Exploration, Exploitation, and Knowledge Management

Abstract

James G. March conceived organizational learning as a balance between the exploration of new alternatives and the exploitation of existing competencies. This study extends March's model to consider exploration and exploitation in hierarchical organizations. First, the effect of additional tiers is analyzed and related to March's original constructs. Second, the study evaluates additional effects of a knowledge management system that collects and shares knowledge from expert individuals in an organization. This study finds that in the absence of personnel turnover, a knowledge strategy of high exploitation and low exploration for a multi-tiered hierarchical organization reduces the veracity of average individual knowledge when compared to alternative strategies. The magnitude of this reduction in veracity increases as the number of tiers in a hierarchical organization increase; a flat organization will see less of a reduction. A weighted least-squares regression performed on a second set of data corroborates this central observation. This study is the first of three dissertation papers planned by the author, examining the organizational dynamics associated with knowledge management systems.

Keywords: organizational learning, exploration, exploitation, personnel turnover, environmental turbulence, hierarchical organizations, knowledge management

JEL Classification: D23, D70, D83