When exploration backfires: Unintended consequences of multilevel organizational search

An enduring belief is that unleashing low-level members of an organization to explore extensively will broaden the exploration conducted by the entire organization. Using an agent-based simulation model, we show that in multilevel organizations, increased exploration at lower levels can backfire, reducing overall exploration and diminishing performance in environments that require broad search. This result arises when interdependencies cut across the domains of low-level managers. With no cross-departmental interdependencies, more extensive low-level exploration can improve firm performance. Our findings show that careful attention to information processing in multilevel organizations can shed light on whether, and when, decentralization encourages innovation.