The Exploration - Exploitation Dilemma
The Art Of Navigating The Balance
Welcome to the blog post #34! Click here to read more from previous posts.
** Notice: I’ll have a family break next week, so this newsletter will be resumed on Sep, 10th. Enjoy your reading!
Life presents us with an unending series of choices, ranging from the simple task of deciding what to wear to the more profound considerations of careers, life partners, and beyond. Amidst this flow of decisions, certain common questions often light up our thoughts like:
How can we strike the balance between shallow thinking and overthinking, which can help us minimize the potential regrets?
When having a new job opportunity, should we venture into an uncharted territory or persist in our current career trajectory to nurture its growth?
In business, is it wise for a company to persist in experimentation, and when is the time to capitalize on its current strengths?
These questions come up a lot in business and personal life, thus making decisions becomes challenging. It's called the exploration-exploitation dilemma. Figuring out when to explore further and when to stick with what you know isn't simple. However, understanding some principles can guide us to master the art of decision making.
Exploration
Exploration involves the process of researching, gathering information, and trying out new things or fresh perspectives on a topic. It's like being in a learning mode, always open to testing new ideas.
Throughout the human history, we've evolved by seeking and experimenting with new things. From living in caves, to building shelters and houses; from surviving by hunting and collecting, to prospering by farming, breeding and trading, our progress has come from adapting to change. Charles Darwin summed it up with the words: "It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change."
When you explore more on a specific field, you gain a deeper understanding and your creativity gets a boost. In a world that's rapidly changing, staying curious helps you keep up with these changes. In business, sticking to old ways of thinking might lead to irrelevance in a rapidly evolving landscape.
Netflix stands as a remarkable business example of how a company can achieve immense success through a strategic exploration mindset. Starting from as a DVD-by-mail rental service in 1997 with the subscription model, it was a groundbreaking concept compared with Blockbuster’s traditional rental service by brick-and-mortal stores. By keeping open eyes and mind to new technology advancements, Netflix quickly adopted online content streaming service in 2007. It was a turning point and a calculated risk for Netflix’s business as it departed from their DVD rental core. This exploration definitely was a risk-taking, but well-deserved as it transformed the way people consume entertainment and established a new industry standard. Netflix also didn’t stop at just streaming existing videos and shows, they ventured further into exploration by producing their own original contents. "House of Cards" in 2013 marked their foray into creating their own series, a decision that astonished the industry.
In the book “Algorithms to Live By”, Brian Christian and Tom Griffiths explain that “exploration in itself has value, since trying new things increases our chances of finding the best. So taking the future into account, rather than focusing just on the present, drives us toward novelty.”
Reflecting the exploration concept in your personal life, let’s look at children and see how exploration shapes their development of mentality and physicality when they are nurtured in a freely exploring environment compared with those nurtured in a harsh environment where obedience overweighs exploration.
The more you explore in life, the richer your experiences are, the more adaptive you become with changes. As the Japanese art critic Kakuzo Okakura said "The art of life is a constant readjustment to our surroundings", exploration offers choices and a willingness to change.
While exploration can open doors to innovation and growth, it's not without its challenges. In the business realm, over exploration can lead to several downsides, inlcuding: unbalanced resource allocation, uncertain returns, slow time-to-market, and high opportunity costs. For personal life, exploring too much may lead to time and energy drain, leaving little for pursuits that matter most. In addition, continuously jumping from one skill or hobby to another might prevent you from achieving mastery in any specific area.
Exploitation
Exploitation involves using data, information, and resources to refine strategies, achieve anticipated outcomes, and maximize efficiency and returns.
Consider your career journey: as an intern, you likely explored different roles to gain experience and find your preferences. This is exploration. But as you discovered your strengths and passions, you would delve deeper into a specific field to become a specialist. This is exploitation. Transitioning from generalist awareness to specialized expertise can maximize your proficiency.
