How to Counteract the Suppression of Exploration in Publicly Traded Corporations

Abstract

Top management teams frequently overemphasize efforts to exploit the current product portfolio, even in the face of the strong need to step up exploration activities. This mismanagement of the balance between explorative R&D activities and exploitation of the current product portfolio can result in the so‐called success trap, the situation where explorative activities are fully suppressed. The success trap constitutes a serious threat to the long‐term viability of a firm. Recent studies of publicly traded corporations suggest that the suppression of exploration arises from the interplay among the executive team's myopic forces, the board of directors as gatekeeper of the capital market, and the exploitation–exploration investments and their outcomes. In this paper, system dynamics modeling serves to identify and test ways in which top management teams can counteract this suppression process. For instance, we find that when the executive board is suppressing exploration, the board of directors can still prevent the success trap by actively intervening in the exploitation–exploration strategy.