Exploring and Exploiting for Innovation (part 2)

If you are following along, I'm writing a series of posts about the opportunities and challenges with the way we think about and implement the concepts behind explore and exploit.  In my first post I wrote a short introduction to the topic.  In that post I looked at the history of exploring and exploiting, which I'll suggest comes from the conquest of the new world by the Spaniards, when Columbus and others explored, and the Spanish government exploited the opportunity for centuries.

Skipping ahead through history

If we fast forward from Columbus to say Edison or Alexander Graham Bell, we can see that the explorers were still relatively few, eccentric outsiders who were scientists or people bent on geographic or scientific discovery.  In the late 1800s and early 1900s there were even competitions between explorers.  There was the "race" to the poles.  Teams from several countries raced through blinding snow and ice to get to the North and South pole first.  As we've seen before these explorers were exceptional people, iconoclasts, outsiders, driven to win.  What becomes a bit different in this time frame is that multiple governments were exploring the same locations simultaneously.  They were in fact "racing" each other to get there first.  Exploration became more intense and was seen as a competition for limited resources.

Similarly, Edison was racing other inventors, as was Alexander Graham Bell, who filed for his patent only a day before his competitor.  We can see from these examples that the number of explorers and the simultaneous exploration in the same fields was increasing as was the nature of competition.  While the amount of exploration was increasing, however, the nature of the explorers remained much the same:  eccentrics, outsiders, often poorly resourced and intrinsically motivated.

Exploitation was changing too

During this time the concept of exploitation was changing as well.  Bell and Edison were famous inventors but were also very focused in patenting and protecting their work.  They and others went on to found large corporations that attempted to build monopolies or very strong competitive positions to allow them to exploit their discoveries and extract value.  The business of exploitation was shifting from governments to businesses, from a king's or pope's edict to the ability to scale a business, protect intellectual property and extract a lot of value from the idea.

While who was managing the exploitation was changing, the nature and time frame of exploitation stayed relatively the same.  GE, Ford and other large companies of the era expected to reap benefits from a relatively small IP portfolio for decades.  They had learned this lesson from history and from the firms in the "gilded age" - Standard Oil and the railroads.

But change in  the explore phase  was increasing.

By the 1950s and 1960s, a dramatic shift was underway.  The world had been through the ravages of the Second World War and rebuilding was underway, while the Cold war funded a significant amount of new research.  The GI bill in the United States sent millions of ex-soldiers to college, and because of the Soviet threat many went into technical, science and engineering fields which created a renaissance in many fields.  In a very short period of time there was a rapid increase in exploration, research and development, first in the US, then in Europe and Japan.  The rate, pace and depth of exploration increased, but still mostly directed by government or corporations.

The Internet changes everything

But perhaps the most interesting change that will subvert the old models was the advent and widespread distribution of the Internet.  On this platform, information, content and education are widely distributed, making exploration far more simple, and allowing people to create new businesses and explore new business models far more quickly.  More people in more locations with more access to information means far more exploration, in far less time.

Additionally, the Internet also creates markets and channels for goods, services and ideas, which means new products, alternatives and substitutes come to market far more quickly and can be evaluated by a larger customer group more rapidly than ever before.  This factor has significant impact on the historical thinking about the time frame and nature of exploitation.

But businesses still operate as if these changes haven't occurred

But most corporations cling to the past understanding of explore and exploit, where small teams of unusual suspects explore ideas and markets surreptitiously, in random, episodic activities, while exploitation teams anticipate long product cycle times and little competition.  Most businesses still think, plan, strategize and operate as if little to nothing has changed in the competitive environment, as if any business can afford to dabble occasionally in the explore phase and extract value over a long period of time in the exploit phase.  This simply isn't the case any more.

Business must become far better and invest more time and focus on exploration, in many fields and opportunities simultaneously.  They must also accelerate their product or service time to value, scaling a product or service quickly, gaining revenue and profits quickly and reworking or replacing a product quickly.  As anyone familiar with most of the product or service development processes in large organizations, that's nearly impossible.  A huge shift is underway and many companies have ignored the warning signals.  Research from a number of organizations shows that the lifecycle of companies on the S&P 500 list has dropped from close to 40 years in the 1950s to closer to 12 years today.  It's not just product cycles that are shrinking - it's corporate lifecycles that are shrinking as well.

In the next post we'll explore what the future holds for explore and exploit.  If you are good at reading between the lines, I think you'll understand where I think this is going.

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