knowledge exploitation, knowledge exploration, and competency trap

& Research Article

Knowledge Exploitation, KnowledgeExploration, and Competency Trap

Weiping Liu*

Department of Management, City University of Hong Kong, Kowloon, Hong Kong

It is no surprise that knowledge exploitation and knowledge exploration have become theconsistent theme in organizational learning literature. Strategy and organization theoristshave similarly observed the dynamic capabilities anchored in a firm’s ability to simultaneouslyexploit current technologies and resources to secure efficiency benefits, and creating variationthrough exploratory innovation. While some studies argue that excessive exploration orexcessive exploitation can lead to a competency trap, the ‘competency trap’ component actuallyhas received less empirical scrutiny. This paper provides a study about how competency trapsare formed in the process of knowledge exploration and exploitation as well as their effects onbusiness performance.The paper includes three main sections: First, the theoretical interpretation of the

‘competency trap’ construct is broadened by investigating the formation of competencytraps based on organizational learning theory; second, factors leading to the formation ofdifferent competency traps are identified; and third, the relationship between an organization’scompetency trap and business performance is investigated. The article ends with adiscussion of implications for the organizational learning literature. Copyright # 2006 John

Wiley & Sons, Ltd.

INTRODUCTION

There is growing interest in organizational learn-ing, and in the associated concepts of knowledgeexploration and knowledge exploitation. Previousstudies indicate that organization’s learning cap-ability is the main source of its competitive advan-tage (e.g., Kogut and Zander, 1992; Prahalad andHamel, 1990; Starbuck, 1992) and maintaining anappropriate balance between exploration andexploitation is a primary factor in organizationalsurvival and prosperity (Cohen and Levinthal,1990; Levinthal, 1997; Levinthal and March, 1993;March 1991; Penrose, 1959; Wernerfelt, 1984),

‘excessive dominance by one or the other will bedysfunctional’ (Cohen and Levinthal, 1990).

However, many organizations find it difficult toachieve an appropriate balance between these twocontradictory organizational processes (Adler et al.,1999; March, 1991; Teece et al., 1997). Maintaining abalance between exploitation and exploration iscomplicated not only by the difficulty of determin-ing what the appropriate balance should be,but also by several ways in which learning itselfcontributes to imbalances (March, 1991): learningleads organizations into dynamics of acceleratingexploitation or exploration (Hardy and Dougherty,1996). Such ineffective or inappropriate learningprocesses can lead to a ‘competency trap’(Levinthal and March, 1993). One prominent exam-ple is found in Starbuch and Hedberg’s (1977) fas-cinating study of a Swedish company, Facit, whowas once a world leader in producing mechanicalcalculators before the arrival of electronic computer

Knowledge and Process Management

Volume 13 Number 3 pp 144–161 (2006)

Published online in Wiley InterScience

(www.interscience.wiley.com). DOI: 10.1002/kpm.254

Copyright # 2006 John Wiley & Sons, Ltd.

*Correspondence to: Weiping Liu, Department of Management,City University of Hong Kong, 83, Tai Chee Avenue, KowloonTong, Kowloon Hong Kong. E-mail: [email protected]

technology, and gradually got behind of othercompetitors because of slow or incompetent know-ledge exploration. Excessive exploitation has beenfound to prevent incumbents from retaining theirleadership positions in the disk drive industry(Christensen and Bower, 1996), photolithographicequipment (Henderson and Clark, 1990), andwatch (Glasmeier, 1991) industries, among others(Tushman and O’Reilly, 1997). Previous studiesalso indicate that organizations may be trappedinto excessive exploration especially when theyare exposed to environments characterized by ahigh rate of innovation and change (Luo andPeng, 1999; March, 1991; Moorman and Miner,1998). In his sample of 33 large US corporations,Porter (1987) finds that between 1950 and 1986the sampled firms entered an average of 80 newindustries each (such unrelated diversificationprocess can be seen as some kind of knowledgeexploration, as it is a very important vehicle bywhich organizations enter new lines of businessand obtain knowledge from external sources).Although to some extent an increased performanceis achieved in a short run, such intensive explora-tion of US manufacturing firms toward unrelateddiversification is now thought by many observers(such as Porter) to have been unsuccessful. Underboth cases, competency traps occur when ‘favor-able performance with an inferior procedure leadsan organization to accumulate more experiencewith it, thus keeping experience with a superiorprocedure inadequate to make it rewarding touse’ (Levitt and March, 1988: 322).

The formation of a competency trap resultingfrom imbalanced knowledge exploitation andknowledge exploration derive from a range of fac-tors, including the pursuit of efficiency (Levinthaland March, 1993), limited rationality (Levinthaland March, 1993; March, 1991), path-dependentfactors (Cohen and Levinthal, 1989, 1990, 1994;Collis, 1991), and adaptive dynamics (Herriott,et al., 1985; Miller, 1993). Notwithstanding thoseinsights we now have into the competency trap,we still lack a coherent theory for explainingthem. This study seeks to address this gap and topresent a model about how competency trapsare formed as well as their effects on businessperformance.

AN ORGANIZATIONAL LEARNINGFRAMEWORK

Organizational learning theories provide rich per-spectives on the processes that generate and utilizeorganizational knowledge. Organizational lear-ning is seen as an experiential process that is

‘ . . . routine based, history dependent, and targetoriented’ (Kieser et al., 2001; Levitt and March,1988). As a result of their experiential learning,organizations generate competence in the form ofknowledge exploitation or exploration (March,1999; Marengo, 1993).

Knowledge exploitation and knowledgeexploration

Organizations divide attention and other scarceresources between two broad kinds of activities:knowledge exploitation and knowledge explora-tion (March, 1991). March (1991) defined know-ledge exploitation as the use and furtherdevelopment of existing competencies, and knowl-edge exploration as the pursuit of new competen-cies (March, 1999; Marengo, 1993). Similarly,Sitkin et al. (1994) defined exploitation as learningactivities involving the use of resources the firmalready has, and exploration as learning activitiesthat lead to the addition of new resources. Bothof their definitions describe two modes of organiza-tional knowledge production: knowledge explora-tion and knowledge exploitation, which affectwhat kind of knowledge is produced and reflectdifferent inclinations, and resulting implicationsfor performance.

Exploitation is basically the process of gainingcompetence by adopting, synthesizing, and apply-ing current or existing knowledge. It requiresretrieving knowledge that has already been createdand internalized for use (Lyles and Schwenk, 1992)and creates reliability in experience through ‘suchthings as refinement, choice, production, efficiency,selection, implementation, and execution’ of exist-ing knowledge (March, 1991: 71). Exploitation gen-erates incremental knowledge with moderate butcertain and immediate returns. Exploration, bycontrast, is a highly uncertain and unpredictableactivity, reflecting the ability of a firm to acquirenew knowledge rather than merely learning howto use current knowledge more efficiently. Know-ledge exploration creates variety in experiencethrough ‘search, variation, risk taking, experimen-tation, play, flexibility, discovery, innovation’ ofnew knowledge (March, 1991: 71), and free associa-tion (Marengo, 1993). It generates new, unsettledknowledge with potentially high but uncertainand unpredictable returns.

