Explore or Exploit? Innovation in Business Schools

• To thrive amid continual shifts, business schools face a fundamental tension between exploring new opportunities and exploiting the best of their long-held practices.
• Effective exploration requires dedicated leadership, entrepreneurial mindsets, and distinct tools to manage uncertainty and test ideas efficiently.
• In a changing world, exploitation offers stability—improving operations we know work, with predictable returns.

Transcript

Corey Phelps: [00:13] How can business schools innovate on the one hand, yet maintain their historical focus on quality? I like to think of this as the fundamental tension that all organizations face.

[00:24] The way I think about it is exploration versus exploitation. Exploration is about innovating. It's about searching for new business models, new ways to create value for your stakeholders.

[00:35] Exploitation is about refining incrementally things that you've been doing for a long period of time and trying to get better at them. Oftentimes, we think about this as operational excellence. How do we become excellent at things that we're doing?

[00:49] How do we manage that tension between exploration on the one hand and exploitation on the other hand? The challenge is that these are two fundamentally different things.

[00:57] Exploration is uncertain. We've never done this before. We're venturing into the unknown. With exploitation, we have a huge amount of knowledge. Little uncertainty affects how we're willing to engage in those activities.

No one's really paying attention to how the world changes and what we must do to prepare for it.

[01:12] Exploitation, investing in operational excellence. Because we know those domains so well, whatever investment we make, the returns are going to be much more certain than investing in things that we've never done before—creating new programs and adopting new technologies, for example, generative AI.

[01:29] It's far easier to want to invest in things like exploitation, operational excellence, refining what we know how to do. No one's thinking about explorations.

[01:38] No one's really paying attention to how the world changes and what we must do to prepare for it. In other words, how do we need to innovate to adapt to this changing competitive landscape?

[01:49] It starts with asking, do we have people whose fundamental primary job is to spend time focusing on exploration? So that's where it starts, right? Attention.

[02:00] The second thing is, do we actually have resources that are available to invest in exploration? A large amount of money, but generally speaking, most budgets are geared toward our existing operations.

The tools that we use to manage the day-to-day operations of a business school are not the same tools that are going to be useful for exploration.

[02:12] They're focused on exploitation. And we don't have the money to invest in exploratory high-risk initiatives. We need to have some dedicated funding that we can allocate to exploratory projects.

[02:25] And the third thing is we need a toolkit. The tools that we use to manage the day-to-day operations of a business school, or for any organization, for that matter, are not the same tools that are going to be useful for exploration.

[02:38] For example, in exploration, we have an idea, maybe it's a new idea, maybe it's for a new program or a new technology. The challenge is that we're facing huge uncertainty.

[02:50] If we make a big investment like we might be willing to make in our existing operations, we could get it wrong. So, what do we need to do? We need to experiment, which means we need to test these ideas, do it quickly, and do it as cheaply as possible, because most of the time, these ideas are going to fail.

[03:08] In terms of the type of person focused on innovation or exploration, typically, it will be someone in a leadership role. We might put an assistant dean on it, we could even place an associate dean on it to designate symbolically its importance to the organization.

[03:24] But I think what's critical is that the person has two things. Number one, they have the mindset for exploration, which means they must be very entrepreneurial.

[03:33] These individuals need to know and understand how to operate outside the bureaucratic status quo organization, see value, and be motivated by pursuing new ideas.

You need somebody whose primary job is to think about what's happening externally and then what we need to do organizationally to adapt to it.

[03:46] They have to have the entrepreneurial mindset, and they have to have that entrepreneurial skill set. The skill set that leads them to think, okay, I have an idea, but I don't know if it's a good idea.

[03:57] I don't want to invest a lot of resources, probably because I don't have many to invest. I need to figure out how to experiment with these ideas, turn this idea into an experiment, a hypothesis, if you will, and collect the data quickly and cheaply, so I can decide whether or not this idea can be pursued.

[04:17] So you need to have somebody who has the right mindset, the right skill set, and sufficient resources. Those resources could be financial, but they could also be people.

[04:26] You could get these people from existing parts of the organization. They could be faculty members tasked or secunded to work with this innovation group. They could be dedicated staff members, if you have the budget to support that.

[04:39] But you certainly need somebody whose primary job is to think about what's happening externally, what changes are happening in our landscape, and then what we need to do organizationally to adapt to it.

[04:53] That needs to be their full-time focus because if not, the rest of the organization is focused on things that we know how to do and have been doing for years, if not decades.