Exploratory and Exploitative Market Learning

13 Nov 2010 Sandeep Mehta

A quick note from Using Exploratory and Exploitative Market Learning for New Product Development divides R&D organizational learning into two types: Exploratory and Exploitative:

More specifically, this study argues that exploratory market learning contributes to the differentiation of the new product because it involves the firm’s learning about uncertain and new opportunities through the acquisition of knowledge distant from existing organizational skills and experiences. By contrast, this study posits that exploitative market learning enhances cost efficiency in developing new products as it aims to best use the currently available market information that is closely related to existing organizational experience.

So we can think about Innovation as exploratory learning and invention as exploitative learning.  The paper explores this theory based on a survey:

“This study is based on survey data from 157 manufacturing firms in China that encompass various industries. The empirical findings support the two-dimensional market learning efforts that increase new product differentiation and cost efficiency, respectively. The study confirms that exploratory market learning becomes more effective under a turbulent market environment and that exploitative market learning is more contributive when competitive intensity is high. It also suggests that because of their differential direct and moderating effects on new product advantage either exploratory or exploitative market learning may not be used exclusively, but the two should be implemented in parallel. Such learning implementations will help to secure both the feature and cost-based new product advantage components and will consequently lead to the new product success.

To summarize: Innovation is useful (and probably caused by) a turbulent market with lots of changes and discontinuities, while invention or sustaining development is useful in stable / competitive markets.

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