The Atlas of Strategy Traps
The exploration versus exploitation question is an age-old one for businesses . However, in today’s business environment, this question has acquired a very intense hue. Indian companies have to take strategic decisions in an extremely complex environment characterised by the emergence of new consumers, employees, technologies, competition and policies. This question has very different implications for a large incumbent compared to a new challenger. In fact, a study of the change in market positions of companies reveals leadership is more fickle today than ever before (see Continuously Shifting Market Position). Therefore, striking the right balance between exploration and exploitation has material implications on the very existence of a company.
There are additional layers of complexity for a large incumbent with a relatively successful business model. There is an intense lure of improving existing business which can create substantial value in the immediate term. New bets, however, require the leadership to make difficult strategic choices in an already dynamic environment and typically these bets yield late results. Resources are limited, hence allocating them between existing versus new opportunities is a challenge.