Organizational learning serves to utilize existingknowledge and incorporate new knowledge intothe knowledge base by which the competencesof organizations are improved and new ones devel-oped. However, just as many scholars state, learn-ing can be a double-edge sword. On one hand,

Knowledge and Process Management RESEARCH ARTICLE

Knowledge Exploitation, Knowledge Exploration, and Competency Trap 145DOI: 10.1002/kpm

learning competence means that organizationsbecome better at things they do repeatedly andsuccessfully, and they become less competentat things they do infrequently and unsuccessfully.On the other hand, this self-reinforcing charac-ter of learning makes an organization prone tosustain its current focus, creating traps whereby acertain behavior is reproduced (Levinthal andMarch, 1993).

Competency trap

Researchers have used the ‘competency trap’ con-struct to explain organizational phenomena occur-ring in the process of learning. March (1991, seealso Levinthal and March, 1993) argued that it isorganizational learning that determines the techni-cal, marketing, managerial, and other capabilitiesof organizations and therefore their competitiveperformance. However, learning creates its owntraps. Learning in principle favors exploitationbehavior (Levinthal and March, 1993; March,1991): as organizations develop competencies thatimprove immediate performance they often simul-taneously reduce competencies with respect tosearching for new competencies that hold the keyto future performance. The dominance of exploita-tion over exploration ultimately leads to compe-tency trap (Levinthal and March, 1993).

However, some recent studies (e.g., McNamaraand Baden-Fuller, 1999) indicate it is possible thatknowledge exploration dominates over exploita-tion even in incumbent organizations. A study byLevinthal and March (1993) indicates that whenknowledge exploration drives out exploitation, fail-ure trap occurs. Organizations are turned into fren-zies of experimentation, change, and innovation bya dynamic of failure. Failure leads to search andchange which leads to failure which leads tomore search, and so on. As a result the organizationis trapped in an endless cycle of failure and unre-warding change.

Although some studies have touched upon theformation of competency trap, there is a lack of the-oretical interpretation about how competency trapsare formed in the process of organizational learn-ing. So the first concern in this study is to investi-gate how competency traps are formed in theorganizational learning process.

A RECONCEPTUALIZATIONOF COMPETENCY TRAP

This study utilizes the view that organizations areexperiential learning systems (Lant and Mezias,

1990, 1992; Levinthal and March, 1981; Levitt andMarch, 1988). The principal contribution of alearning framework lies in the formation of theinsight that knowledge exploitation and knowl-edge exploration can be modeled as an experientiallearning process, which seems particularly appro-priate because it takes into account the effectsof history, and in particular, how the organization’spast affects its future competencies (Cyert andMarch, 1963; Levitt and March, 1988).

Based on organizational learning theory, an orga-nization develops better competencies in someparts of the organization, in some markets, insome technologies, and in some strategies than inothers through knowledge exploitation and knowl-edge exploration. There exists a mutually positivefeedback between experience and competency(Levinthal and March, 1993), where retrieved portionsof the past have a controlling effect on what organi-zations experience and thus continue to learn from.Organizations engage in activities at which they aremore competent with greater frequency than theyengage in activities at which they are less compe-tent. The differences in the frequency with whichdifferent activities are pursued translate into differ-ences in the amount of experience at the variouspotential activities, which in turn translate into dif-ferences in competence. These distinctive compe-tencies invite utilization, which furthers theiradditional development. Such self-reinforcing nat-ure of learning makes it attractive for an organiza-tion to sustain its current focus. The result is that,on one hand, distinctive competence is accentu-ated, and organizations become specialized toniches in which their competencies yield immedi-ate advantage (Levinthal and March, 1993). Onthe other hand, the improvement in organizationalcompetence that accompanies the accumulation ofexperience paradoxically exacerbates the declinein organization-environment fit, which eventuallyleads to competency trap. Abernathy and Wayne(1974) provide a classic illustration of this pathol-ogy when they describe Ford’s pursuit of efficientproduction of the Model T. While the companywas able to drive down the cost of the Model T,the transition to the model A was extraordinarilydifficult and required shutting down the manufac-turing facility for a considerable period of time.

In this sense, competency trap can be viewed aspotentially self-destructive products of improvedcompetencies resulting from imbalanced, path-dependent learning process, which have been inter-nalized as traps. Competency trap ensnares organi-zations because they become better at performingactivities that are less and less valued by the envir-onment. Eventually the combined influences of

RESEARCH ARTICLE Knowledge and Process Management

146 Weiping L.DOI: 10.1002/kpm

obsolescence and environmental change lead to theformation of competency traps (Barron et al., 1994;Ranger-Moore, 1997). Competency trap works anorganization further into a situation of relying onpast experience, just like the lobster works itsway into the inner chamber chasing the bait onlyto discover they can eat but cannot escape. If nothandled appropriately, such traps which can deter-mine the current and possible future behavior willbadly influence the organization’s ability to exploreand exploit the knowledge which is necessary tobuild a competitive advantage.

Types of competency traps

Organizations divide attention and other scarceresources between two kinds of activities (March,1991): knowledge exploitation and knowledgeexploration. Organizations face the choice ofwhether to explore new knowledge or to focus onexisting knowledge or both. Simultaneously con-sidering knowledge exploitation and explorationat different levels leads to the matrix depicted inFigure 1. Knowledge exploitation and knowledgeexploration constitute two dimensions, indicatingthe different combinations between them. As aresult, four types of organizational learning activ-ities are generated.

The matrix in Figure 1 is designed to suggest thata given organizational behavior may be moreexploitable or more exploratory, not to defend theboundaries of a particular definition. These distinc-tions are important because they give us insightsinto how competency traps are formed in organiza-tional-learning process.

Competency trapIt is widely argued in the organizational lear-ning literature that a central component of successis the maintenance of a balance between know-ledge exploitation and knowledge explorationwithin an organization (Cohen and Levinthal,1990; Levinthal, 1997; Levinthal and March, 1993;March 1991; Penrose, 1959; Wernerfelt, 1984).However, the primary challenge to sustain such

an optimal mix of exploration and exploitation isthe tendency of organizations to reduce theresources allocated to exploration. This phenomen-on has been widely documented in empiricalresearch. March (1991), for example, argued thatas exploitation generates relatively early, certainand more positive returns than exploration, thereis a general tendency for organizations to driveout exploration. Some others argued that pastexploitation in a given domain makes furtherexploitation in the same domain more efficient(Levitt and March, 1988), driving organizations topersist with greater zeal in current activities.Thus, it becomes less likely that exploration withalternatives will appear attractive or, if attempted,prove desirable (Levinthal and March, 1981).Furthermore, organizational learning scholarspoint out that emphasizing core capabilities alsocarries a danger of transforming core capabilitiesinto ‘competency traps’ (Leonard-Barton, 1992;Sinkula, 1994). Suppose when one organizationhas invested a great deal of money and expertiseto develop its specific competency—for example,its core technology, it is always difficult for thisorganization to divest itself of this technology andchoose another that is higher risk and might bepoorly understood. In other words, emphasizingcore capabilities reduces the incentive to developnew capabilities and restricts the breadth anddepth of exploratory learning.

So, even when new strategies or capabilitiesmight be appropriate, or even though they mayrealize, in the abstract, that exploring new know-ledge is central to their survival, organizations aremore likely to engage in activities that support andadvance their current competencies, to continueemphasizing historical and traditional marketingassets, capabilities, and strategies (Sinkula, 1994;Slater and Narver, 1995). The result is that, onone hand, the dominated exploitative learning oforganizations ensure reliable throughout and out-put (March and Simon, 1958). On the other hand,excessive exploitation that incrementally refinesand finesses an existing competency leads to theincreasing sedimentation of this competency andits dominance over other alternatives (Levinthaland March, 1993), lessening an organization’s crea-tivity, and even deteriorating the organization’s fitwith changing environments which eventually leadto the formation of competency trap (Liebermanand Montgomery, 1988). Here I define the trapresulting from excessive exploitation as compe-tency trap I.

