Explore or exploit: The risk equation

Humans are natural explorers. What drives our decisions to explore something new? And when is it better to stick to the things we know? The explore-exploit equation is important for organisations, to help find the right balance of risk. Here’s why, and three ways you can use it…

The survival of an organisation is about getting risk right. Take too many risks and overspend resources, and you’re likely to run out of luck. But be too risk-averse and fail to innovate, and you’ll be outdone by better alternatives.

History is scattered with the remains of once-dominant corporations who failed to innovate well enough, defeated by plucky disruptors who did. But for each disruptive venture that succeeds, there will have been at least nine other challengers going to the wall.

The sweet spot is finding the right amount of risk.

But how do you walk this tightrope? (Sorry, that’s a risky analogy.) Organisations need to empower their employees, and create cultures where trust and innovation thrive. And they must also respond to their context: risk will look very different in heart surgery or construction compared with high-tech sectors or advertising. And different in an economic recession compared with a boom.

So how might we think about the decisions around risk, and about creating a culture for ‘good’ risk decisions?

What’s your choice today?

Let’s imagine it’s Friday night. You’ve had a tough week. You’re hungry. As soon as you get home from work, you head to the kitchen to make a quick plate of pasta… but your partner looks crestfallen, and reminds you that you’d agreed to go out to your favourite restaurant together.

Thirty minutes later, even more hungry, you’re sitting at the usual table in the restaurant. You mindlessly scan the menu, but you’re not sure why – you already know what you’re going to choose. Right now, you don’t want to bother with anything other than the dish you know like, and your mouth is watering at the (overdue) prospect.

On this Friday night, you’re making the most of your experience to make a safely good choice. It’s not the time for risk. After the week you’ve had, you’re not in the mood for picking something you might not enjoy.

Now imagine coming back to the same restaurant a few weeks later.

This time you’ve just had a promotion. You’re celebrating with friends, and you’ve already had a pre-meal drink together. It’s Saturday, everyone’s in a happy mood, and you’re feeling pretty good about life. Looking down the menu, are you more willing to risk a new meal option tonight rather than the same old one you’ve had ten times before?

How much does the context change your willingness to try something different?

The human impulse

What drives our decisions to explore something new? And when is it better to stick to the things we know?

Are some people destined to be explorers? And others to play it safe?

Alex Hutchinson’s book The Explorer’s Gene1 is a compelling journey through the explore-exploit equation. As an endurance athlete and adventurer, Hutchinson is drawn to exploration. He loves to go on long treks on unchartered routes, deliberately choosing the path less trodden. He knows, however, that not everyone is the same.

Through the human story across time, Hutchinson explains how our species is wired to explore. Our history, from earliest migration out of Africa to our ability to research and innovate, shows how exploration is a deep-rooted urge. We’re innately driven by curiosity and wanderlust. We want to seek something better, a more interesting territory, the prospect of what we might find over the next hill.

And yet, not everyone has the explorer’s itch to the same degree. Some are content with where they are. And interestingly, as we get older, we tend to become less motivated to take risks to find something new. With age, we tend to become happier to exploit our experience for an easier life.

At all times, the ability to exploit what we know is just as valuable as our drive to explore. To feed ourselves, we need to reap what we sow before moving on to a new field (yes – literally and metaphorically).

Why do ‘explore’ and ‘exploit’ matter for organisations?

The ‘explore vs exploit dilemma’ has its roots in applied mathematics and behavioural science.

The concept was extended to organisational theory by James G. March2, who argued that organisations must effectively manage the tension between these two activities to be competitive and adapt to changing environments. 

Exploration involves activities like experimentation, innovation and research. It is crucial for long-term adaptation and survival, but brings higher uncertainty. Overemphasis on exploration can lead to wasted resources and missed opportunities. 

Exploitation involves tapping into existing knowledge and skills to improve efficiency and performance. It brings short-term gains, and competitive advantage, but may hinder long-term adaptation. Overemphasis on exploitation can lead to stagnation and failure to innovate. 

So organisations face a trade-off between these two. Giving too much energy to one can come at the expense of the other. They need to find the right balance based on their context, environment, and goals. 

Yin and Yang.

How can you use this at work?

Here are three ways you could use explore-exploit thinking at work…

1. Balance exploration and exploitation in strategic planning

Successful organisations need a balance of risk in overall strategic planning. The right balance depends on context.

At a team level, a conscious inclusion of exploratory or new activity alongside established best practice can lead to better outcomes.

A few questions to prompt thinking…

• Does your strategic planning have an appropriate balance of exploring and exploiting?
• Do planned tactics and activities allow for this balance?
• What new ideas are you actively exploring?
• Are you resourcing some exploratory activity?
• Are there some tests, pilots, experiments you could run to try new things out before investing more time, resource or cost?

2. Foster listening and cognitive diversity

A culture that enables sharing of diverse perspectives is likely to open up avenues for exploration.

‘Cognitive diversity’ is when teams or organisations bring together different ways of thinking, based on varied backgrounds, perspectives, experience and knowledge. There may be some team members who are inclined to explore – investigate a new idea, or invent a new way to do something. In a diverse team, these explorers will be balanced out by others who are good at exploiting existing strengths.

Think about the following…

• Is there someone on your team who’s an explorer? How could they help open up new ideas and opportunities?
• Is there someone who’s good at exploiting existing strengths? Or how do you, as a team, make the most of your experience, skills and assets?
• How can you make sure these perspectives are shared and listened to?

3. Reframe ‘risk’ and ‘permission to fail’ in your team

Are people afraid of risk? Are they given enough leeway to try new things out? If the team or organisation disincentivises new thinking by penalising failure, you have a problem. This kills innovation.

Psychological safety is key. If people know that they will be supported if they don’t succeed – assuming they were doing their best, in the interests of shared goals – they are more likely to bring creativity and innovative problem solving.

To prompt some thinking:

• How are you presenting risk? Are you making it ok for people to take ‘good’ risks?
• Do you talk about risk, and what makes for good or poor choices? Are there some shared guidelines for things that are ok or not ok?
• Are you making it ok for people to try something, even if it doesn’t work?

How can we help?

We love to talk with organisations about how to make change happen, translating big thinking into the actions and behaviours that people need to take. Here’s how we work. If you’d like to chat, please drop us a line.

For insights into cognitive diversity, from the brilliant author and journalist Matthew Syed, join us at our upcoming Speak to the Human autumn brunch on 12^th November.

• [1] Hutchinson, Alex, The Explorer's Gene: Why We Seek Big Challenges, New Flavors, and the Blank Spots on the Map. Mariner Books, 2025. https://www.amazon.co.uk/Explorers-Gene-Challenges-Flavors-Blank/dp/0063269767
• [2] March, James G., Exploration and Exploitation in Organizational Learning, Organization Science, Vol. 2, No. 1, Special Issue: Organizational Learning: Papers in Honor of (and by) (1991), pp. 71-87 https://www.jstor.org/stable/2634940