A frequently discussed theme in organizational research is the paradox of short-term focus on efficiency, based on exploitation of existing knowledge and technologies, and long-term focus on innovation and strategic development, based on exploration of new knowledge and technologies (Benner and Tushman, 2003 and Raisch et al., 2009). Since both elements are critical for sustainable competitive advantage, firms need to explicitly manage both exploration and exploitation (Gupta et al., 2006 and March, 1991). Earlier research has mostly studied the tension between exploration and exploitation on firm-level (Katila and Ahuja, 2002, O´Reilly and Tushman, 2011 and Uotila et al., 2009) or strategic business unit (SBU) level (Gibson and Birkinshaw, 2004 and Jansen et al., 2006), but it is relevant at other organizational levels as well (e.g. alliance, project, team, and individual). Koza and Lewin (1998) were first to address the exploration/exploitation paradox in an inter-organizational context when investigating strategic alliances. Although recent studies have contributed to this knowledge (Lavie and Rosenkopf, 2006, Lin et al., 2007 and Tiwana, 2008), there is still limited understanding of how exploration and exploitation can be facilitated in inter-organizational relationships through different organization designs and contractual arrangements (Im and Rai, 2008).
A few studies have investigated exploration and exploitation at a project portfolio level (Andriopoulos and Lewis, 2009, Lavie and Rosenkopf, 2006 and O´Reilly and Tushman, 2004), by differentiating between projects for radical innovation and projects for continuous improvements or implementation projects. However, Tiwana (2008) argues that pure project-level investigations, in which the paradox and its effects on performance are studied within projects, are very few. This gap may be due to that exploration/exploitation studies have focused mainly on various manufacturing industries (Adler et al., 1999 and Katila and Ahuja, 2002) rather than project-based industries, such as the construction industry (Eriksson and Westerberg, 2011).
Companies whose work is predominantly or entirely performed in projects are commonly referred to as project-based organizations (PBOs) (Hobday, 2000). This paper discusses how PBOs in the construction industry can manage the exploration/exploitation paradox. The construction industry, which in many ways is the epitome of a project-based industry, is an interesting and relevant context in this matter due to its size and importance and the complex and often unique nature of the projects. The construction industry is one of the backbones of the economy in most countries (6-10% of GDP in most OECD countries) (Gann and Salter, 2000 and Widén and Hansson, 2007). Furthermore, its products (e.g. buildings and infrastructures) and processes chiefly impact our modern society in terms of “quality of life”, and it is responsible for high energy-consumption, waste generation, and pollutions (Ortiz et al., 2009). An innovative and efficient construction industry is therefore of high societal relevance.
Although sometimes challenged, the conventional view is that the construction industry lacks innovation (Barlow, 2000 and Widén and Hansson, 2007). However, the suggested improvement agenda fails to account for the specificities of innovating within the project-based context (Dubois and Gadde, 2002 and Harty, 2008). In prior project management literature the need to break down barriers to innovation and the need to resolve conflicts between project actors are generally revealed as conclusions rather than starting points (Harty, 2008). In other words, previous research has focused on what should be done, not how it could be done. Hence, it is vital to start developing a complete yet detailed understanding of how exploration and exploitation can be achieved in PBOs.
Earlier investigations that focus on how to achieve exploration and exploitation at various organizational levels have found that it is heavily affected both by formal organizational and contractual aspects (e.g. hierarchical structures, control mechanisms, formalization, partner selection procedures, forms of payment) (Jansen et al., 2006, Jansen et al., 2008, Koza and Lewin, 1998 and Lavie and Rosenkopf, 2006) and informal social aspects (e.g. culture, cooperation, shared vision) (Jansen et al., 2008, Lin and McDonough, 2011 and Tiwana, 2008). However, there is a lack of multi-level models studying a broad set of independent variables, in terms of antecedents of exploration and exploitation (Simsek, 2009).
The main literature gaps, which are lack of project and multi-level studies, are addressed in this paper by examining how PBOs in the construction industry can manage the exploration/exploitation paradox at SBU, project portfolio, and project levels. At the project level, procurement procedures affect both formal aspects (e.g. responsibilities and authorities) and informal aspects (e.g. the degree of integration and cooperation among project participants) (Eriksson and Westerberg, 2011). Hence, it seems useful to utilize procurement literature as a reflective frame for understanding how to facilitate exploration and exploitation at the project level. This paper contributes to project management literature by serving as a starting point of a discussion of how PBOs can achieve both exploration and exploitation at different organizational levels.