Established industries and their leading incum-bents often progressively get locked into compe-tency trap I in the exploitation of their existing

Figure 1 Different combinations of knowledge exploitationand exploration



competencies. A study by Tushman and Anderson(1986; see also Utterback, 1994), for example, indi-cated that when faced with a change in underlyingtechnology, industry incumbents found they areincapable of fundamental knowledge renewal andblind to external commercial potential.

Competency trap IIWhile ‘knowledge-creating companies’ and ‘learn-ing organizations’ are celebrated for the ability togenerate, acquire and integrate both internal andexternal sources of knowledge (Leonard-Barton,1995; Nonaka and Takeuchi, 1995), exposure tonew knowledge is likely to be beneficial up to apoint; in excess, the same novelties can become asource of confusion and information overload andorganizational performance suffers (Cohen andLevinthal, 1990; Levinthal and March, 1993). How-ever, organizations may be trapped into excessiveexploration. In their statement of failure trap,Levinthal and March (1993) argued that whenexploration drives out exploitation, failure trapoccurs: organizations are trapped into frenzies ofexperimentation, search, and innovation by adynamic of failure. According to their view, failureis the main mechanism that trapped organizationsinto excessive exploration. However, it is incom-plete; there exists other mechanisms that trappedorganizations into excessive exploration. Here,this study defines the competency trap resultingfrom excessive exploration as competencies trap IIand investigate the mechanisms that lead to thiskind of competency trap.

Compared with knowledge exploitation, knowl-edge exploration is a rather complicated processand different types of explorative activities havebeen identified. For example, by distinguishingorganizational and technological boundaries thatmay be spanned during exploration, Rosenkopfand Nerkar (2001) introduce four kinds of explora-tion: local, external boundary-spanning, internalboundary-spanning, and radical exploration.Implicit in this typology is the notion that explora-tion is undertaken by some technological subunitsof the firm. To further the analysis, this study willuse their typology of knowledge exploration toinvestigate why organizations may be trappedinto excessive exploration.

‘Local’ exploration builds upon existing knowl-edge within the organization. This phenomenonhas been widely addressed in the related literature(e.g., Helfat, 1994; Martin and Mitchell, 1998; Stuartand Podolny, 1996). Prior work in the evolutionarytradition emphasizes the inertial forces associatedwith the local nature of learning processes, wherea firm’s exploratory activity is closely related to

its previous activities (Helfat, 1994; March andSimon, 1958; Nelson and Winter, 1982). Someauthors argue that knowledge exploration is pathdependent and organizations tend to search forsolutions in the neighborhood of their currentexpertise or knowledge (Helfat, 1994; March andSimon, 1958; Nelson and Winter, 1982; Stuart andPodolny, 1996). Likewise, Cohen and Levinthal’s(1990) concept of ‘absorptive capacity’ suggeststhat a firm’s ability to assimilate and integratenew knowledge is strongly associated with itspast activity. By conducting local search, the firmfocuses on similar technology residing within thefirm, creates incremental innovations, and becomesmore expert in its current domain. However, whenorganizations make too much exploration in theneighborhood of its existing knowledge, forces ofinertia holding the organization in one place oralong one path result in maintaining the statusquo, thus organizational exploration become insti-tutionalized (Cyert and March, 1963) and compe-tency traps occur.

Both of the off-diagonals represent two otherimportant aspects of knowledge exploration: inter-nal boundary-spanning and external boundary-spanning. Internal boundary-spanning explorationmeans organizational subunits acquire new/dis-tant knowledge from different parts of the sameorganization. External boundary-spanning explora-tion integrated knowledge from other organiza-tions that is close to the existing knowledge.While each of them span one boundary, compe-tency traps may still be formed under both condi-tions. For internal boundary-spanning, althoughthe subunits get knowledge distant from existingknowledge base, it is from the subunits within thesame organizations, for example, various strategicbusiness units (SBUs). It is possible that the know-ledge the subunits acquired become obsoletebecause it only focuses on their own developmentsin particular domains, while the technologies, mar-kets, and competitive situations are changingrapidly and unpredictably in today’s turbulentenvironments (Mitroff et al., 1994). For example,using empirical data from the semiconductor andbiotechnology industries, Sorenson and Stuart(2000) suggest that a greater level of reliance onthe firm’s own developments is associated withmore obsolescence and the combined influencesof obsolescence and environmental change renderthe formation of competency traps (Aldrich andAuster, 1986; Barron et al. 1994; Ranger-Moore,1997). For external boundary-spanning, whilethe subunits get knowledge from external sources,it is closely related with the existing knowledge. Sothe focus is still on improving and refining current



practices or existing knowledge base. Empiricalevidence validates such tendencies. Martin andMitchell (1998) have demonstrated that most pro-duct market incumbents introduce designs thatare similar to those incorporated in their existingproducts. In a word, not only a focus on closelyrelated knowledge, but also a focus on internallygenerated developments can lead to competencytraps (Rosenkopf and Nerkar, 2001).

Radical exploration builds upon distant technol-ogy that resides outside of the organization. Undersuch conditions, the possibilities of organizations tofalling into competency traps are greatly decreased,as radical exploration involves a conscious effort tomove away from the current organizational rou-tines and knowledge base (Cyert and March,1963; March, 1991). Some studies confirmed theeffect of radical exploration. Levinthal and March(1993) argued that radical exploration is critical togetting organizations out of competency trapsespecially in changing environments. Likewise,Henderson and Cockburn (1994) argued that oneorganization’s ability to access new knowledgefrom outside and integrate it into the organizationis an important source of sustainable competitiveadvantage.

However, there still exist several mechanisms fororganizations to conduct excessive radical explora-tion. First, some studies indicate that under theinfluence of repetitive momentum, organizationsconduct excessive exploration regardless of theirconsequences for performance (Amburgey et al.,1993; Delacroix and Swaminathan, 1991; Kellyand Amburgey, 1991). As an organization takesexploratory actions over time it develops routinesand competencies which then become independentengines for further exploratory activities (Burgel-man, 1983; Levitt and March, 1988). When toomuch exploration is conducted, the explorativecapacity is reduced to pure exploration withouttransfer of knowledge and shared assets, if organi-zations are not able to reduce the distance betweenexisting knowledge and newly acquired knowl-edge. As a result, organizations bear the cost ofexploration without deriving any benefits (Eisen-hardt and Martin, 2000; Stinchcombe, 1965). Con-trol data, polaroid, and wang Labs, for example,which had succeeded by out-innovating their com-petitors, turned this policy into an obsession. Theybegan to concentrate only on technological innova-tion—no matter what the costs or the needs of thecustomer. Marketing, production, and financialconsiderations fell by the wayside as the depart-ments handling these activities became less influen-tial and the power of the R&D elite mounted.Subsidiary goals of service and market penetration

were driven out by an increasing obsession withscientific progress. Organizational culture becamemore homogeneous as dissenting managers left.Even corporate systems and routines came to moni-tor and control mainly technical matters whileignoring issues of quality or profitability (Miller,1990, 1993). Ecological theory further suggeststhat, under conditions of ambiguity, particularlyin turbulent environments, organizations may beable to explore only imperfectly when environmentchanges quickly; they explore new knowledge con-tinually only to find each time upon explorationthat the environment has already shifted to somenew technologies that demands yet a differentone (Levitt and March, 1988). Ultimately, suchimperfect adaptation leads to organizational obso-lescence (Barron et al., 1994) and competency trapsoccur.

