In 2014, the London subway system partly shut down after its employees went on a couple-day strike. This resulted in chaos for London’s extensive network of commuters, who had long relied on the subway to get to and from work.
During the strike, however, five percent of the city’s regular commuters [requires registration] actually found a better and more efficient way to get to work. And they stuck with it.
“Of course, commuters could have experimented with alternative routes even without a strike,” Wendy Wood, a professor of psychology and business at the University of Southern California, writes in her book Good Habits, Bad Habits. “But in the rush of daily life, we don’t often take the time to experiment.” As Wood says, “We find something that works well enough, and we don’t consider alternatives.”
“Something as frequent and routine as the way we commute to work is a habit that helps us achieve predictable and efficient results — for example, automatically getting in your car and driving to work frees up your mind to work through more thought-intensive challenges. Similarly, businesses can also apply the latest research on habit-building to make smarter and more sustainable decisions,” says Wood.
“Although habit formation is an individual phenomenon, it also is captured in the tension you see at an organizational level — especially in the conflict that can arise between whether to exploit or explore,” says Wood.
When we rely on existing habits, we free up mental space to tackle problems that require more creativity. Initially, these actions might have required thought and effort, but over time and after many repetitions, they become second nature. We repeat actions into habits because they achieve the outcomes we want. That’s what makes them useful to exploit.
When businesses exploit their version of habits, they solidify organizational practices and create processes based on past successes. This might involve a standard process for recruiting candidates or a tried-and-tested product development timeline.
Exploitation, or relying on a set of habits, can be very effective, especially when your business environment is stable and you can predict fairly accurately how things are going to turn out.
But environments rarely do stay the same. Habits that served your business well in the past may no longer be effective in a world where external factors change so quickly. Brands like Compaq, Blockbuster, and Polaroid are all examples of companies that over-relied on exploiting their business habits without reevaluating them against the context of a rapidly changing business environment, according to Wood.
“Relying on what you’ve done in the past can be very attractive because you know how things are going to turn out,” says Wood. “But if your environment suddenly changes, those habits will no longer serve you.”
Blockbuster, for example, relied too heavily on a familiar business model that favored its brick-and-mortar stores instead of a burgeoning video-on-demand offering, ultimately ignoring competitive threats from Netflix and other streaming services. This dependence on existing practices in the context of a changing business environment eventually sped up the collapse of this video rental company.
“Exploration is innovating and doing new things. It’s what allows organizations to change,” says Wood.
Finding the balance
A balance, however, is critical. Some businesses, especially start-ups, are known to over-rely on exploration. A start-up founder’s exploratory mindset is often what motivated them to build their business in the first place. But too many startups are exploring without setting up procedures that enable them to scale innovations or succeed over time.
“This is where we tend to see startups flame out—when they are not set up sufficiently with effective processes to exploit,” says Wood. “But if they’re actually going to survive, they need the other elements, much of which are not valued in the same way, such as HR and operations.” – Read more