Balancing exploration and exploitation in complex environments
| Pages | 15-35 |
| Date | 10 February 2012 |
| DOI | https://doi.org/10.1108/03055721211207743 |
| Published date | 10 February 2012 |
| Author | Anca Bocanet,Cristina Ponsiglione |
| Subject Matter | Information & knowledge management |
Balancing exploration and
exploitation in complex
environments
Anca Bocanet and Cristina Ponsiglione
University of Naples Federico II –
Department of Business and Managerial Engineering, Naples, Italy
Abstract
Purpose – The objective of this study is to model and analyze the exploration-exploitation dynamics
of March’s model of mutual learning in a complex environment. By enhancing the above mentioned
model, the paper seeks to propose a new agent-based model of mutual learning within an organization.
Design/methodology/approach – The paper replicates March’s model of simulating learning
within an organization using an agent-based simulation approach, and extends it by modelling the
problem space as a fitness landscape using Kauffman’s NK model technique.
Findings – It was found that it is impossible to find a right balance between exploration and
exploitation using the communication structure of March’s model.
Practical implications – The proposed model could help create a virtual laboratory for
experimenting organizations’ behavior in a co mplex co-evolving environment. This virtual
laboratory may be used in the future to support the decision-making process of managers and
policy makers.
Originality/value – Designing the external environment as a fitness landscape helps in discovering
what effect the environmental complexity has on the emerging balance between exploration and
exploitation. It is the first study to design the environment of a model which analyzes the mutual
learning between an organization and its members as a complex non-linear space.
Keywords Exploration-exploitation trade-off,Learning rates, Complexitytheory, Learning,
Organizations
Paper type Research paper
1. Introduction
This study is based on the assumption that organizational learning is a purposive
quest to retain and to improve competitiveness, productivity and innovativeness in
uncertain technological, market and environmental circumstances (Dharmadasa, 2009).
Within the organizational learning research, finding a trade-off between exploration
and exploitation has been proposed as a way to survive in a complex, competitive
environment. March’s (1991) semina l paper, “Exploration and exploitati on in
organizational learning” is a go-to citation for anybody talking about exploration
and exploitation. Although much work has been done to expand these dual themes,
little work has been done to extend the model on which the exploration-exploitation
themes have been built. The few extensions of March’s original model are mostly
introducing organizational structures (Bray and Prietula, 2007; Fang et al., 2007; Kane
and Prietula, 2006; Miller et al., 2006), considering internal variety (Rodan, 2005; Kim
and Rhee, 2009) and environmental dynamism (Kim and Rhee, 2009).
One key element to be considered when analyzing the exploration-exploitation
dynamics within the organizations is their connection with the complexity of the
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Exploration and
exploitation
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VINE: The journal of information and
knowledge management systems
Vol. 42 No. 1, 2012
pp. 15-35
qEmerald Group Publishing Limited
0305-5728
DOI 10.1108/03055721211207743
external environment. In March’s model, the external environment, named “reality” is
represented as a system in a steady position, where its states are unalterable and taken
as a benchmark. To create a realistic conceptualization of a complex environment, one
should represent it as a dynamic process involving the interrelationships of its
subparts. The higher the number of factors and the extent of difference among them,
the higher the environmental complexity. The aspect of how the external complexity
influences the balance between exploration and exploitation remains still to be
analyzed as the existing literature does not provide specific models to deal with this
issue. Consequently there is the need to better understand the interplay between the
knowledge components that form the environment created by the organization and its
members in their attempt to learn.
Considering the above research gap, the overall objective of this paper is to model
and to analyze the balance between exploration and exploitation learning modes on a
complex space. This purpose is being summarized in the following research question:
RQ1. What effect has the environmental complexity on the emerging balance
between exploration and exploitation within organizations?
This paper replicates and extends March’s (1991) model of simulating learning within
an organization, using an agent-based simulation. First, it extends the model by
developing a complex problem space on which an organization and its members
mutually learn. And second, it enlarges the original model by considering direct
interpersonal learning in addition to learning from an organizational code. The study
intends to contribute to the theoretical interest of scholars on what effect has the
environmental complexity on the emerging ba lance between exploration and
exploitation by modelling this co-evolution as a fitness landscape. Our approach to
overcome this gap is by constructing the environment as a fitness landscape, where
small changes can have nonlinear effects on the outcomes. We use Kauffman’s (1993)
NK model to develop a complex environment, with intertwined knowledge
components.
Kauffman’s (1993) NK model has been widely employed in the study of
organizations (Ethiraj and Levinthal, 2004; Gavetti and Levinthal, 2000; Levinthal,
1997; McKelvey, 1999; Rivkin and Siggelkow, 2003; Sorenson, 2002). The NK model has
been extremely used in the last decade in works focused on the impact of
organizational trade-offs on performance. In the NK model (Kauffman, 1993), the
parameter N is the number of genes randomly assigned fitness contribution drawing
from a uniform distribution; in our model, N represents the number of organizational
and individual opinions about an external environment. The parameter K stands for
the interdependence degree between the opinions. Our work contributes to the existent
research on computational modeling the exploration-exploitation balance in
organizations by modeling the complexity of the external environment through the
use of parameters N and K.
From a theoretical perspective, thi s study approaches a cross-disciplina ry
perspective, connecting knowledge management theories, organizational learning
and complexity theory applied to business. The human organization is seen as a
complex adaptive system (Holland, 1975), formed by groups of interdependent,
autonomous agents, with shared goals, and which operates in accordance with
individually and collectively held rules.
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