Managing Ambidexterity in Organisations

for Strategic Change

Team Name : The_Strategists

Shini Oommen
Nitya Mishra

Xavier Institute of Management(XIMB)

Bhubaneswar
 Managing Ambidexterity in Organizations for
Strategic Change

Introduction

“Competition is now a war of movement in which success depends on anticipation of market trends and
quick response to changing customer needs....... In such an environment, the essence of strategy is not the
structure of a company's products and markets, but the dynamics of its behaviour.”
- Stalk, Evans and Schulman

Organizations in this highly competitive world, many a times, suffer from the ‘success
syndrome’. Most of these organisations feel contended with the short term success that they
achieve and fail to recognise the unconventional competitors and new technology. Thus for
many, success is followed by failure and innovation by inertia. Due to the dynamism and
complexity of the present environment, the short term success does not necessarily guarantee
firm’s long term survival.

The challenge is to adapt the culture and strategy of the organization to its current
environment, but to do so in a way that does not undermine its ability to adjust to radical
changes in that environment. In the short run, the organisation must respond to changes in
their marketing environment to ensure that it survives as the fittest competitor. And in the
long run, it might need to shelve the very strategy or the product that made it successful. For
E.g. HP went from an instrument company to a minicomputer firm to a personal computer
and network company.

“Those who respond with incremental change alone are unlikely to succeed”

A firm can innovate in the following ways:

Incremental Innovation Architectural Innovation Discontinuous Innovation

Small
Small improvements
improvements in
in existing
existing Technological
Technological or
or process
process Radical advances
Radical that
advances that
products
products and
and operations.
operations. advances
advances to
to fundamentally
fundamentally profoundly alters
profoundly alters the basis for
the basis for
change
change some
some component
component or
or competition in
competition in an
an industry,
industry,
element
element of
of business
business often making
often making old
old
products/processes obsolete
products/processes obsolete
Sole focus on exploration or exploitation can have negative implications for the firm. Firms
which only engage in explorative innovations experience very high costs R&D with limited
benefits. On the other hand, firms which concentrate on exploitative innovations are likely to
find themselves trapped in suboptimal stable equilibrium.

Executives need to explore new opportunities, at the same time diligently exploiting existing
capabilities. Only a few companies do it well.
For E.g. Kodak was the market leader in the analogue photography but failed to adapt itself
with the advent of digital photography.

The organisations that are successful in managing it well are termed as ‘ambidextrous’
organisations.
For E.g. Nokia is trying out a vast array of new mobile technology offerings while
continuing to invest in its dominant handsets franchise

The Ambidextrous Approach

“Ambidexterity can be defined as the synchronous pursuit of both exploration and

exploitation via loosely coupled and differentiated subunits or individuals, each of which
specializes in either exploration or exploitation”

Exploit
Explore

Ambidextrous organizations foray into two significantly different types of businesses

 Exploiting existing capabilities and products
 Exploring new concepts, approaches, opportunities for growth through adaptable
and flexible approach

“Ambidexterity aims at overcoming organizational inertia that threatens organizational

survival.”

Implementation Explorative Exploitative

 Mode
Structural Mode Adaptive Mechanistic, Formal
Strategic Intent Innovation, growth Cost, Profit
Critical Tasks Adaptability, new products, Operational efficiency,
breakthrough innovation incremental innovation
Competencies Entrepreneurial Operational
Controls, Rewards Milestones, growth Margins, Productivity
Culture Risk taking, speed, flexibility, Efficiency, low risk, quality,
experimentation customer orientation
Leadership Role Visionary , Involved Authoritative, top down
Communication Lateral Vertical
Governance Advice and Learning Decisions by superiors

Manufacturing firms achieve a balance in their explorative and exploitative behavior by

ambidexterity while service firms achieve a balance in their explorative and exploitative
behavior by punctuated equilibrium. As per the studies conducted, the positive effect between
ambidexterity and firm performance is stronger in manufacturing firms than in service firms.

