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Balancing Exploration and Exploitation through Structural Design: The Isolation of Subgroups and Organization Learning

49 Pages Posted: 31 Jan 2007 Last revised: 25 Jun 2010

Christina Fang

New York University (NYU) - Department of Management and Organizational Behavior

Jeho Lee

KAIST Business School

Melissa A. Schilling

New York University (NYU) - Department of Management and Organizational Behavior

Date Written: August 1, 2008

Abstract

The classic tradeoff between exploration and exploitation in organizational learning has attracted vigorous attention by researchers over the last two decades. Despite this attention, however, the question of how firms can better maintain the balance of exploration and exploitation remains unresolved. Drawing on a wide range of research on population and organization structure, we argue that an organization divided into semi-isolated subgroups may help strike this balance. We simulate such an organization, systematically varying the interaction pattern between individuals to explore how the degree of subgroup isolation and inter-group connectivity influences organizational learning. We also test this model with a range of contingency variables highlighted in the management research. We find that moderate levels of cross-group linking lead to the highest equilibrium performance by enabling superior ideas to diffuse across groups without reducing organizational diversity too quickly. This finding is remarkably resilient to a wide range of variance in factors such as problem complexity, environmental dynamism, and personnel turnover.

Keywords: Organization Learning, Organizational structure, Network, Exploration and Exploitation

Suggested Citation

Fang, Christina and Lee, Jeho and Schilling, Melissa A., Balancing Exploration and Exploitation through Structural Design: The Isolation of Subgroups and Organization Learning (August 1, 2008). Organization Science, Vol. 2, No. 3, pp. 625-642, 2010. Available at SSRN: https://ssrn.com/abstract=960273 or http://dx.doi.org/10.2139/ssrn.960273

Christina Fang

New York University (NYU) - Department of Management and Organizational Behavior ( email )

44 West 4th Street
New York, NY 10012
United States

Jeho Lee

KAIST Business School ( email )

85 Hoegiro Dongdaemun-Gu
Seoul 130-722
Korea, Republic of (South Korea)
+82 2 958 3678 (Phone)
+82 2 958 3124 (Fax)

HOME PAGE: http://www.kaistgsm.ac.kr

Melissa A. Schilling (Contact Author)

New York University (NYU) - Department of Management and Organizational Behavior ( email )

40 West Fourth Street
New York, NY 10012
United States
212-998-0249 (Phone)
212-995-4235 (Fax)

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