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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 the dedication of money to purchase of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort. In finance, the purpose of investing is ...
, even if explorative investments are required for successful adaptation. Exploitation draws on processes that serve to incrementally improve existing
knowledge Knowledge can be defined as Descriptive knowledge, awareness of facts or as Procedural knowledge, practical skills, and may also refer to Knowledge by acquaintance, familiarity with objects or situations. Knowledge of facts, also called pro ...
, 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 economics and the 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
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 analogue photography. The company is headquartered in Rochester, New York, and is incorpor ...
, 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 S ...
.


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 central executive officer (CEO), chief administrator officer (CAO) or just chief executive (CE), is one of a number of corporate executives charged with the management of an organization especiall ...
and other top executives, the
Board of Directors A board of directors (commonly referred simply as the board) is an executive committee that jointly supervises the activities of an organization, which can be either a for-profit or a nonprofit organization such as a business, nonprofit orga ...
, 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 t ...
, 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 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 listed on a stock exchange, in contrast to t ...
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 the ...
.


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

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Ambidextrous organization Organizational ambidexterity refers to an organization's ability to be efficient in its management of today's business and also adaptable for coping with tomorrow's changing demand. Just as being ambidextrous means being able to use both the left a ...
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Knowledge management Knowledge management (KM) is the collection of methods relating to creating, sharing, using and managing the knowledge and information of an organization. It refers to a multidisciplinary approach to achieve organisational objectives by making ...
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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 ...
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Polaroid Corporation Polaroid is an American company best known for its instant film and cameras. The company was founded in 1937 by Edwin H. Land, to exploit the use of its Polaroid polarizing polymer. Land ran the company until 1981. Its peak employment was 21,00 ...
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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 resources and an assessment ...


References

{{DEFAULTSORT:Success trap Innovation Business planning Change management Financial markets Knowledge management