Most of the sources about organizational ambidexterity start explaining the concept by providing statistics about the life span of companies. They mention how Fortune 500 list evolved over time, provide examples of once-upon-a-time successful companies (such as Kodak), which later were doomed as a result of their incapability to refine their offerings and themselves in line with the changing ecosystem. And then they make the conclusion that all companies must be able to explore new opportunities while diligently exploiting existing ones, should they want to have a long life. In other words, they must be ambidextrous.
Exploration vs Exploitation
First, let’s expound the difference between exploitation and exploration. Exploitation means making full use of existing capabilities to derive maximum benefit from existing offerings. In this context, the purpose is to create the already defined value consistently. In exploitation jobs, both the output and the job to produce that output are well defined upfront. One of the most important competencies required while exploiting is to control variance and continuously optimize the process and the product. Another important competency is solving problems blocking the process quickly.
On the other hand, exploration means creating new value. In this context, neither the output nor the job to produce it can fully be defined upfront. It is also not known in advance whether the output will create any value or not. In this context, there are two challenges. First one is to create new and valid value. The second one is to do this efficiently. The less resource you spend to create new value the more successful you are.
Exploitation demands a short-term perspective, structure and controlled experimentation. Exploration requires a long-term perspective, agility, risk taking and extensive experimentation. As a result, the structure, processes and skills required for exploitation and exploration are both different and inconsistent. Yet both are needed if an organization is to maintain its success over time.
How to Achieve Ambidexterity?
In order to achieve ambidexterity…
- First capability that organizations must build in themselves is to sense opportunities in their operating environment. This involves having a set of processes and resources dedicated to scanning change.
- The next important capability is challenging existing cognitive biases, which develops over time as a result of prior experiences and deciding about which opportunities to chase. Cognitive biases of established organizations may prevent them make right decisions and lock them into their own camps (existing markets, technologies…etc).
- The third capability is to reconfigure the organization (structure, processes, resources…etc) to realize the opportunities without disrupting exploitation.
Selecting Right Opportunities
In the past few decades, organizations have been trying different approaches to achieve this.
- (1: Side projects) Some have tried to carry out exploration activities without any specific organizational arrangement. They have just tried to push these activities as side projects within their existing exploitative organizational model.
- (2: Exploratory cross functional teams) Some have tried to utilize temporary but dedicated cross functional teams to address exploration activities.
- (3: Dedicated exploratory subunits) Some others have established dedicated exploratory business units within their exploitative organizations and have allowed them to maintain a completely different setup.
- (4: Independent exploratory organizations) Some have adopted a venture capital model. They have established separate and independent exploratory organizations and have let them flourish on their own, away from the parent exploitative organizations.
- (5: Temporal sequencing) Some others have tried a temporal sequencing of exploration and exploitation models in order to focus on exploration during a certain period and then to exploitation later.
- (6: Completely new organizational model) Some organizations have gone further by experimenting with completely new organizational models, which I prefer to name as sociocratic models, such as holacracy. These models constitute a radical alternative to traditional models. They promote the concepts of team driven structure, self-organization, distributed leadership, peer control, high transparency. Although their primary selling argument is making organizations more human focused, they also allow an organization to be more adaptive and ambidextrous.
A growing body of research has examined various organizations, which have tried above approaches to be ambidextrous. (*) O’Reilly and Tushman, (2004) show evidences that dedicated exploratory subunits are more successful in breakthrough innovation — with respect to independent organizations or cross functional teams — in the existence of a senior team, who tightly link exploratory subunits with the rest of the exploitative organization. In this way, a subunit-based structure effectively allows cross-fertilization and at the same time prevents cross-contamination. On the other hand, there are some studies (ie: Christensen & Bower, 1996) claiming that organizations cannot explore and exploit at the same time. They present powerful arguments favoring creation of a separate and independent exploratory organization especially when the new offering has a lower profit margin than the mainstream offerings and serve a new set of customers. As far as temporal sequencing option is considered, many studies claim that such a setup can work for an organization if the rate of change in its operating environment is low. As for new organizational models, there are limited number of studies about how they contribute to organizational performance, and these studies reflect a mixed view about how much they help ambidexterity. In general, they are perceived as very difficult to implement in reliability-driven industries.
O’Reilly and Tushman, (2008) proposes a framework for deciding the best reconfiguration approach to exploration initiatives based on strategic importance (value) of the exploration initiative for the exploitative organization and operational leverage (cross-fertilization opportunity between exploration and exploitation endeavors). This framework suggests that, the lower the operational leverage is, the higher the separation and independency of the exploration initiative can be. Accordingly, the higher the strategic importance is, the more the integration between exploration and exploitation endeavors should be.
If strategic importance of the exploration initiative is low, but cross-fertilization opportunity with the exploitation side is high, running the exploration initiative close to the exploitation side (as a side project (1) or in a cross functional team (2)) may prove more suitable. If strategic importance is high, but operational leverage is low, it may be better to manage the exploration initiative in a dedicated subunit (3). If both operational leverage and strategic importance is low, it is better to spin out the initiative (4).
Organizational form is important in many ways. But contemporary research agrees that reconfiguration capability requires far more than this. It includes a complex set of repeatable routines for
- decentralization of control to the exploratory initiative
- differentiation of organizational setup to prevent cross-contamination
- targeted integration to capture cross-fertilization opportunities
- orchestration of trade-offs between exploration and exploitation
To be continued…
- Michael L. Tushman and Charles A. O’Reilly, “The Ambidextrous Organization: Managing Evolutionary and Revolutionary Change”, California Management Review, 38/4 (Summer 1996): 8-30)
- Ze-Lin He and Poh-Kam Wong, “Exploration vs. Exploitation: An Empirical Test of Ambidexterity”, Organization Science, 15/4 (July/August 2004): 481-494;
- Charles A. O’Reilly and Michael L. Tushman, “The Ambidextrous Organization”, Harvard Business Review, April 2004;
- Charles A. O’Reilly and Michael L. Tushman, “Ambidexterity As A Dynamic Capability: Resolving The Innovator’s Dilemma”, Research in Organizational Behavior, 28 (2008): 185–206
- Sebastian Raisch, Julian Birkinshaw, Gilbert Probst, and Michael L. Tushman, “Organizational Ambidexterity: Balancing Exploitation and Exploration for Sustained Performance” Organization Science, 20/4 (July/August 2009): 685-695;
- Julian Birkinshaw, Alexander Zimmermann, Sebastian Raisch, “How Do Firms Adapt to Discontinuous Change? Bridging The Dynamic Capabilities And Ambidexterity Perspectives”, California Management Review, 58/4 (Summer 2016): 36-58;
- Yan Chen, “Dynamic Ambidexterity: How Innovators Manage Exploration And Exploitation”, Business Horizons, 60/3 (May–June 2017): 385-394;