Achieving Ambidexterity

Ambidexterity can be achieved by following one of the two approaches.

 Structural Ambidexterity: It includes the creation of separate structures and systems

for different types of activities. Structural separation is necessary, because the two
sets of activities are so different that they cannot effectively coexist.

For e.g. Unilever Ventures is a stand-alone unit of Unilever responsible for investing
in and growing new businesses that provide strategic and financial value to the parent
company.

But separation can act as a double-edged sword. Some venture units failed to get their
ideas accepted because of lack of linkages to the core businesses. Many companies,
including Unilever, have sought out ways of providing linkages between core
businesses and the venture unit; they experimented with more fine-grained ways of
achieving structural ambidexterity, for example by pulling individuals out of their
existing jobs to work in a dedicated cross-functional team for a limited period of time.
 General
Manager

Existing Emerging
Businesses Businesses

Operations Sales R&D Operations Sales R&D

 Contextual ambidexterity: It calls for individual employees to make choices

between alignment-oriented and adaptation-oriented activities in the context of their
day-to-day work. So if a business needs to be ambidextrous its systems and structures
are flexible and allow people to use their own judgement as to how they spend their
time. For example, should a salesman focus on an existing customer account to meet
quota, or should he nurture a new customer with a slightly different need? To foster
this sort of ambidexterity, a much greater level of attention has to be paid to the
human side of the organization.

These two forms of ambidexterity are very different, but are best viewed as complementary.
Indeed, many successful companies, including IBM, BP and Intel, use a combination of both
approaches to deliver simultaneously on the needs for alignment and adaptability.

Managing Ambidexterity for Strategic Change

An organisation can become ambidextrous by adopting one of the following options:

 1. Acting as a growth incubator

2. Adopting a venture capital model by funding exploratory expeditions

3. Creating cross-functional teams to promote breakthrough innovations.

4. Shifting back & forth between different organizational models, i.e. focusing on
exploitation for a period and then moving into exploration mode.

In order to succeed in embracing ambidexterity:

 the organisation should consist of:

o managers
o entrepreneurs
o leaders
 the senior teams must manage
o both more mature, operationally focused businesses and higher growth,
emerging businesses
 the senior executive level should
o have the ability to understand different kinds of businesses and can adapt
to changing scenario
o maintain close and tight links while separating new, exploratory units
from traditional, exploitative ones
o be committed to operate ambidextrously even if its members aren’t
ambidextrous themselves

The ambidextrous organizations learn by the same evolutionary mechanism that sometimes
kills successful firms: variation, selection and retention.
 Innovation Differentiation Cost Reduction
[Variation] [Selection] [Retention]

They promote variation in products and technologies by decentralizing and encouraging

individual autonomy and accountability. They select winners in markets and technologies by
staying close to their customers, by being quick to respond to market signals and by having
clear mechanisms to kill products and projects. This allowed the development of computer
printers at HP to move from a venture that began without formal approval to a business that
now accounts for almost 40 percent of HP's profits.

Being only structurally or contextually ambidextrous may not be sufficient to achieve

sustainability. This leads to setting in building blocks of strategic ambidexterity. It can make
firms dissuade imitation and substitution with offensive and defensive moves. This is because
this capability to formulate and execute ambidextrous strategies can help the firm to achieve
short-term success while continuously building barriers for competitors and competitive
advantages for the long-term. Hence, sustainability is achieved.

Success Story of Renault-Nissan

Renault, the French automobile company, went through radical transformation during the
1990s. When Louis Schweitzer became CEO in 1992 the state-owned company was
languishing. Schweitzer cut costs through a number of well-publicized plant closures, and
also invested in new product development (leading to models Espace and Megane). He also
started looking for a strategic partner to help Renault reach top tier of the industry.

Renault gained control of a struggling Nissan in 1998. To the surprise of many observers, it
quickly turned its performance around. By 2001, Renault -Nissan had joined the ranks of
industry leaders & became one of the most profitable global auto companies.