In a word, while excessive exploitation and exces-sive exploration can leads to competency trap, theyare not the same. Organizations that engage in ex-ploitation to the exclusion of exploration are likelyto find themselves trapped in suboptimal stableequilibrium where increasingly obsolescent capabil-ities continue to be elaborated. Conversely, organi-zations that engage in exploration to the exclusionof exploitation are likely to find that forces of inertiapush them into traps of ceaseless exploration andsuffer the costs of experimentation without gainingmany of its benefits (e.g., Yelle, 1979).

Balanced knowledge exploitationand knowledge explorationIn each off-diagonal case, organizations conduct abalanced learning process and positive interactionof knowledge exploitation and knowledge explora-tion. Such positive interactions help organizationsavoid falling into competency traps. The mainmechanism underlying this positive interaction isabsorptive capacity.

The absorptive capacity literature discusses howorganizations use their accumulated knowledge toacquire and assimilate new knowledge (e.g., Cohenand Levinthal, 1994). Knowledge explorationprovides organizations with new knowledge andthe degrees of freedom to adapt and evolve inhigh-velocity environments and makes the organi-zation receptive to acquiring external knowledge(Land and Lubatkin, 1998). It captures Cohen andLevinthal’s (1990) description of a firm’s capabilityto value and acquire external knowledge but doesnot guarantee the exploitation of this knowledge.By contrast, knowledge exploitation enables orga-nizations to transform and exploit the knowledgethat has been absorbed by incorporating it intothe organization’s operations, thereby improving



its performance. Thus, organizations that can main-tain a balance between knowledge exploitation andexploration are more likely to be adept at continu-ally reconfiguring their knowledge base by spottingtrends in their external environment and internaliz-ing this knowledge, so that a competitive advan-tage can be obtained and the competency trap canbe avoided. Differences between firms in balancedsituations lie in their different capabilities inimproving organizational performance. Just asLevinthal and March (1993)’s study indicated,organizations’ performance reflect different combi-nations of their abilities to both explore new knowl-edge and exploit existing knowledge; organizationswith a high level of balanced knowledge exploita-tion and knowledge exploration will earn a highcompetitive advantage on average compared withthose with lower levels of knowledge exploitationand exploration.

Competency trap versus inertia,momentum, and convergence

Competency trap is related to, but different from,the much-discussed notions of inertia, momentum,and convergence. Inertia is resistance to change, or,at least, resistance to changes that run counter to afundamental existing orientation. Hannan andFreeman (1984) claimed that inertial programsand routines increase an organization’s reliabilityof functioning but limit its capacity to change.However, this study clearly indicates that evenwhen organizations conduct exploratory activitiesor change, they may also be trapped.

Competency trap is also different from Miller andFriesen’s (1980, 1984) notion of momentum: the ten-dency to extrapolate previous directions of evolutionin strategy and structure, and from Tushman andRomanelli’s (1985) concept of convergence-the ideathat organizations incrementally build upon orrefine an existing orientation. In fact, momentumor convergence is not necessarily associated withthe improvement of competency, whereas the defi-nition of competency trap I adopted emphasizes

the improved competencies resulting from imbal-anced, path-dependent learning process.

We shall see that competency trap can be influ-enced by many of the same things that causeinertia, momentum, or convergence. It also canincrease inertia by so limiting organizational atten-tion that the need for reorientation goes unrecog-nized. Moreover, inertial routines and processescan in turn contribute to the formation of compe-tency trap. Nonetheless, these concepts are quitedistinct.

A model of competency trap

While the competency trap research is still in itsrelative infancy, there is a need to identify variablesthat may lead to the formation of different compe-tency traps, as well as the effects of different com-petency traps on organizational performance. Inthe following sections, a model is advanced thatconnects the antecedents and outcomes of this con-struct (Figure 3).

Antecedents of competency trapsContingency theory posits that organizationalbehavior is a result of the proper alignment ofendogenous organizational variables with exogen-ous context variables (Burn and Stalker, 1961;Lawrence and Lorsch, 1967). So the proposed mod-el highlights endogenous factors such as manage-rial factors, process factors, relational factors aswell as exogenous factors such as environmentalfactors as key antecedents of competency trap.The factors addressed here are not intended to pro-vide an exhaustive list of forces, but were chosenfor their ability to illustrate this organizational phe-nomenon.Prior knowledge and experience. Learning theoristsstate that learning is constructed in relation to itsprior knowledge and experience. The nature andcharacteristics of prior knowledge, and experienceplay an essential role in defining the directions andthe outcome of the learning activities (Cohen andLevinthal, 1990; Levitt and March, 1988). Priorknowledge and experience defines what the firmapprehends and what it learns (Cohen andLevinthal, 1990; Spender, 1996), increasing the like-lihood of a firm’s repeating those activities later:The more experienced an organization becomeswith a particular activity, the more likely it is torepeat that activity—because it knows how tomake it happen (e.g., Amburgey et al., 1993; Dela-croix and Swaminathan, 1991). This question hasbeen addressed in earlier studies. Levitt and March

External

Boundary-Spanning

Internal

Boundary-SpanningRadical

Similar

ExternalDistant

Internal Organizational

Boundary-spanning

Local

Technological

Boundary-Spanning

Figure 2 Types of exploration. Source: Rosenkopf andNerkar (2001). Beyond local search: Boundary-spanning,

exploration, and impact in the optical disk industry



(1988) suggested that early actions undertakenby a firm are particularly consequential for itssubsequent behavior despite any dysfunctionalconsequences or the lack of any discernable conse-quences at all (Amburgey et al., 1993). Likewise,Cohen and Levinthal (1990: 128) argued, ‘the abilityto evaluate and utilize outside knowledge is largelya function of the level of prior-related knowledge.’As a result, experiential knowledge of specificorganizational learning practices, particularly suc-cessful practices, make organizations confidentof their own abilities and of the relevance of thoseabilities to organizational outcomes, ignoring manylikely (but not experienced) paths toward failure,leading to increased inertia (Murmann and Tush-man, 1997). Accumulated experiential knowledgeexerts an influence on the future organizationallearning activities of the firm. Cohen and Levinthal(1990) argued that firms get ‘locked out’ of certaintypes of knowledge if they do not acquire it earlyon and that they develop ‘competency traps’whereby they are limited to the pursuit of a narrowset of opportunities suited to existing competen-cies. Such self-reinforcing pattern trapped organi-zations into excessive exploration or excessiveexploitation regardless of their consequences forperformance (Kelly and Amburgey, 1991). So itmay be reasonable to propose that:

P1a: Exploitative knowledge and experience has apositive relationship with competency trap I.

P1b: Exploratory knowledge and experience has apositive relationship with competency trap II.

Strategic focus. Strategic context has a significantinfluence on organizational learning process.Bower (1970) shows how firms create a strategiccontext that guides organizational behavior, steer-ing activity in certain directions and away fromothers. Because of the ‘channeling’ effect of thefirm’s strategic context, all learning activity willtend to be concentrated in certain domains.

