Whereas creating and capturing value are regarded as distinct organizational goals, organizations often attempt to innovate using the same processes, systems and mindsets as with any incremental or efficiency focused activity. However, managing different product cycles, entering new markets and experimenting with new business models require distinct strategic, organizational and leadership skills and competencies.
The Exploration Exploitation Pyramid unpacks the differences between creating and capturing value in your business and the distinct alignments that need to be put in place in order to avoid bottlenecks and create synergies.
In a nutshell
The Exploration Exploitation Pyramid is based on three key building blocks:
- PURPOSE: refers to your overarching vision and strategy. Exploration and Exploitation need to be distinct but not isolated. A common purpose ensures that both are equally valued and reflected in the organization’s direction.
- GOVERNANCE SYSTEM: addresses the need for distinct leadership styles and mindsets as well as goals and KPI’s that are aligned to either existing or new business areas.
- ORGANIZATION: reflects the organizational structures, systems, processes and capabilities that together with the relevant people and skill sets are conducive to exploration or exploration.
What is your North Star? Defining PURPOSE
PURPOSE refers to the organizational raison d’etre and overall direction. It is reflected in the company vision and the company strategy.
- VISION is the answer to the question: “where do we want to go?”. It conveys a desirable, feasible, focused and communicable picture of what the future will be like for the company.
- STRATEGY is a plan of action to achieve the company’s vision. It is the answer to the question: “how do we get there?”. It involves setting goals, determining actions to achieve the goals, and mobilizing resources to execute the actions.
Critical questions for finding your North Star:
- Have we defined what business we are really in or could potentially be in? Are you an auto manufacturer or a platform for mobility? Many businesses underestimate the deeper power of their offering. Stretching it up to a more open concept can help drive the core business as well as open the possibilities for new innovation playgrounds.
- Who are our main competitors? Where do we expect disruption to come from? With that understanding in hand, you can clearly identify innovation opportunities. For example, Telcos no longer compete with other Telcos exclusively for market share but with Google and OTT’s (Over-The-Top content) for a share of revenue of new business models.
- Have we identified where value is being created or captured?Are we identifying the best playgrounds for sustainable and profitable innovation? Defining the key strategic orientations and business horizons is a critical success factor for building an ambidextrous organization. These include: supporting your existing business, growing your existing business and finding new opportunities for growth through disruptive innovation. A rigorous analysis of the above will help identify the playgrounds with the highest potential.
Avoiding the tensions of implementation: Setting up the right GOVERNANCE SYSTEM
SYSTEM OF GOVERNANCE refers to the system by which an organization makes, implements and monitors financial, operational and strategic decisions in pursuit of its objectives. A robust system of governance is aligned to the company’s vision and strategy but also focused on an exploration or exploitation orientation in order to provide both direction and coherence. A system of governance is based on a combination of suitable leadership and specific business areas and goals that are focused on either exploration or exploitation.
- LEADERSHIP establishes the organization’s direction and also motivates, inspires and aligns people with the company vision and strategy. Based on an exploration or an exploitation orientation, different leadership skills and mindsets are required as different types of leaders are better equipped to manage different types of challenges.
- KEY BUSINESS AREAS are the primary areas of activity that a company was founded on, or focuses on in its business operations. These could involve existing or new areas of activity for the company.
- GOALS describe in a clear, measurable and tangible way what a company expects to accomplish over a specific period of time. Research on goal setting shows that work is more manageable if it is narrowly defined.
Critical questions for building a suitable governance system:
- Have we identified and supported the right type of leadership to support exploration or exploitation? How good is management at knowing when to step back and when to step up and empower teams?
- Which business areas for capturing or creating value are we prioritizing and why?
- Are goals and expectations clearly set and communicated based on key business areas?
One size does not fit all. ORGANIZATION settings for capturing and creating value.
ORGANIZATION refers to the organization’s DNA: the combination of the company’s software (capabilities, culture, people and skills) and hardware (structure, systems and processes) that reflects how ‘things are done’. Not every combination is conducive to innovation or change and this is a key reason why innovation efforts often fail. The key elements below are the building blocks of an organizational setting conducive to either exploration or exploitation.
- Once you have defined your innovation playgrounds you need to take a long and hard look at the capabilities of your organization that are relevant in each. CAPABILITIES are key strengths that a company has developed, and which give it a competitive advantage over its peers and contribute to its long-term success. case. Some capabilities might already be there, others might need to be evolved. In some cases, new innovation playgrounds will need a completely new set of capabilities alongside the existing ones. As capabilities are not built overnight, a solid strategy will help you anticipate and manage hurdles successfully.
- PEOPLE & SKILLS describe how human resource policies such as recruitment, development and incentives are configured based on an exploration or an exploitation orientation.
- SYSTEMS & PROCESSES describe how the organization functions day to day. For example flexible, cross functional teams that follow iterative and nonlinear processes are better equipped to respond and adapt to changes quickly when exploring new opportunities for growth.
- STRUCTURE describes how the organization is designed and entails aspects such as the division of tasks, centralization and coordination.
- CULTURE describes the set of values that guide behaviors.
Critical questions for building the right context for Exploration and Exploitation.
- How are we recruiting and attracting talent? Have we attracted the right people with the right skillset to support exploration and exploitation?
- How are we enabling talent to thrive?
- Are managers rewarded for doing only what they are committed/ used to doing? Are they discouraged from making changes as circumstances change?
- How aligned are we on the meaning capturing and creating value?
- Have we distinct internal processes for exploration and exploitation? Is innovation strangled by the same tight planning, budgeting and reviews applied to the existing business?
- What are our shared, cultural values and how are these aligned to our strategic orientation?
- Is our current structure enabling operational efficiencies or variation and experimentation.
If you are facing a growing disconnect between where you are trying to go and what is actually happening in your organization, the Exploration Exploitation Pyramid sets the stage for how both sides of your organization can co-exist and play to win together.