Contradictions are everywhere. We are told that data-driven decisions are more accurate and more likely to result in better outcomes and yet we still feel more comfortable relying on our own intuition (or following what others do). We are told that to achieve competitive advantage, organizations need to be unique — but organizations love to benchmark and follow the best practices of others.
I was reminded of the paradox of contradiction in a recent article appearing in the New York Times Magazine in which Mark O’Connell describes a funny machine which turns itself off when you turn it on! Conceived by Martin Minsky, a pioneer in the field of artificial intelligence, it is called a Useless Machine. You can see why it useless. On the other hand, it poignantly reminds us of the irony of some our purposeful actions. Why is this important? Let me tell you.
Are we purposefully turning off? Exploitation vs. Exploration
In the twentieth century, GM exploited its capability to mass produce automobiles to become the largest car manufacturer in the world. In the twenty first century, it filed for bankruptcy. In a seminal article on organizational learning, James March, a professor at Stanford University, described an existential challenge facing firms: in only exploiting their strengths to be successful, they are unlikely to survive.
Exploitation involves learning to efficiently use current resources and capabilities to deliver profit. There are strong incentives to continue exploiting the tried and true because the returns are predictable and there is security in the “predictable”.
Exploration is about risk taking, experimentation, variation, and innovation. The essence of exploration is experimentation where the returns are uncertain, long-term, and often negative. We want to be successful but we tend to prefer the known for the unknown and the predictable for the unpredictable. The contradiction is that in favoring the known (exploitation) over the unknown (exploration), we unwittingly sow the seeds of our demise.
Atlassian and Google have “FedEx Days” to nurture exploration. Daniel Pink describes FedEx Day in his blog on “How to deliver innovation overnight” as one-day bursts of autonomy that allow employees (e.g. software developers) to work on anything they want provided they show colleagues what they have created 24 hours later. Innovation emerges from exploration, experimentation, and trying different things — not from doing the same things over and over again.
To build current and future value, firms must not only invest in exploiting current capabilities, they must also invest in exploration.
A little contradiction might be a good thing
Charles O’Reilly, a professor at Stanford University, and Michael Tushman, a professor at Harvard, use the term organizational ambidexterity to describe firms that have the ability to simultaneously pursue both incremental (exploitation) and discontinuous (exploration) types of innovation. Most organizations tend to be biased in favor of exploiting existing capabilities rather than engaging in exploratory activities that are inherently risky, involve a great deal of uncertainty, frequent failure, and are costly. However, the research suggests that in order for organizations to survive and thrive in the long-term, they should do both.
Exploration can involve experimenting by being an early adopter of a new innovation.
In our book, Making HR Technology Decisions: A Strategic Perspective, soon to be published by Business Expert Press, my co-author Sandra Fisher and I argue that increased value and competitive advantage are more likely to be derived from exploratory activities that involve using HR technology differently than rivals and by developing new ways of undertaking HR processes that do not mimic what competitors do. In addition, exploration can involve experimenting by being an early adopter of a new innovation.
Advanced HR Analytics is an example of a new innovation that is still at the early stage of adoption
According to the Sierra-Cedar 2014-2015 HR Systems Survey White Paper, 17th Annual Edition, survey, about 16% of surveyed companies have adopted workforce analytics and only 9% reported using predictive analytics.
Innovations are all about experimentation. The factors that increase adoption — such as clear evidence of relative advantage compared to the tried and true and the ability to benchmark others — are not immediately clear or available. At the same time factors that deter adoption — such as complexity, high cost and low compatibility with existing capabilities or organizational culture — are very real challenges.
The contradiction of this situation cannot be missed. The factors that deter adoption are the factors that should also encourage adoption. On the other hand, there is emerging evidence that willingness to experiment with HR Analytics is associated with competitive advantage.
In a recent academic publication, professors from NYU and MIT, Aral, Brynjolfsson and Wu, analyzed survey and financial data of 90 publicly traded firms, primarily in the manufacturing industry who had purchased and subsequently implemented “a major vendor’s HCM software” over the period 1995-2006. They found that firms in their sample that implemented an HCM software and that also had above average adoption of HR analytics practices, and HR processes and compensation policies that focused on strategic alignment, had significantly greater productivity — as much as 16.5% higher sales than those without all three capabilities.
Although the authors of the study were reluctant to generalize their findings based on such a small sample, these results are consistent with the notion of exploitation and exploration, and of achieving competitive advantage by being different rather than following what others do. Lexy Martin and I reported similar results at the 5th International eHRM Conference in 2014 in our analyses of public firms that use HR Analytics and HCM software.
Contradictions may be everywhere but ignoring them may be an opportunity lost. As author C. JoyBell C. notes “Holding onto something that is good for you now, may be the very reason why you don’t have something better.”