Analysts of business strategy have identified twodifferent strategies: first mover strategies and effi-cient production strategies. First mover or first tomarket strategies rely on the capacity to movequickly into markets opened by technical changeor other social changes (Williamson, 1975). Efficientstrategies rely on stringent managerial controls andefficient organization to enter markets opened byfirst movers and to out-complete the first moversby driving costs and prices down. For organiza-tions that directed by first mover strategies, theyusually have developed a capacity to identifynew opportunities and to change structures andprocedures quickly to take advantage of them.However, in his influential essay on the informa-tion economics of organization, arrow suggeststhat ‘the combination of uncertainty, indivisibilityand capital intensity associated with informationchannels, and their use imply that the behavior ofan organization may depend heavily on random

Figure 3 A model of competency trap



events, and the very pursuit of first mover strate-gies may lead to rigidity and unresponsiveness tofurther changes.’ For organizations that directedby efficient strategies, organizational learning pro-cess directed at improving effectiveness. Throughsuch practices, an organization becomes increas-ingly skilled at producing outputs that leverageexisting knowledge about inputs, technologies,manufacturing techniques, or distribution chan-nels. Over time, such activities that further utilizethese capabilities will channel organizational beha-vior into streamlined activities that carry out anorganization’s mission more efficiently (Hackman,1992; Nadler and Tushman, 1998; Repenning,1999). However, this efficiency focus will result inpath dependencies regarding the type of accumu-lated knowledge and a low diversity of knowledgestructures. It results in a less developed sensitivityto emerging technological opportunities. Therefore,the following propositions can be offered:

P2a: First mover strategy has a positive relationshipwith competency trap II.

P2b: Efficient strategy has a positive relationship withcompetency trap I.

Age and size. Through their impact on search incen-tives, the age and size of an organization may alsohave a bearing on competency trap. Older organi-zations will have had the time to build confidencein favorite tactics, to focus on the specialized activ-ities and programs necessary to implement thesetactics, and to establish a supportive infrastructure(Meyer and Zucker, 1989; Tushman and Romanelli,1985). Hence, their incentive to exploration is verysmall, and it is more likely for the firm to betrapped into excessive exploitation and blinded toalternative opportunities. Many younger firms, bycontrast, are still groping to find their way andhave not yet developed the formulae, routinesand political commitments that discourage knowl-edge exploration (Aldrich and Auster, 1986). Theythus may be willing to employ a large number ofexplorative activities. Also, because the managersof many young firms face the ‘liabilities of new-ness’—the institutional and resource deprivationsassociated with youth—they are especially moti-vated to conduct knowledge exploration (Singhet al., 1986).

Certainly, most large firms have in place thefinances, people, and routines to implement morecomplex competitive repertoires than their tiniestrivals (Haveman, 1993). But beyond a minimumscale, size may well breed competency trap 1. Man-agers of large firms may feel that they are rich andpowerful enough to ignore their weaker rivals

(Halberstam, 1986; Pfeffer and Salancik, 1978: 52–54). This may prevent them from broadening theircognitive models and strategies in response to mar-ket developments (Wright, 1979). The vulnerabilityof small organizations, by contrast, may motivatethem to be on the lookout for both threats andopportunities (Aldrich and Auster, 1986), and thesechallenges could dissuade managers from focusingon excessive exploitation. Large size is also asso-ciated with programs and standard operating pro-cedures designed to achieve reliability andeconomies of scale. These further encourage specia-lization and focus (Hannan and Freeman, 1984;Nystrom and Starbuck, 1984; Starbuck, 1965), andreduce the possibility to exploration.

Finally, the bureaucratic routines associated withold and large firms tend to restrict knowledgeexploration because they encourage tunnel vision(March, 1988; Miller et al., 1996; Haveman, 1993).They channel attention and interpretation, rigidifymental models, and extinguish behavior that isexperimental and spontaneous (Perrow, 1986;Walsh, 1995). Consequently they may be trappedinto excessive exploitation. Hence, the followingpropositions can be offered:

P3a: The age of organization is negatively related tocompetency trap I, while positively related to compe-tency trap II. Specifically, younger organization aremore likely to indulge into competency trap I, whileolder organization are more likely to indulge intocompetency trap II.

P3b: The size of organization is negatively related tocompetency trap I, while positively related to compe-tency trap II; specifically, smaller organizations aremore likely to indulge into competency trap I, whilelarger organizations are more likely to indulge intocompetency trap II.

Managerial beliefs. Previous studies indicate thatlearning can be enhanced or impeded in a deliber-ate way. For example, Senge (1993) suggests thattop managers can create aspiration crises to stimu-late knowledge exploration (see also, Hamel andPrahalad, 1993, Nonaka, 1991). But that does notmean exploitation and exploration can be alwaysbalanced in a deliberate way: Organizational learn-ing is influenced by managerial myopia: whenmaking decisions, complacency (Leonard-Barton,1995; Sitkin, 1992) or overconfidence (Russo andSchoemaker, 1992) may push managers prefer cer-tain kind of organizational learning, emphasis theshort run benefits, focus on specific goals, or out-come criteria and overlook failures (Cheng andVan de Ven, 1996). The next section investigateshow managerial cognition affects the intelligence



of organizational learning especially in constrainingand directing learning efforts. This is considered byfocusing on two different kinds of dysfunctionalbehaviors of top managers in fostering the imba-lance between knowledge exploitation and know-ledge exploration: managerial conservatism andmanagerial risk taking.

Managerial conservatism

Stinchcombe (1965) argued that organizationalbehaviors reflect the decisions of organization’stop managers. If top managers are relatively inert(Amburgey et al., 1993; Delacroix and Swami-nathan, 1991; Hannan and Freeman, 1984), impor-tant decisions and practices will persist in theform of conservatism. When making decisions,they may prefer to maintain the status quo (Ham-brick and Finkelstein, 1987) rather than experiencethe ambiguity associated with exploration.

This perception is common enough that resear-chers have devoted considerable effort trying toexplain managerial conservatism. Recent studiesindicate that various factors can generate conserva-tive bias in the process of knowledge exploitationand exploration. Managers might simply make sys-tematic mistakes, in ways reviewed by Libby andFishburn (1977); or bounded rationality mightgenerate conservative behavior rules, as in Day(1987), Heiner (1983), and Kuran (1988), orbecause they lack high aspirations (Lant and Mon-tgomery, 1987) or, feel powerless (Thomas et al.,1993). In his study of conservatism, Wilson (1973)concludes that conservatism is positively relatedto knowledge exploitation and negatively relatedto knowledge seeking. Wilson argues that, topmanagers with conservatism often have strongincentives to insure that the organization continuesto focus on existing knowledge rather than toexplore new knowledge. Thus, they are more likelyto indulge into excessive exploitation. When theexternal environment changes significantly overtime, the forces of inertia generate a decline in orga-nization-environment fit and competency trapoccurs. Based on these arguments, the followingproposition is therefore offered:

P4a: Managerial conservatism has a positive relation-ship with competency trap I.

