm and still derive benefit –need to build up capability in facilitating quick acquisition of external resources