In the business context, McDonald’s is a prime case showing how they have mastered the art of exploiting a proven business model worldwide. Their competitive edge lies in the signature menu, efficient production, and consistent customer experience. How did McDonald’s know it was time to exploit rather than exploring further? Several factors played a role in their decision making:
Consistency and Replication: McDonald’s realized their successful formula could be replicated globally with just minor adjustments. The turning point happened at late of 1950s and early 1960 when McDonald’s transitioned from being a-single-location restaurant to a franchised chain with standardized model. The key event that solidified McDonald's focus on their proven business model was the implementation of the "Speedee Service System” in 1948. It showed the company’s focus on maximizing the efficiency of the current model rather than venturing into an unfamiliar territory.
Customer Demand: During 1950s, there was an important shift in American culture, marked by the rise of suburban living, car culture and the desire for convenience. As the demand for fast, affordable and standardized food increased, McDonald’s knew it was the right time for them to seize the opportunity and leverage the advantage of being one of the first pioneers in the fast food industry.’s
Economies of Scale: McDonald’s understood that expanding their chain globally leveraged economies of scale. A larger network meant greater benefits from supply chain efficiencies, and ensuring consistent quality worldwide.
These considerations kept McDonald's focused on their core model, striking a balance between maximizing returns and continuous improvement to bring back even better offerings for their customers.
Despite successful stories, exploitation has its own downsides. In business, over-reliance on a proven business model without innovation can lead to stagnation. When the market elvoves, or consumption habits change, and if a company fails to adapt, it can lose relevance. In addition, when focusing solely on exploitation might lead to overlooking emerging trends and potential growth areas, causing a company to miss out on new opportunities, or even lead to its demise (i.e. Kodak, Blockbuster …).
Personal growth parallels this. In an era of AI advancements, your current specialization might not remain relevant in the future. Sticking solely to your expertise without adapting to new knowledge can lead to falling behind. As Eric Hoffer, the American philosopher said, "In a time of drastic change, it is the learners who inherit the future." Adaptability is key for both business and personal success.
Balancing the dilemma
Imagine exploration-exploitation as a dance between the unknown and the known. Exploration represents uncharted terrain, innovation, and venturing into new possibilities. On the other hand, exploitation signifies optimizing established strategies, resources, and skills.
But when should you explore and when should you exploit?
In the book “Algorithms to Live By”, Brian Christian and Griffiths advised “Explore when you will have time to use the resulting knowledge, exploit when you're ready to cash in. The interval makes the strategy.” The critical factor is the time interval—knowing how much time you have defines your approach.
Consider “supply and demand” too. As Mark Hunter, a prominent consultant said "It's not about having the right opportunities. It's about handling the opportunities right." When you sense that a perfect alignment of internal and external favorable factors has emerged (such as a great product, a strong team, and untapped demand), it's wiser to fully commit and seize the opportunity, rather than hesitating or allowing a prime chance to slip away.
The desire for knowledge accumulation also matters. Don’t fear to make mistakes. Taking many explorations does not gurantee your success, but it increases your odds of success. In other words, explorations equip you more information to support for your decision making.
When you’re in doubt, ask yourself these questions:
What are your long-term and short-term objectives?
What are the benefits of exploration (i.e. information, experiences, or skills)?
What were the benefits of exploitation (i.e. proven market, resource optimization, expertise)?
What will cost you for each option you choose (i.e. market demand, personal timelines, or opportunity cost)?
How does your decision support for your short-term and long-term objectives?
Here's the advice: Embrace exploration to gather ample information, knowledge, and experience, particularly during your youth. This lays the foundation before you delve into exploitation to amplify your returns on investment (ROI). Be cautious not to reverse this sequence, preventing future regrets of not exploring sufficiently. Let time be your ally, a pivotal factor influencing all your decisions.
Remember your personal priorities shape your balance. Embrace adaptability and growth through exploration, while valuing focused expertise through exploitation.
Balancing exploration and exploitation—knowing when to delve into the unknown and when to capitalize on the known—is crucial in both business and personal life. It's about wisely managing resources, time, and energy to maximize opportunities while minimizing potential drawbacks.
It’s all for today. Till next week!
Cheers,
Do Thi Dieu Thuong