Managerial risk-taking

Managers search for knowledge and opportunitiesdifferently. Some managers spend more time

searching for new knowledge and ideas than doother managers (Busenitz, 1996). Wilken (1979)advocated that risk-taking is a psychological prop-erty of individuals that can be described in termssuch as creativity, daring, aggressiveness, and thelike. Risk-taking is associated with a willingnessto commit large amounts of resources to projectswhere the cost of failure may be high (Miller andFriesen, 1978). In a world marked by feverish tech-nological change, managers face extraordinarypressures. In response to these pressures, managersare tempted by and often succumb to excessiveexploration. They concentrate their resources ondifferent and ever changing opportunities with ahigh probability of near-term success; they seek tar-gets they can hit; they attempt to plan their way tosuccess; and they shrink from projects in which thegoal is slightly vague or the payoff somewhatdelayed. As a result, organizational learning activ-ities may be partially affected by the managers’personal propensity toward risk (Baird and Tho-mas, 1985). For example, Williams (1965) suggestedthat those who have a higher propensity to takerisks are likely to choose more uncertain decisionalternatives. However, such high level of knowl-edge exploration rarely generates genuine long-term growth, which should be the result of carefulplanning, the marshalling of resources, and thecreation of a supportive infrastructure. It alsoshows a misapprehension of the process of discov-ery and exploration.

Based upon these arguments, it is proposed thattoo much managerial risk taking activities are posi-tively associated with excessive exploratory learn-ing which can lead to anther kind of competencytrap: competency trap II. The following propositionis therefore offered:

P4b: Managerial risk-taking has a positive relation-ship with competency trap II.

Customer relationship. Organizations need to satisfythe demands of customers in its environment fromwhom it requires support for its continued exis-tence. However, a tight relationship with existingcustomers carries the danger of falling into compe-tency trap I. On the one hand, rapid improvementsin customer satisfaction, combined with reducedwaste and costs, are likely further enhance organi-zational effectiveness. On the other hand, a success-ful customer relationship process leads directlyto devoting all of the organization’s resourcesto satisfying the needs of existing customers orthose just like them, and it blinds organization toseeing the development of new markets; it alsobuilds in limits to investment in innovation outsidethe existing product set. For example, the improved



manufacturing or distribution processes createmeasurable improvements for existing customers,which further drive activities that continuouslyimprove products for existing customers. Whileemergent customer sets or market segments oftendo not lend themselves to measurement or arehighly uncertain (Von Hippel, 1988). Thus explora-tory activities into new markets become increas-ingly unattractive compared to the short-term,tangible, measurable successes from further im-proving existing capabilities (Christensen, 1998;Leonard-Barton, 1992) and innovations for emer-gent or new markets will be eventually squeezedout. These factors drive an increasingly tightly inte-grated organization focused on fast response toexisting customer requirements. Where short-termperformance pressures, the demands of existingcustomers, and ease of measurement dominate,exploitation overwhelms exploration (Levinthaland March, 1993; March, 1991; Sitkin et al., 1994).IBM is an excellent example of a company thatwas caught in this trap, and escaped it. In the late1980s to early 1990s, IBM was tied tightly to itsmany large customers who were in turn tied toIBM’s ‘big iron’ strategy of corporate computing.They feel in their bones that the future of comput-ing was greater transactional efficiency and admin-istration of huge centralized databases. As a result,IBM and its customers had together become amutually supportive society keeping away theemerging minicomputer and microcomputer revo-lution. This is a devious trap because it is extremelydifficult to find the exit. Proposition 5 is thereforeoffered:

P5: Tight customer relationship has a positive relation-ship with competency trap I.

Organizational culture. Many aspects of corporateculture may also trap organizations into excessiveexploitation or exploration. Organizational cultureconsists of knowledge, beliefs, norms, customs,and habits that influence organizational actionand environmental interpretation. Hambrick andFinkelstein (1987) describe culture as one thatdefines methods of operation in an organization,sanctioning certain options while at the same timeprohibiting others. Culture then restricts an organi-zation’s approach to action and the level of discre-tion granted to executives. It ‘select in’ or reinforcethe good, important, of successful values and beha-viors, and ‘select out’ or extinguish those valuesand behaviors that are deemed to be peripheral,unsuccessful, or unimportant (Burgelman, 1991;Campbell, 1970; Singh, 1990). Over time, the cul-ture of the organization comes to focus more nar-rowly and passionately on a single way of

learning. For example, a culture that values entre-preneurship and innovation provides an environ-ment in which learning from exploration andexperimentation is most likely to occur. Entrepre-neurial cultures value such traits as high tolerancefor risk, action, receptivity to innovation, and activeresistance to bureaucracy. Whereas a culture thatvalues reliability, low risk, and efficiency will bemore likely to promote the exploitation of existingknowledge, overlooking the explorative activitiesthat are needed to leverage learning and createbreakthrough opportunities. Ultimately, organiza-tional learning activities will become more limited.They will focus more narrowly on a single activityor issue at the expense of all others. These argu-ments suggest that:

P6a: Conservative culture that values low risk, lowlevel of ambiguity, and efficiency has a positive rela-tionship with competency trap I.

P6b: Entrepreneurial culture that values risk, action,receptivity to innovation, and active resistance tobureaucracy has a positive relationship with compe-tency trap II.

Environmental uncertaintyOrganizational-learning process is the interactionbetween organization and its environment. Theexternal environment has been shown to influencethe nature and extent of learning in an organization(Menon and Varadarajan, 1992; Sinkula, 1994; Sla-ter and Narver, 1995). Organizations competing inhypercompetitive environments exhibit behaviorthat differs significantly from behavior in more sta-tic environments (Thomas, 1996). Several studiesindicate that the distortions of the exploitation/exploration balance to some extent stem from theprocesses of adaptation that lead to the matchingof organizational behavior with environmentalconditions (Hedberg et al., 1976). Support for thisclaim can be found in a number of literatures.Cohen and Levinthal’s (1990) study found that ina stable environment, existing organizations havea strong focus on the knowledge exploitation, andthe knowledge domain the organization wishes toexploit is closely related to its current knowledgebase. As the rate of environmental change acceler-ates, exploration increases in importance, and orga-nizations must be able to cope with increasingcomplexity and high-velocity change (Brown andEisenhardt, 1998; Schumpeter, 1950). As a result,organizations in turbulent knowledge environ-ments are likely to dedicate efforts exclusivelyto excessive exploration in order to adapt theiractivities to incorporate major external advances.March (1991) suggests that organizations facing



competitive environments will follow riskier andriskier strategies, and the exploitation/explorationpath will be changed towards more explorationadaptation. Here I focus on these two oppositetypes of knowledge environments, stable and tur-bulent (Miller et al., 1996; Tushman and Romanelli,1985; Tushman and Rosenkopf, 1996), and pro-posed that organizations in a turbulent environ-ment will be more likely to establish andmaintain a high level of exploration while organi-zations in a stable environment will be more likelyto maintain a low level of exploration:

P7a: In a stable environment, organizations are morelikely to run into competency trap I.

P7b: In a turbulent environment, organizations aremore likely to run into competency trap II.

As yet, we have only dealt individually with thefactors that trapped organizations into excessiveexploitation or exploration. However, these factorsmay interact with each other to increase the possi-bility of organizations falling into different types ofcompetency traps. Over time, the alignment amongmany aspects, such as culture, strategic, and envir-onmental factors becomes tighter and more consis-tent. As a result, many aspects of an organizationare orchestrated by a core theme into a unifiedgestalt or configuration (Hinings and Greenwood,1988; Miller and Friesen, 1984). Many innovativefirms, for example, are dominated by the themesof invention and pioneering. These are the primarygoals of their missionary leaders, who center theirstrategies around product novelty and technologi-cal sophistication. Cultures reward invention andempower inventors, rendering the skill base ofthe organization R&D, not marketing or produc-tion. The values and commitments of a dominantgroup of managers also aim to facilitate the devel-opment and implementation of new product ideas.Collectively, these qualities enable those innovativefirms to conduct excessive exploration.

