Extending March's Exploration and Exploitation: Managing Knowledge in Turbulent Environments

We extend March’s model of exploration and exploitation to consider how environmental turbulence impacts organizational knowledge in hierarchies of varying size and depth. We then evaluate additional effects of a knowledge management (KM) system that collects and shares knowledge from expert individuals in an organization. We find that in the absence of personnel turnover, a management strategy of high exploitation and low exploration for a multi-tier hierarchical organization, representative of a “top-down” knowledge management strategy, reduces the accuracy of average individual knowledge levels compared to alternative strategies. The magnitude of this reduction in accuracy increases as the number of tiers in a hierarchical organization increase. Managers operating in a flat organization will see less of a reduction compared to a multi-tier organization. Two weighted-least-squares regressions performed on two additional data sets corroborate this central observation: a “bottom-up” strategy demonstrates greater resiliency to environmental turbulence than a “top-down” knowledge management strategy for hierarchical organizations.