Senior leaders often want to know how they can build an environment to allow innovation to thrive. In order to do that, they first need to realise that business activities live on an uncertainty continuum - that we call the Explore-Exploit Continuum - and that creating new growth engines and managing existing business(es) are on opposite ends of this continuum.
A better understanding of the Explore-Exploit Continuum will help executives and innovation teams put in place the right investment and management processes, the required skill set and culture to explore new business ideas as successfully as they exploit current businesses.
When we think of the best companies in the world we imagine highly efficient execution machines, that are great at exploiting their current success. We have spent the last two years conducting extensive research to understand why certain companies have been able to create immensely successful businesses, disrupt entire industries and survive disruption themselves. In reality, those companies do not prioritize exploitation over the exploration of new opportunities for growth. They are world-class at simultaneously managing the entire continuum from exploring new businesses to exploiting existing ones.
To build an Invincible Company, you need to be able to operate in two very different modes with different levels of uncertainty.. For existing business models, you operate with relatively high certainty, and it is possible to make accurate forecasts about sales, and predictions about growth. These business models can be managed and improved through detailed planning and proper execution.
Contrary to the exploit end of the continuum, exploration is about searching for new value propositions and business models in an environment with high uncertainty. And the further an innovation is from your core business, the higher the uncertainty. Forecasts and plans make little sense in this uncertain environment, which is why a different financial approach, skillset and culture are required. Below, we outline the major differences between the Explore and Exploit ends of the spectrum on those aspects.
This means that Invincible Companies need to create, manage and harmonize two completely antagonistic cultures under one roof - a strong Explore and Exploit culture simultaneously. They cherish operational excellence, planning and constant improvements when managing the present. Yet, they know they cannot cost-cut themselves into the future. They simultaneously embrace a culture of rapid experimentation, failure, learning and adaptation when exploring ideas for the coming years and decades. However successful today, they don’t rest on their laurels, they are already working on tomorrow.
This is an adapted excerpt of our upcoming book, The Invincible Company.