P8: Organizational knowledge and experience, strate-gies, age and size, managerial beliefs, customer rela-tionships, culture, and environmental turbulencewill be mutually reinforcing and promote the forma-tion of competency trap together.

Effects on organizational outcomesWhenever people mentioned competency trap, thegeneral assumption is that competency trap has adirect, unconditional impact on organizational per-formance. However, there remains considerableempirical uncertainty about this relationship. Mygoal in this section is to investigate the relationship

between competency trap and business perfor-mance, and identify conditions under which com-petency trap is beneficial. The first step is toinvestigate the short-term effect of different compe-tency traps on business performance.Short-term effect. In the short run, competency trapI can offer significant immediate benefits for orga-nizations. It may, for example, allow firms to devel-op distinctive core competences (Prahalad andHamel, 1990) and economies of concentration(Chandler, 1992). My arguments are based on thefollowing considerations:

First, knowledge exploitation involves the useand further development of existing competences,so the maintenance of high-level knowledge exploi-tation brings companies with more (cumulative)production experience, possess stronger relation-ships with vendors and customers (Hannan andFreeman, 1984), and reduces the likelihood oferrors and false starts, making learning more reli-able and predictable (Levinthal and March, 1981).So organizations with high-level exploitation willhave more capability to develop its product, andtheir development may have greater significancethan those of organizations that do not have suchlevel of exploitation. Therefore, it enables an orga-nization to prosper in a steady state in the short-term. Second, rapid exploitation, as employeescarry out activities in coordinated processes, pro-duces measurable, short-term benefits. Consideringthat high level of knowledge exploitation canhelp organizations get the returns that are ordina-rily more certain, closer in time, and closerin space than are the returns from exploration(March, 1991), we can imagine that if pursued dili-gently, excessive exploitation will deliver short-term earnings to please stakeholders. Third, whileecological research indicates that forces of inertialand momentum often constrains organizationalchange, this is, of course, not necessarily harmful:in addition to promoting performance reliabilityand accountability, in an uncertain environmentinertia and momentum can keep organizationsfrom responding too quickly and frequently toenvironmental changes. Based on these arguments,we may argue that in the short run, competencytrap I is positively associated with business perfor-mance. Proposition 9 is offered:

P9: Competitive trap I has a positive relationship withshort-term business performance.

As for the effect of competency trap II on short-term business performance, there remain signifi-cant inconsistencies. Some argues that too muchexploratory learning of new knowledge are likelyto lead to poorer performance in the short run, as



there is not a solid knowledge base. While othersargue that knowledge exploration plays an impor-tant role in renewing an organization’s knowledgebase and the skills necessary to compete in chan-ging markets. In my opinion, knowledge explora-tion affects organizational performance positivelythrough at least two mechanisms. First, moreknowledge exploration enables organization toenjoy first mover advantages (Ferrier et al., 1999)by adding distinctive new variations or products,increasing the number of new products throughenhancing re-combinatory exploration (Fleming,1998; Fleming and Sorenson, 2000; Nelson andWinter, 1982). Organizations that continue acquirenew knowledge can reconfigure their resourcesand capabilities to capitalize upon emerging strate-gic opportunities (Raff, 2000). Second, knowledgeexploration provides a sufficient amount of choiceto solve problems (March, 1991). There is a limit tothe number of new ideas that can be created byusing the same set of knowledge elements. Anincrease in new knowledge adds new elements tothe set, improving the possibilities for finding anew useful solution. As a result, more explorationmay help organizations sustain superior perfor-mance in the short run because of first moveradvantages (Ferrier et al., 1999), quick responsive-ness to customers (Matusik and Hill, 1998), or otherstrategic advantages. Then proposition 10 isoffered:

P10: Competency trap II has a positive relationshipwith short-term business performance.

Long-term effect. From the long run, both types ofcompetency traps have a fatally attractive under-side: each works a company further into a situa-tion, eventually constrain their ability to maintaincompetitive advantage that holds the key to futureperformance.

For competency trap I, in the long run, it isparticularly likely to lead to maladaptive speci-alization especially considering environmentalchanges. The literature identifies at least two nega-tive effects of excessive exploitation: limits toimprovement along a certain trajectory and rigidity(Argyris and Schon, 1978; Dosi, 1988). Thesenegative effects of exploitation at some pointexceed the benefits discussed above and, thus, therelationship between excessive exploitation andcompetitive performance is, indeed, negative. Thefirst negative effect of competency trap I is due todiminishing returns to building on the sameknowledge. Although increased efficiency resultsfrom the dynamics of excessive exploitation in theshort run, it seems that improvement by focusingon the same knowledge elements is possible only

until the intrinsic performance limit of that knowl-edge trajectory is encountered (Dosi, 1988). Whenthe limits of the trajectory are approached, benefitsfrom subsequent learning activities increase at adeclining rate. At some point, further develop-ments based on the same knowledge elementsbecome increasingly expensive, leading the costsof exploitation to eventually exceed its benefits.Second, excessive exploitation also hurt organiza-tional performance since beyond a point, re-usingthe existing knowledge can make the organizationrigid: solutions and problem-solving strategies thatonce made firms great can turn into problems to beresolved. At the same time, short-term, easy tomeasure efficiency improvements make vague,uncertain, difficult-to-quantify exploratory activ-ities less attractive (March, 1991; Levinthal andMarch, 1993). Therefore, the firm is less likely toproduce subsequent innovations. Henderson andClark (1990) found that, in the photolithographequipment industry, increasingly exploitativeactivities within firms constrained their ability toinitiate and respond to changes in subsystem andlinking technologies, which make cross-boundary,cross-community activities more difficult (Sitkinand Stickel, 1996). Just as some researchers havesuggested, while exploitation and inertia may befunctional for organizations within a given techno-logical trajectory or for existing customers, thesevariance-reducing dynamics stunt exploratoryinnovation and responsiveness to new customer(Henderson et al., 1998; Sterman et al., 1997). Propo-sition 11 proposes the long-term effects of compe-tency trap I:

P11: Competency trap I has a negative relationshipwith long-term business performance.

The organizational learning literature also sug-gests two negative consequences of competencytrap II: dynamically increasing knowledge integra-tion costs and decreasing reliability. First, compe-tency trap II can hurt organizational performancethrough the dynamically increasing costs of inte-grating new knowledge. As the amount of knowle-dge exploration, and consequently the proportionof new knowledge to be integrated to the firm’sknowledge base increases, so do the technologicaland organizational challenges in integration.Technologically, common interfaces need to beestablished among knowledge elements. Organiza-tionally, new knowledge requires changes innetworks of relations and communication relation-ships both within and outside the organization(Henderson and Clark, 1990). Prior work arguesthat the wider the new knowledge to be integrated,the more complex are the problems of creating and



managing integration (Grant, 1996). As a result,although much new knowledge can be acquired,it disables organization to establish a solid knowl-edge base in the long run and new knowledge can-not be efficiently assimilated (Cohen and Levinthal,1990; March, 1991; Nelson and Winter, 1982). Thus,eventually, the costs of integration will exceed thebenefits of acquiring new knowledge. Second,researchers have argued that excessive increase inknowledge exploration can hurt organizationalperformance through decreasing reliability (e.g.,Martin and Mitchell, 1998). The firm’s reliability(ability to respond to new knowledge correctly) is‘a negative function’ of distance ‘from an agent’simmediate experience or from its local environ-mental situation’ (Heiner, 1986: 84). Thus, organi-zations where the proportion of new knowledgeis high are less likely to succeed than projects thattake use of closely related knowledge (Cyert andMarch, 1963). Therefore, proposition 12 is offered:

P12: Competency trap II has a negative relationshipwith long-term business performance.

