EXPLOIT and Explore - Success Mantra of Outstanding Companies

No company can have a stagnant strategy to which it can align perpetually. The operatives in the contemporary highly competitive market are dynamic and are constantly changing. No company can sustain with a rigid strategy. Companies must focus on both short term as well as long term and act accordingly. A long time debate in the field of business strategy has been on exploit and explore. In the domain of product development, we often come across the famous 4 Xs – explore, expand, exploit and exterminate. Both are considered essential for any company to prosper the business. By exploration, we mean innovation, risk taking or even players from altogether different business domain and at times even reinventing. They need to look for new opportunities which may be in terms of geographic market area, customer segment or avenues of operating line of business. Exploring these new possibilities, basically, prepares for them for the unforeseen future which can often be adverse. While exploitation points to leveraging the certainties to generate revenues/funds to survive today (and for future too) and also imitating the best practices of the competitors.

Companies have been able to gain market share as well as revenue through exploration. It is widely assumed that innovation leads the way to success which is why a lot of companies spend a lot on research. Unfortunately, we don’t have a single metric or parameter to gauge the exploration quotient or score of the companies on any scale. Albeit, generally a company is said to innovative based on the number of patents it owns, the expenditure on research and development and the new products it comes up with. Of late, Apple has been on the innovation spree and has been credited as the most innovative products – courtesy to gadgets like iPod, iPhone, iPad, etc. which revolutionised multiple industries such as music, mobile telephony.  If patents are weapons, companies such as Motorola, Intel, Canon, Lucent (originally AT&T Technologies) are armed to teeth. No wonder, these companies have tasted success from time to time.

On the other hand, companies have been successful exploiting the current conditions. Companies tend to improve their operations, marketing and sales force and business processes. Amazon rise is heavily propelled by his excellent supply chain. McDonald’s has always focussed on gaining excellence in the operational. Nokia is another example in this list.

In an ideal scenario, companies should keep a balance between exploration and exploitation. These two dimensions of business strategy should go hand-in-hand. They should combine the ability to run operations effectively with the capability to develop new fantastic products which would appeal to the customers. Outstanding companies are able to achieve this. Apple’s success cannot be solely attributed to its innovation. It was led by legendary Steve Jobs who improved the operations drastically, understood the call of the hour and was pivotal in shifting the manufacturing base to China. This reduced the manufacturing costs, keeping the margins high. Through, marketing campaigns Apple is always able to maintain the hype before launching any new product. These all contributed to the overall success of Apple. Unfortunately in real world, most of the companies are not able to attain this balance. Exploring new opportunities munches time as well as resources at disposal for improvement of existing processes.

With this practical issue, the debate arrives a point leading to a tussle between exploitation and exploration – which holds the priority. Companies have been able to compensate for exploration by being excellent exploiters. On the contrary, the reverse – exploration does not compensate for exploitation. Many market leaders are more efficient but may not be more innovative than their competitors. They stress on former at the expense of latter though not totally ignoring exploration. Innovation is vital to companies, but also difficult to perform since there are many ways to approach the subject. Besides, there is no control on the results of research while companies can control the operational processes and marketing campaigns. A perfect example can extracted from the rivalry of Glaxo and Wellcome few decades back. Wellcome had always more patents per sale than Glaxo till 1970s but as we know Glaxo was clearly much ahead in the market share between the two. Glaxo excelled in exploiting existing resources through great marketing and more importantly, it was honest to realise its research constraints. Christian Stadler in his book “Enduring Success” emphasizes on the scope of buying exploration capabilities. Continuing on the same set of companies – exploration became part of Wellcome’s DNA as exploitation became part of Glaxo. Glaxo continued to operate on same model – be competent in certain activity and bear the reward. Though it was indulged in research efforts, it was mainly through acquisitions and takeovers. Its most successful product till date Zantac (medicine for ulcers) was developed in laboratories of Allen & Hanburys, one of Glaxo’s acquisitions. When the expiration year of Zantac was approaching, Glaxo was successful in acquiring Wellcome itself thus adding more weapons in its armoury. It continues to grow and focus on research through taken – an example of late was acquisition of SmithKline Beecham.

Nonetheless, no company should do an excessive exploration. An overkill of innovation is most likely to backfire as was the case in Ericsson. Ericsson was pioneer in multiple technologies e.g. GPRS, 3G, etc. All this was done at the expense of exploiting current market. Huge expenditure on research and excessive bet on future technologies hit its business hard and it had to combine with Sony to save its mobile business.