Exploration and Exploitation: The Influence of Organizational Structure on Organizational Learning

Abstract

A key way individuals learn is through sharing ideas with each other. We extend March's (1991) classic model of exploration and exploitation by allowing for direct interpersonal learning. We simulate an organization with individuals organized into distinct subgroups and then systematically vary the interaction pattern to explore how the degree of subgroup isolation and inter-group connectivity influences organizational learning. We find that having distinct subgroups is important for fostering and preserving diversity. We also find that moderate levels of cross-group linking lead to the highest equilibrium performance by enabling superior ideas to diffuse across groups without reducing organizational diversity too quickly.