Abstract for: Counteracting the success trap in publicly owned corporations
Top management teams frequently overemphasize efforts to exploit the current product portfolio, even in the face of the strong need to step up exploration activities. This mismanagement of the balance between explorative R&D activities and exploitation of the current product portfolio can result in the so-called ‘success trap’, the situation where explorative activities are fully suppressed. The success trap constitutes a serious threat to the long-term viability of a firm. Recent studies of publicly owned corporations suggest the suppression of exploration arises from the interplay between the executive team’s myopic forces, the board of directors as gatekeeper of the capital market, and the exploitation-exploration investments and their outcomes. In this paper, system dynamics modeling serves to identify and test ways in which top management teams can counteract this suppression process. For instance, we find that when the executive board is getting stuck in the success trap, the board of directors can intervene by constraining exploration (in case of a rather stable environment) or by encouraging exploration (in case of a turbulent environment).