Exploitation versus Exploration: Know the difference and master both types of innovation

Charles O’Reilly and Michael Tushman’s Lead and Disrupt: How to Solve the Innovator’s Dilemma, published in 2016, maps two types of innovation:

1. Exploitation: Innovation that emerges from existing assets of the organization and improves them through innovation. This kind of innovation is relatively moderate, focused mainly on enhancement and efficiency — most managers of organizations feel comfortable with it. It deals with questions familiar to them: improving existing products, improving the product for a proximate market, etc. They know the customers and their expectations and thus find it relatively easy to address the challenge of exploiting.
2. Exploration: This type of innovation requires the organization to leave its comfort zone and examine new markets, products, and business models unfamiliar to them. From the managers’ perspective, this type of innovation obliges them to venture into unfamiliar territory.

Despite the challenges involved in the innovation of the exploratory type, O’Reilly and Tushman argue that organizations should formulate a portfolio of innovative projects that include both types. “Regardless of a company’s size, success, or tenure, we argue that their leadership needs to be asking: How can we both exploit existing assets and capabilities by getting more efficient and provide for sufficient exploration so that we are not rendered irrelevant by changes in markets and technologies?”