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, Blockbuster, Nokia, Polaroid, PanAm), 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.
|Purpose||Create new value||Create consistent value|
|Success Factor||Validity and efficiency in value||Reliability and efficiency in value|
|Processes & Outputs||Ambiguous||Well defined|
|Critical Tasks||Discontinuous innovation (dramatic change that transforms existing offerings, processes, business models or create new ones)||Optimization, incremental innovation (small improvements on existing offerings, processes, business model…etc)|
|Type of Governance||Adaptive||Bureaucratic|
|Useful Methods / Approaches / Frameworks||Design Thinking, Scrum, Lean Stratup….etc.||TQM, BPR, Six Sigma …etc.|
|Cultural Attributes||Flexibility, experimentation, risk taking, speed, openness, external orientation, team work||Control, productivity, quality, risk avoidance|
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.
Basics of Ambidexterity
Studies examining most dramatic failures in the business world demonstrate that all failures were home-grown and not inevitable. Ironically in most cases the failed firms had the next-gen technology but were unable to utilize it. On the other side, it is apparent that there are sizable amount of firms that are more than 200 years old. How do the short-lived and the long-lived organizations differ? How do some organizations sustain their competitive edge in the face of extensive environmental change?
Analysis of successful firms demonstrate that they select an adaptation mode and build a set of dynamic capabilities in order to achieve ambidexterity. Organizations generally select to pursue one or a combination of the 3 different adaptation modes below:
- Structural separation: In this mode, organizations setup structurally separate units for exploitation and exploration, each operating with different processes, competencies, systems and incentives. (ie: Google established a separate division for Android and a completely independent company called as X to venture radical innovation projects such as self-driving cars.)
- Behavioral integration: In this mode, organizations prefer to carry out exploitation and exploration activities in the same business unit. They build a carefully selected set of systems and processes, which collectively define organizational members’ behavioral context, so that members simultaneously seek exploitation and exploration. (ie: GSK, converted its functional R&D into cross-functional teams of 300, consisting of scientists such as chemists, biologists, physicians in 2001. These teams competed with each other for funding. The teams were expected to bring their ideas to PoC level. In 2007, these teams were further broken down to teams of 30-40 people (including commercial people) focusing on single projects.)
- Sequential alternation: In this mode, organizations focus on exploitation during some time and then on exploration during another time period. (ie: BMW, focused on productivity and efficiency in 2000. In 2002 till 2006, BMW made its largest product expansions and entered into small car segments. In 2006, BMW again returned to productivity focus. In 2010, again the firm focused on exploration and created many EV products.)
Important dynamic capabilities for becoming ambidextrous are as follows:
- Sensing: First capability that ambidextrous organizations build in themselves is to sense opportunities in their operating environment. This involves having a set of processes and resources dedicated to scanning change.
- Seizing: The next important capability is selecting and seizing right opportunities. In order to do this, organizations must first challenge their existing cognitive biases, which develops over time as a result of prior experiences in the exploitation domain. Cognitive biases of established organizations may prevent them make right decisions and lock them into their own camps (existing markets, technologies…etc). When an opportunity is selected, the next important challenge is to mobilize resources to realize it.
- Reconfiguration: The third capability is to reconfigure (adapt) the organization (structure, processes, resources…etc) in order to continuously orchestrate exploitation and exploration.
- When structural separation mode is pursued, resource-linking capability for orchestrating capabilities across different units becomes critical.
- When behavioral integration mode is pursued, context-shaping capability to impose right behaviors to keep right balance between exploration and exploitation becomes critical.
- In the case of sequential alternation, focus-shifting capability to make the shifts between exploration and exploitation at the right time properly becomes critical.
This perspective overlaps with organizational agility perspective. See “What is Organizational Agility?” or “The Principles of Organizational Ambidexterity / Agiliy (OA)“. Return to OrgAnarchist section.