The success trap refers to business organizations that focus on the exploitation of their (historically successful) current business activities and as such neglect the need to explore new territory and enhance their long-term viability.
[March, J.G. (1991), �]
Exploration and exploitation in organizational learning
��. Organization Science, vol. 2, 71–87.[Levinthal, D.A. and March, J.G. (1993), ‘The myopia of learning’. Strategic Management Journal, vol. 14, 95–112.]
Overview
The success trap arises when a firm overemphasizes exploitation
investments
Investment is traditionally defined as the "commitment of resources into something expected to gain value over time". If an investment involves money, then it can be defined as a "commitment of money to receive more money later". From a broade ...
, even if explorative investments are required for successful adaptation.
Exploitation draws on processes that serve to incrementally improve existing
knowledge
Knowledge is an Declarative knowledge, awareness of facts, a Knowledge by acquaintance, familiarity with individuals and situations, or a Procedural knowledge, practical skill. Knowledge of facts, also called propositional knowledge, is oft ...
, while exploration involves the pursuit and acquisition of new knowledge.
Firms and other organizations that have been performing well over an extended period of time are exposed to strong
path dependence
Path dependence is a concept in the Social science, social sciences, referring to processes where past events or decisions constrain later events or decisions. It can be used to refer to outcomes at a single point in time or to long-run equilibria ...
in exploitative activities, at the cost of explorative activities with which they have little experience. For example, in the 1990s
Polaroid’s management failed to respond to the transition from analogue to digital photography, although the rise of digital technology had been evident since the 1980s.
[Tripsas, M. and Gavetti, G. (2000), ‘Capabilities, cognition, and inertia: evidence from digital imaging’. Strategic Management Journal, vol. 21, 1147–61.] Other well-known examples of companies that got caught in the success trap include
Nokia
Nokia Corporation is a Finnish multinational corporation, multinational telecommunications industry, telecommunications, technology company, information technology, and consumer electronics corporation, originally established as a pulp mill in 1 ...
,
Kodak
The Eastman Kodak Company, referred to simply as Kodak (), is an American public company that produces various products related to its historic basis in film photography. The company is headquartered in Rochester, New York, and is incorporated i ...
,
Rubbermaid and
Caterpillar
Caterpillars ( ) are the larval stage of members of the order Lepidoptera (the insect order comprising butterflies and moths).
As with most common names, the application of the word is arbitrary, since the larvae of sawflies (suborder ...
.
Conditions giving rise to success trap
A key condition giving rise to a firm getting caught in the success trap is the company culture, having been created based on the understanding of what makes success, the culture then solidifies. When the environment changes there is an initial dismissing of the significance of the change and the (over time) subsequent failure to adjust the strategy of the firm. Thus, top managers do not ‘see’ the upcoming exogenous change, because their thinking and policies tend to constrain exploration and experimentation within the firm and inhibit the ability to bring about strategic change. A broader perspective arises from how exploration activities are suppressed in
publicly owned companies as a result of the interplay between the
CEO
A chief executive officer (CEO), also known as a chief executive or managing director, is the top-ranking corporate officer charged with the management of an organization, usually a company or a nonprofit organization.
CEOs find roles in variou ...
and other top executives, the
Board of Directors
A board of directors is a governing body that supervises the activities of a business, a nonprofit organization, or a government agency.
The powers, duties, and responsibilities of a board of directors are determined by government regulatio ...
, the pressure for short-term (improvements in) results arising from the
capital market
A capital market is a financial market in which long-term debt (over a year) or equity-backed securities are bought and sold, in contrast to a money market where short-term debt is bought and sold. Capital markets channel the wealth of savers ...
, and the substantial delay between the investment in exploration efforts and the return on these efforts.
[Walrave, B., Van Oorschot, K.E. and Romme, A.G.L. (2011), ‘Getting trapped in the suppression of exploration: A simulation model’. Journal of Management Studies, vol. 48, 1727-1751.]
Preventing the success trap
The success trap can be best avoided early on, for example, by closely monitoring how other (e.g. leading) firms maintain a balance between exploitation and exploration activities, as well as by continually collecting information about changing customer needs, newly emerging technologies and other changes in the
market
Market is a term used to describe concepts such as:
*Market (economics), system in which parties engage in transactions according to supply and demand
*Market economy
*Marketplace, a physical marketplace or public market
*Marketing, the act of sat ...
and competitive environment. Drawing on this type of information, the executive board and board of directors together need to develop and sustain a shared long-term vision and strategy regarding the investments in exploitation and exploration activities. Once a publicly owned corporation has been suppressing exploration over an extended period of time, it tends to be almost impossible to get out of the success trap without major interventions - such as a hostile
takeover
In business, a takeover is the purchase of one company (the ''target'') by another (the ''acquirer'' or ''bidder''). In the UK, the term refers to the acquisition of a public company whose shares are publicly listed, in contrast to the acquisi ...
by another corporation or an exit from the
stock exchange
A stock exchange, securities exchange, or bourse is an exchange where stockbrokers and traders can buy and sell securities, such as shares of stock, bonds and other financial instruments. Stock exchanges may also provide facilities for ...
.
Consequences of the success trap
Firms that fall into the success trap suffer long term consequences. They grow their revenues at a lower pace than other companies and also create less shareholder value than more exploratory companies. These patterns can be observed for S&P 500 companies in the USA in the aggregate and also within industries.
See also
*
Ambidextrous organization
*
Disruptive innovation
*
Knowledge management
Knowledge management (KM) is the set of procedures for producing, disseminating, utilizing, and overseeing an organization's knowledge and data. It alludes to a multidisciplinary strategy that maximizes knowledge utilization to accomplish organ ...
*
Organizational learning
Organizational learning is the process of creating, retaining, and transferring knowledge within an organization. An organization improves over time as it gains experience. From this experience, it is able to create knowledge. This knowledge is bro ...
*
Polaroid Corporation
Polaroid Corporation was an American company that made instant film and cameras, which survives as a brand for consumer electronics. The company was founded in 1937 by Edwin H. Land, to exploit his Polaroid (polarizer), Polaroid polarizing polyme ...
*
Strategic management
In the field of management, strategic management involves the formulation and implementation of the major goals and initiatives taken by an organization's managers on behalf of stakeholders, based on consideration of Resource management, resources ...
References
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Innovation
Business planning
Change management
Financial markets
Knowledge management