Innovation Strategy in Business: The Exploit-Explore Ratio

While continuing with what’s working and not fixing what isn’t broken might seem like a logical business strategy, it’s one that doesn’t leave much room for innovation. As such, companies that are striving for innovation, at every level, would do far better to consider the exploit-explore ratio, says Marc Ventresca, Programme Director on the Oxford Strategic Innovation Programme from Saïd Business School, University of Oxford.

Transcript

For a long time, in strategy, the idea was, if you’re successful today, do more of what you’re doing today, but more efficiently, or more reliably, or more consistently, and you’ll be successful tomorrow.

The developments in the last couple of decades – changes in technology, new kinds of rivals, the shift in geopolitics – a range of issues have made that assumption that “doing more of what we do today, tomorrow is a recipe for success” is no longer viable. And what’s happened in strategy, as a field, is this idea of counterposing exploit: what we do today using existing tools and technologies in existing markets, and with existing capabilities. What we add to that, in this period of turmoil and ferment, is the idea of explore: doing something new, trying things out, trying to understand new markets, making use of new technologies.

So what becomes really interesting is that tension, that ratio between exploit and explore: what we do today for today, and what we do today for tomorrow, has become a very powerful conversation at the most senior levels of effective firms.

Why is that important to us? Because that’s the argument for innovation at all the levels we’ve talked about – product and services innovation, business model innovation, and systems-level innovation. So the exploit-explore ratio, the diagram we’re using, shows what that means: a set of abilities and competencies today, that are about making money today, being successful today, being effective today, has to begin to engage with what may be different tomorrow. What kind of competencies do we need to build? What kind of markets do we explore? How do we make use of new technologies? And so that ratio, no right answer, no single ratio there, but the conversation about that ratio – how much of today is about today? How much of today is about tomorrow? – becomes a really important motivation for innovating at every level. So, I’m asking you to use that core, kind of, strategic idea of exploit-explore, the ratio of exploit-explore, to begin to ground your arguments for why we innovate, why innovation is important, and, potentially, how we do it.