The transformation was undergone when Schweitzer developed a simple and consistent
strategy, built around what he called the “seven strategic goals”. The strategic planning and
budgeting process, and the bonuses and stock option plans, were all aligned around these
goals. At the same time, the company developed what one executive called a “deep desire to
adapt”. The seven strategic goals were updated every two or three years, the organization
had an informal style of management where expressing alternative views was encouraged,
and managers developed a self-critical approach, always looking to improve. The result was
an organization that became proficient at continually making small adaptations to its
strategy without losing alignment.

Renault’s transformation during the 1990s involved a shift from a “country club” and
“bureaucratic” context to a high performance context. Until 1990, employees had viewed the
company as a comfortable and secure place to work, with an informal atmosphere. Over the
following ten years, a number of changes were brought about, primarily through top-down
initiatives revolving around cost reduction and quality, and through greater focus on and
commitment to key strategic objectives. One executive commented that his business unit was
run as a “commando type organization - appraisal and evaluation interviews are run in a
pyramidal form and compensation is (now) geared towards short term objectives.”

Most of these changes were instituted through a new executive team that gave people more
structure, and which led to a focus on new products and new opportunities as a means of
delivering on the more ambitious goals.

Larsen & Toubro in the phase of restructuring:

Larsen & Toubro Ltd, India’s largest publicly traded engineering and Construction Company
with a healthy order book of around Rs 37,000 crore is planning a significant restructuring of
its businesses which includes some 62 units under six divisions and three subsidiaries. The
restructuring would bring in corporate governance to the company and focus on individual
businesses. This quotes an example of exploring new avenues in the internal organisation to
improve its operational efficiency while utilising their present capabilities.

Issues faced by ambidextrous organisations

 Uncertainty: All human beings, but it seems business leaders in particular, find great
discomfort in uncertainty. Implementing out of trend strategies bring with them lot of
unknown favourable or unfavourable results. Uncertainty leads to a short-term focus.
Companies are shying away from long-term planning in favour of a shorter-term
focus with uncertainty as the excuse.  However, a failure to strategically plan five
years into the future can end up destroying value. On the other hand, an ambidextrous
organisation requires a long term approach with more reactive & informed strategies

 Against the Inertia: An organisation needs to go against the prevailed values &
systems. The challenge lies in developing better systems-thinking capability so one
can design business models, processes, products and services in a way that minimizes
complexity

 Innovation: The challenge is to become more innovative while still maintaining a

sense of control over the organization. Innovation brings change in existing policies
 which might misalign with the organisation objectives. Thus, a trade off needs to be
examined before going for any innovative change.

A Sustainable Ambidextrous Organisation

Organizations evolve through periods of incremental or evolutionary change punctuated by
discontinuous or revolutionary change. The challenge for managers is to adapt the culture and
strategy of their organizations to its current environment which leads to creation of an
ambidextrous organization-one capable of simultaneously pursuing both incremental and
discontinuous innovation.

Ambidexterity arises not just through formal structure, nor through the vision statements of a
charismatic leader. Rather, it is achieved in large part through the creation of a supportive
context in which individuals make their own choices about how and where to focus their
energies. Leadership, in other words, becomes a characteristic displayed by everyone in the
organization. The impetus towards ambidexterity may sometimes be driven by top-down
initiatives, but the goal is to allow leadership to emerge from the organization at all levels and
for that ubiquitous, emergent leadership to be inherently ambidextrous.

For managers, the challenge is clear: they should remember that managing an organization in
such a way that it succeeds in both incremental and radical innovation is as difficult as
juggling. It is only when the juggler can handle multiple balls at one time that his or her skill
is respected. For organizations, success for both today and tomorrow requires leaders who are
capable of simultaneously juggling several inconsistent organizational structures and cultures
by maintaining ambidextrous organizations.

References

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organization/
http://news.stanford.edu/pr/97/970626oreilly.html
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