Exploration means that an organization invests resources to develop the technology and skills that the organization has never engaged in. Exploitation refers to the situation that organization uses sophisticated technology and skills to improve the competitive ability and increase the efficiency in the organization. What exploration does is prepare for the future. In contrast, what exploitation does is increasing efficiency in dealing with everything now. Exploration and exploitation are both indispensable. The advantage of using structure in an organization is to resolve the conflicting points between exploration and exploitation and create a balance between these two activities. As a result, a good structure can make a company achieve the goal of balanced and sustainable development. How can we create a good structure? There are three important principles to consider: dividing groups by functional distinction; strengthening the interaction and coordination between groups; and a flat organization.
First, dividing groups by their functional distinction can balance the exploration and exploitation functions in all kinds of departments. Division of labor is an important factor for organizational structure because through labor division we can accelerate the efficiency of transactions and maximize departmental functions. Since each department is responsible for different professional fields, larger companies will typically need to have an additional number of departments.
Evolutionary biologists have long maintained that the isolation of subpopulations can play a valuable adaptive role for a species. The ant is a typical example. There is usually only one egg-laying queen which takes responsibility for the long term survival of all ants in the ant colony. Other ants in the colony are divided into several groups in accordance with their functional contribution, including transport, feeding young ants, building nests, and so on. Ants create a sustainable life by division of labor. This is what we called “exploitation”.
We can apply the species concept to the structure of a company. Every department can use the features of exploration and exploitation to increase their competitiveness because they have different characteristics. For example, an insurance company is usually composed of many departments: product innovation and development; human resources; customer service; auditing; investment management; etc. The product innovation and development department will pay particular attention to the development of new products, using exploration. In contrast, there are many departments which focus on exploitation. For example, the role of audit department in the company is to encourage all departments in the company to work more efficiently and supervise all departments to ensure they follow company policy. This department uses exploitation in its activities.
After division into a variety of departments, strengthening the interaction and coordination between all groups becomes an urgent matter. In addition, resources in a company are fixed in the short term. Because every department is independent and equal, the company needs to create horizontal communication between all of these departments. If the audit department exceeds its annual budget and excessively uses the company resources, the other departments can only use the diminished remaining resources. But the audit department needs to immediately communicate this to the other departments. Though independent, the audit department is horizontally equal to, and not superior to the others. With this horizontal communication bridge, a budget problem can quickly be sent company wide.
The relationship between exploration and exploitation is the same; independent, but equal. Because the company resources which focus on exploration are equal to the resources which focus on exploitation, the relationship between exploration and exploitation don’t conflict with each other. And, since every department is independent, with independent goals, each department will try its best to use their departmental resources for the most gain. This sets up an internal competitiveness, and a win-win situation. Each department is independent and flexible to change, but also tied equally to the other departments.
A well-known story says that a flexiblehas a larger body than a mouse. It is said that sometimes when injured its foot, the elephant won’t recognize the injury until the wound is thoroughly infected. That is why it is important that each department communicate well with the other departments.
The next step is to create a flat organization. Since departments in a large enterprise can be many and complicated, the managers in the upper positions don’t always know about the situation in the lower positions. If messages are conveyed slowly, distorted during transmission or even intentionally falsified to hide errors, the lead manager can make a wrong decision. The purpose of flat organization is to reduce the distance from the bottom to the top positions. In this way, managers can not only fully understand the different characteristics of the various departments but also properly allocate the resources to every department and enable the company to achieve balanced and sustainable development.
