Reward systems that favor incremental improvement progressively starve organizations of exploration

Evidence

Self-reinforcing learning effects can be found at various organizational levels. A well-known example from organizational learning points to the fact that a focus on the advantages of exploitative learning may increasingly drive out explorative learning (March, 1991, 2006). For various reasons (e.g., the prevailing organizational culture and reward system), the motivation to improve everyday practices is likely to gain more acceptance or legitimacy (and, thus, more rewards) from the organization, whereas the motivation to look for fresh alternatives and to critically examine well-established organizational practices is likely to shrink progressively. This myopia or preference for repetitive exploitative learning builds on the self-reinforcing dynamics of learning effects, eventually ending up in an organizational path along the familiar practices. — Jörg Sydow, Georg Schreyögg, and Jochen Koch, Organizational Path Dependence, 87

Categorization

• XREF: Direct bridge to March’s exploration/exploitation distinction and to Ostrom-style institutional lock-in literatures. — connects to: Aggregated past innovations trap groups on locally optimal yet suboptimal trajectories — Joe Henrich and Robert Boyd, The Evolution of Conformist…, 114
• SEED: Angle: why your most competent team is often the least able to reinvent itself — incentives as the quiet killer of exploration.