Exploration, exploitation, and variability: Competition for primacy revisited

Abstract

This study examines how exploration and exploitation contribute to variability in organizational performance and how this variability influences competitions for primacy, that is, contexts in which the ability to generate exceptionally high levels of performance is a key success factor. The results of simulation analyses conducted using the NK model, the mutual learning model, and the multiarmed bandit model all show that while exploration introduces more internal variability in organizations, exploitation tends to increase the variability in performance between different organizations. Variability and uniqueness in relation to one’s competitors, brought about by a single-minded focus on exploitation, is found to be advantageous in a race to finish first. In contrast, in contexts where avoiding especially low performance is the key consideration, exploration is found to be relatively more beneficial. These results suggest a need for a more nuanced understanding of the relationships between exploration, exploitation, and organizational risk taking.