Strategy

The ambidextrous organisation

For a firm to be successful over the long term, it has to be profitable today while also investing in its future

To be successful in the long run, a company must be profitable today while also investing for the future. An ambidextrous organization strikes this balance: it can capitalize on its existing strengths and make money in the short term while also exploring opportunities for future profitability and growth. An ambidextrous organization is one that is equally adept at exploration and exploitation, just as being ambidextrous means being able to use both the left and right hand equally.

When to use it

● To assess your company's long-term strategic position.
● To identify methods for striking the right balance between short-term and long-term thinking.
● To make changes to your structure or culture in order to improve your short-term/long-term balance.

Origins

For many years, it has been recognized that businesses must balance long-term and short-term thinking. Robert Duncan first proposed the concept of organizational ambidexterity in 1976. He advised businesses to establish a separate unit responsible for R&D and business development, separate from the market's short-term demands. This concept was then taken up by Mike Tushman and Charles O'Reilly in the late 1990s in an article and a book about how businesses must strike a balance between evolutionary and revolutionary change. Since then, research on the concept of ambidexterity has grown dramatically, and many different arguments have been advanced about how to strike the right balance.

James March developed the theoretical concept underlying ambidexterity research in an influential article published in 1991. He contended that firms must balance exploration (the development of new products and services) and exploitation (the sale of existing products and services) over time. Firms, on the other hand, can easily fall into 'learning traps,' where they become very good at one of these activities while underinvesting in the other. Some businesses, for example, become so successful at selling their existing products that they disregard the need to invest in new ones.

What it is

An ambidextrous organization strikes a balance between exploration and exploitation. Exploration entails search, variation, risk-taking, experimentation, discovery, or innovation, whereas exploitation entails refinement, production, efficiency, implementation, and execution. Both are required for long-term success. Companies that focus solely on exploration risk squandering resources on ideas that may or may not be developed. Those who focus solely on exploitation will prosper for a time, but will eventually decline because they will fail to renew their product offerings.

There are three approaches to creating an ambidextrous organization. One approach is to emphasize structural ambidexterity, which entails separating exploitation and exploration units. For example, it is common practice in large corporations to establish separate units for 'exploration' activities such as R&D or business development. This is a method of shielding them from the day-to-day demands of a manufacturing or selling operation, where thinking is much more focused on the short term.

The second approach is contextual ambidexterity, which employs behavioral and social strategies to achieve the required balance of exploration and exploitation. This strategy is based on the idea that individual employees are best placed to decide how to spend their time on a daily basis, and that there are significant synergies between exploration and exploitation. In the contextual approach, top management's role is to foster a supportive culture (or context) that encourages their employees to make the appropriate trade-offs between exploration and exploitation.

The third approach is temporal ambidexterity, which essentially means switching back and forth between exploration and exploitation over time. This approach recognizes that managing exploration and exploitation at the same time in the same operation is extremely difficult, but rather than separating them in space, the separation occurs on a temporal basis. For example, a company may prioritize developing new technologies for a few years, then focus on commercializing them for a few years before returning to development.

How to use it

While these three approaches are frequently presented as alternative models, the reality is that all three are used to varying degrees at the same time in most large firms. As a result, the first practical question to address when using this model is to be clear on the level of analysis you are working at. To keep things simple, we'll look at two types of analysis here:

● The firm as a whole: If you are concerned about your firm's long-term success, the most common source of concern is disruptive threats to your existing business model (for example, the internet making the business model of traditional newspapers obsolete). In such cases, structural ambidexterity is frequently the best option. This includes, for example, establishing a separate unit to work on your digital strategy, as well as establishing a corporate venturing unit or skunkworks to test a variety of new business ideas concurrently. Giving these exploratory investments the space and time they require increases your chances of capitalizing on emerging opportunities in your market. In this situation, you can also use temporal ambidexterity, for example, by making long-term investment opportunities a priority for the entire firm, at least for a while.
● A specific operating unit: As the manager of a specific operating unit (for example, a factory, a sales team, or a call center), your job is to make that unit as successful as possible. This includes meeting short-term performance targets while also looking for ways to improve operations, such as finding better ways to work or identifying new sales opportunities. This is also an ambidexterity test, as you must balance short-term exploitation (hitting your targets) with long-term exploration (finding ways to develop and improve). In such cases, contextual ambidexterity is usually the more appropriate model. This entails developing a supportive internal culture or context in which employees take ownership of achieving the necessary balance of exploration and exploitation. A supportive culture pushes people to perform at a high level (focusing on discipline and stretching), while also taking care of its employees' needs and concerns (focusing on support and trust).

Top practical tip

To make an organization ambidextrous, you must constantly fine-tune the structure and context. Because of the short-termism of the financial markets, all organizations gravitate towards one mode of operation – usually exploitation. In such cases, you must work hard to push the other way in order to maintain a focus on exploration. At the firm level, this may imply establishing special-purpose units to invest in new technologies, or it may imply acquiring firms that can do the things you lack. At the operating-unit level, this means encouraging more experimentation and developing a tolerance for making mistakes.

Top pitfall

It is easy to become bogged down in theoretical debates about what ambidexterity is and the various models for achieving it. A much more practical application of the concept is to consider the need for an overall balance of making money today and investing in what will make money tomorrow. Your job as a manager, no matter what level you work at, is to find formal and informal ways to maintain that balance.