While obviously required to remain relevant in an ever-changing world of business, enterprises tend to unduly restrict their learning – especially the learning that comes from doing – to the existing, the familiar, and the safe. Instead, learning must pull the enterprise forward, into the unknown, however threatening that might be to the status quo.
In Liberate Creativity we covered the third law – the law of creativity – derived by determining where the enterprise creates value. It calls for liberating creativity to discover surprising ecosystem-molding and wealth-producing opportunities in the possibility lying ahead. But every enterprise also needs to acquire the means by which to take advantage of the resulting opportunities.
So next we address the fourth of seven questions regarding enterprise value creation: How does the enterprise create value? The answer crosses all aspects of the enterprise, from engaging individuals to producing wealth through the capabilities of those workers. So managing then functions to generate knowledge in order to develop capabilities, the domain of enterprise value creation that perpetually builds up, rebuilds, exploits, and operates its value-creation potential with opportunities discovered.
Continual knowledge generation pertains to all the functions of managing we introduced right up front: inducing engagement, effecting alignment, discovering opportunities, creating offerings, producing wealth, integrating aspects – and even to gaining knowledge itself! Each of these seven functions addresses a distinct aspect of enterprise value creation, which must never sit still but always pull itself forward to ever-greater heights of value. So learning must be both pervasive and fractal in nature, pertaining to all aspects at every level of the enterprise.
The Exploration & Exploitation First Principle:
With our research into learning we found that two distinct types of organizational learning are widely understood, having been discovered and disseminated by preeminent organizational theorist James G. March. The exploration & exploitation first principle comes from his 1991 article in Organizational Science where March first identified them as the two forms of learning essential to enterprise viability – without both exploration and exploitation enterprises eventually fail.(1) March discovered that enterprises must simultaneously and continually (1) exploit old certainties to gain knowledge that extends current capabilities for creating greater immediate value, and (2) explore uncertainties to gain knowledge for developing new capabilities for creating even greater value farther into the future.
But March also pointed out an unreconciled conflict between the two. The paradoxical conflicting nature of exploring and exploiting actually prevents them from becoming fully effective within the enterprise. The more immediate and predictable returns of exploitation bring about strong commitment by managers while the indeterminate and risky returns of exploration weaken their resolve to fully carry it out. This bias causes the enterprise to neglect its longer-term, and ultimately far more wealth-generating, value-creation opportunities.
The Orchestration First Principle:
Addressing the exploration-exploitation conundrum, we identify the orchestration first principle. This principle establishes that enterprises must orchestrate exploration and exploitation in order to foster both, balance them with each other, and integrate their divergent results into changing how the enterprise creates value. With effective orchestration, the knowledge arising from these changes – from small incremental enhancements to radical, surprising transformations – works its way into operation, that part of the enterprise that actually produces economic value in the present (always based on the knowledge at hand).
The fourth law of managing then, pertaining to how the enterprise creates value, comes down to knowledge, the source of all capabilities. From March’s exploration & exploitation and our orchestration first principles we deduce:
The Law of Learning
Only the enterprise that invigorates learning –
through exploring, exploiting, and orchestrating –
generates the knowledge necessary to
persistently create new value
amongst infinite possibility.
Think of this fourth law in the context of the results manifest in the enterprise thanks to following the first three – the unleashed potential of people that intrinsically motivates, the infusion of meaning that aligns, and the liberated creativity that discovers a plethora of opportunities. These outcomes then require generation of knowledge to develop capabilities required for ongoing success.
Contrast the three specific types of learning called for by the law of learning with how the conventionally managed enterprise gains capabilities. It primarily focuses on exploitation of a designed operation in order to improve its efficiency, while generally ignoring or starving exploration. This lack of true exploration and the orchestration of new methods and offerings into enterprise operation sentences any enterprise to mediocrity. Previously unrecognized as a requirement of managing, the orchestration of exploration and exploitation stands out as a crucial missing link. We see this in example after example of companies with great inventions at their disposal that did not effectively orchestrate them into their operation – Xerox’s graphical user interface, Kodak’s digital photography, Nokia’s touchscreen cell phone technology, and on and on the list could go.
Conventional managing tends to hone and perpetuate the existing expertise of the enterprise, adopt proven methods from others, and teach from existing knowledge. In contrast, the law of learning addresses the essential need for managing to invigorate learning that devises new-to-the-world methods and offerings, and in the process produce the actionable knowledge that develops the new capabilities required for continued value creation.
And so the law of learning leads to this managing imperative:
Imperative to Generate Knowledge: Invigorate Learning
In adherence to the law of learning, managing must
invigorate learning throughout the enterprise.
It must explore to discover the unknown, exploit the
known, and orchestrate all learning to realize value from
the knowledge gained in operation.
As noted above, conventional managing fails to explore sufficiently and orchestrate effectively to build the new knowledge required to keep the enterprise operation competitive – one of the key reasons that conventional managing has always fallen far short of what managing ought to be. And as usual, the historical response to this shortcoming has been to introduce further dysfunction through command & control, which tends toward defensiveness (just do what you are told) rather than openness, and teaching (we’ll tell you how to do it) rather than learning. Managing in this way then requires that management define what outcomes to achieve and how to achieve them ahead of issuing commands. This leaves little room for the emergence of new ideas and the spontaneous learning from workers that could flush out opportunities from the minor to the radical.
As a result, enterprises again seek heroic leaders to overcome the managing shortcomings that otherwise stifle their performance. Unfortunately, this type of move actually further ingrains an ineffective way of managing that ultimately produces mediocrity (typically noticed shortly after the heroic leader departs). The real “Aha!” moment for board members will be when they realize finding an endless series of traditional heroic leaders is a loser’s game, especially now that a much more pragmatic and lasting alternative exists.
Managing in accord with the laws of managing calls for the liberation of creativity and the invigoration of learning in every person and throughout all aspects of the enterprise. Practicing these laws not only extends and refines operations, but also discovers and orchestrates radically new opportunities into enterprise operation as workers realize their full human potential. Doing all this, the enterprise can bid adieu to the periodic frantic search for the elusive genius of a heroic leader.
Coming up, the next two laws of managing relate to enterprise activities as well. They take the discoveries and capabilities of the enterprise resulting from creativity and learning and put them to work creating value for humanity while gaining vitality for the enterprise.
(1) James G. March, “Exploration and Exploitation in Organizational Learning,” Organizational Science, Vol 2 No 1, February 1991, pp. 71-87.