Let’s start with the basics – What is organizational ambidexterity?
It’s defined as the ability of the company to simultaneously explore the market and the surrounding environment while exploiting its knowledge base and resources. The main goal is to improve performance while keeping sustainability a key priority.
Charles O’Reilly and Michael Tushman published a book in 2016 called Lead and Disrupts: How to Solve the Innovator’s Dilemma which points out two basic types of innovation:
- Exploitation: Innovation that emerges from existing assets of the organization and improves them through innovation. This kind of innovation is relatively moderate, focused mainly on enhancement and efficiency — most managers of organizations feel comfortable with it. It deals with questions familiar to them: improving existing products, improving the product for a proximate market, etc. They know the customers and their expectations and thus find it relatively easy to address the challenge of exploiting.
- Exploration: This type of innovation requires the organization to leave its comfort zone and examine new markets, products, and business models unfamiliar to them. From the managers’ perspective, this type of innovation obliges them to venture into unfamiliar territory.
Business today brings many challenges to the table. Faced with new demands each day, companies are increasingly becoming aware of how important ambidexterity is. It boosts the organization’s capabilities to efficiently handle all those challenges and provide its employees with the ability to cope with whatever the future of business has in plan.
What drives ambidexterity?
First, the size of the organization.
Achieving ambidexterity in small and medium-sized enterprises when set side by side with the other organizational types – is somewhat harder. There are fewer resources and the current knowledge base of the company is oftentimes more restricted. They can be put in a position to either have to innovate to stay afloat or to not be able to take any risks at all. The larger businesses can be more strategic with their investments and projects, which means that they can create a more balanced portfolio.
However, this doesn’t mean that small companies should just give up.
As O’Reilly and Tushman said:
“Regardless of a company’s size, success, or tenure, we argue that their leadership needs to be asking: How can we both exploit existing assets and capabilities by getting more efficient and provide for sufficient exploration so that we are not rendered irrelevant by changes in markets and technologies?”
Secondly, current project management and organizational practices play a huge role. Companies with more hybrid practices have the upper hand when it comes to adapting to different projects.
We need to keep in mind that some cultures are more adept than others in one phase of the new product development process, falling into a list of different factors as drivers of exploratory and exploitative innovation types.
Another important element is the type of project. For example, a short-term project focus and decentralization constrain innovative learning from one point in time and space to another, making it easier to reap the benefits of exploitation than of exploration.
How can ambidexterity be put into practice?
Four structural routes to ambidexterity can be taken:
- Contextual ambidexterity assumes simultaneously achieving exploration and exploitation functions in the organization;
- Organizational separation assumes two business units operating in the organization, one for exploration and another for exploitation;
- Temporal separation assumes exploration and exploitation are carried out within the same business unit but in different tempos or times; and
- Domain separation assumes exploration activities are carried out by one domain while exploitation is carried out by another one; this route is assumed to lower the overhead structure and enhance the profitability of the organization.
On the other hand, ambidexterity at an individual level focuses on the workforce designated within the different levels of the organization, containing several sublevels: the top management/executive level and the middle management/project managers’ level. All of those are working on mostly two types of projects:
- routine projects – exploiting the existing base, using proven technologies and mature products, and addressing current customer demands;
- innovative projects – supporting base-moving strategies that explore innovative alternatives, experiment with new ideas, schemes, and approaches, and create entirely new technologies and markets.
The psychological angle on exploring and exploiting
Exploration and exploitation are two executive functions of the mind, catching our attention in very different ways, requiring different mindsets to operate.
Exploitation requires our complete concentration to be better at what we are already doing. It brings in more efficiency and hence, productivity.
Exploration allows us to get away from our current limitations and is responsible for bringing in innovation.
For a company to be truly successful it has to combine exploiting of all investments done so far with constantly building on these achievements by exploring new areas and opportunities
The truth is that any company that has set foot in this area is constantly dealing with balancing the interaction between the two.
That means that the organization has to manage different mindsets, skills, structures, and processes needed for both approaches, crucial for ongoing operations of organizations and organizational change.
Companies with limited available resources may not be able to afford to exploit and explore at the same time, initiating and implementing innovations. As initiation and implementation follow each other sequentially, companies must change their organizational structure correspondingly over time to match the changes.
When we are talking about the most important segment that needs to be properly balanced – product development, we can count 3 project categories:
- Fundamental technology or platform efforts, not yet focused at a product launch, but spawn multiple future new product projects
- Maintenance projects for already-launched products, like extensions, modifications, improvements, or cost reductions
- New product projects – big, bold, and innovative product developments
With each of the 3 categories, there are differences. For example, maintenance projects usually have little to zero uncertainty about customer benefits, technologies, and a limited need for cross-functional collaboration. On the other hand, product projects generally require up-front homework. And then you have so-called radical product innovations, typically associated with higher levels of uncertainty and complexity.
Technology projects lay the technology foundations for future innovation and, of course, the level of uncertainty is pretty high, as collaboration between engineering, marketing, and other functions is limited.
Depending on the type of project, the adaptation process is rather complicated as organizations usually do not fully understand project characteristics upfront. They instruct project teams to adopt a more recursive or evolving approach “on the fly,” without having prepared for it.
What happens with the leadership?
First of all, if a company desires to support its core businesses and new emerging innovation units – its leadership needs to constantly evolve, embracing changes along the way. Adapting to complex and changing environments needs managers that are willing and able to explore novel knowledge domains while simultaneously exploiting existing knowledge.
Many professionals suggest assigning exploration and exploitation to different units or proposing inter-temporal separation. However, we also have those who argue that ambidexterity is best achieved through individuals’ abilities to make decisions about exploration and exploitation cycles. There is one thing they all agree on: key decision-makers play a critical role and ambidextrous organizations need ambidextrous senior teams and managers.
Whichever way you choose, there must be a clear differentiation of roles. Knowing who is responsible for which stage and task within the project, makes both exploration and exploitation easier to manage.