Based on these arguments, we can get some con-clusions: although these two kinds of competenciestraps are grounded in significant immediate bene-fits for organizations, they are self-destructive andeven detrimental in the long run.

DICUSSION

The central tenet of this study is that over timemany organizations especially successful organiza-tions become trapped into excessive exploitation orexcessive exploration. They will come to focusmore narrowly on a single activity or issue at theexpense of others. The formation of competencytrap can be explained by process factors, strategicfactors, managerial factors, cultural factors, rela-tional factors as well as environmental factors.It is also attributed to the complementary way inwhich these factors interact.

One of the most seductive traps that face out-standing companies is that the focus that ultimatelygets them into trouble may once have been respon-sible for their initial successes. Competency trap isdangerous because it can blind managers and theirorganizations to a confining set of activities. Butwriters such as Peters and Waterman (1982) andPorter (1980) have argued that organizations mustdevelop distinctive competences. They also havemaintained that distinct competencies such ascost leadership and differentiation are usuallymutually exclusive and that firms must ‘stick to

their knitting’ and avoid the trap of being stuckin the middle. Their message is that outstandingperformance often demands dedicated, even pas-sionate, focus on exploitation, or exploration. How-ever, such activities will reduce the incentives oforganizations to search for different ways of doingthings or contribute to an ignorance of alternatives.In short, competency trap initially may have givenan organization a competitive advantage. It con-strains, but dramatically improves efficiency andcoordination. How managers define excess willdepend on their world views, standards, and his-tory, and what appears to be traps to outsidersseems to the managers of outstanding firms to beoperating from strength, creative passion, or effi-cient concentration.

Competency traps will not occur everywhere. Itwill be more common among organizations thathave performed well for a long time than amongthose facing difficulties. Significant changes inthe environment such as a severe recession, a majornew competitor, or a wholesale technologicalchange also may broaden managers’ horizons(Levitt and March, 1988; Tushman and Anderson,1986). And dominant firms that ignore their compe-titors will be more likely to be trapped than weakercompanies that must do battle with dangerous andunpredictable rivals (Halberstam, 1986). The com-position of the top-management team may beimportant as well. Promoting outsiders to positionsof significant authority, although potentially dis-ruptive can help to negate competency trap. Thesuccession of a CEO will encourage new manage-rial perspectives and suppress the political factorsthat promote competency traps. Competency trapsmight even be avoided where the dominant coali-tion of the organization is composed of individualsfrom a variety of functional areas (Milliken andLant, 1991).

RESEARCH IMPLICATIONS

The proposed course of research requires verycomprehensive data on organizational learningand business performance. The measurement ofcompetence trap provides a challenge, since thediscussion of competency trap has focused oncase-based and conceptual work in determiningthe presence or absence of a competence trap, whilethe consideration of the measurement of compe-tency trap is still a void. In order to test the propo-sitions, competency traps can be operationalized ina number of different ways—both quantitative andqualitative.



In-depth interviews may be the simplest andmost adequate way to understand how compe-tency traps are formed, and the occurrence of dif-ferent competency traps can be reflected by anincreasingly skewed allocation of resources on cer-tain activities. For example, activities such asrefinement, reutilization, reproduction, fine tuning,and modification can be interpreted as exploitivelearning. While activities such as experimentation,novelty, risk taking, trialing, and innovation can beinterpreted as explorative learning. The central cri-terion for defining exploration is that the knowl-edge acquired must be perceived as new to theadopting organization. This occurs, for example,when a subunit develops its own R&D capabilities,or when a subunit access new knowledge from out-side the boundaries of the organization or whenit integrates knowledge flexibly from other subu-nits within the same organization. The other wayto collect qualitative data is from secondarysources, such as the companies’ policy manuals,company magazines, annual reports, reports byconsultants, and other written materials that wereimportant to an understanding of organizationallearning activities.

There are also some quantitative measuresof organizational learning activities. For example,Bierly and Chakrabarty (1996) proposed specificquantitative indicators of organizational learningactivities, such as number of patents issued,R&D intensity, formation of alliances, and licensingrelationships.

THEORETICAL CONTRIBUTIONSAND LIMITATIONS

Over the last decade or so, organizational successincreasingly depends on a balance between exploi-tation of existing knowledge and development ofnew knowledge. As a result, increasing attentionhas been paid to organizational learning, rapidlybecoming one of the main concerns of managersand researchers alike. However, organizationshave not learned how to balance exploitation andexploration especially when environments arecomplex and links between causes and outcomesare ambiguous. They reorient either too frequentlyor not at all, making organizational-learning pro-cesses potentially self-destructive.

In this study, the organizational learning litera-ture is advanced by investigating how the imbal-anced process of exploration and exploitation canlead to the formation of competency traps in anorganizational context. Previous studies highlight

the formation of competency traps resulting fromexcessive exploitation. However, analysis hasshown the possibility that organizations may betrapped into excessive exploration. That is, compe-tency traps can be viewed as a product of theimbalanced organization learning process, includ-ing excessive exploitation and excessive explora-tion. Importantly, the underlying mechanismsthat lead to the formation of different competencytraps have been investigated. The findings suggestthat, although success and failure can increasethe likelihood that an action will be repeated,they are not the only mechanism that indulgesorganizations into excessive exploitation or exces-sive exploration. This framework should makean important contribution to the common under-standing of competency traps which are embeddedin organizational-learning processes; they areactivated when companies fall prey to insularityor overshoot an optimal level of best learningpractices. Furthermore, my analysis investigatesthe endogenous factors as well as exogenous fac-tors that can lead to the formation of competencytrap.

Although this study is preliminary in nature, itprovides some guidelines for managing organiza-tional learning processes. It suggests that the survi-val of any organization depends upon it beingsufficiently exploitative as to ensure current viabili-ty and sufficiently exploratory as to ensure futureviability especially in today’s turbulence environ-ments. Actually, some companies have successfullyavoided the formation of competency traps. Takethe example of 3M, which is increasingly beingtaken as the benchmark by many established firmshoping to revitalize their capacity for corporateentrepreneurship. Among the most prominent fea-tures of the 3M approach is the explicit strategiccommitment to encouraging knowledge exploita-tion as well as exploration, institutionalized in thecompany’s ongoing formal aim that at least 25% ofits sales should come from products introducedwithin the most recent 5-year period.

Finally, the model presented here has some limi-tations. Despite its complexity, it presents a rela-tively simplified picture of the very complexphenomenon under study and more systematicstudies should follow. This study can serve as abasis for subsequent research as it provides agood foundation for empirical testing of the com-petency trap model. Although some developmentalwork on measuring different kinds of competencytraps will be needed, most of the other constructsemployed here are established constructs (or slightvariations of established constructs) with validatedmeasurement instruments.



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