Organizational Ambidexterity | Exploration and Exploitation

Michael Rucker

13 years ago

“Trying to understand how a tech company is going to be successful is a little bit like looking at a sonogram and trying to predict the baby’s hair color.” – Marc Andreessen, Founder, Netscape

Organizational Ambidexterity hasn’t always been as important as it is today. Prior to the technological revolution, a company could develop a competitive advantage through simply improving operational performance. This was accomplished through the company’s leadership and its ability to discover, analyze, and exploit operational efficiencies. In the current landscape of information and globalization agility and adaptability are increasingly more essential components of effective leadership. Organizations continue to try and find ways to improve performance at the organizational and team level, and no longer simply to augment current processes, but to position themselves ahead of the curve with regards to emerging opportunities as well.

Groups are traditionally formed, inside and outside a professional setting, to perform tasks and get things accomplished (Forsyth, 2010). There are many who believe that organizing a group with one set of competencies comes at the cost of forsaking other competencies. However, this paradigm is currently being critically evaluated in a number of experimental and observational studies. One of the interesting areas of study regarding this trend is an emerging body of research on the concept of organizational and group ambidexterity. To highlight the emergence of this work, in 2004 there were less than 10 papers on corporate ambidexterity; by 2009, there were over 80 papers (Raisch et al., 2009). The purpose of this paper is to take an exploratory look at what is known about group ambidexterity, how leadership effectiveness can influence ambidexterity, and identify areas where further research is needed.

The primary construct of ambidexterity in an organization and/or group context is the ability for a group to engage in both explorative and exploitative work simultaneously. For instance, it is believed by some researchers that a group with strong ties among members has a greater capacity to exploit and implement established ideas, but inherently has a lower capacity to be creative and forward-thinking. Conversely, a group with weak ties among members has a greater capacity to generate new ideas, but as a result has a lower capacity to implement them (Tiwana, 2008). It was traditionally believed that this group dynamic creates a natural dilemma between the ability of a group or team to accomplish and improve upon tasks versus their collective ability to come up with creative solutions to problems. In this sense, most researchers look at both explorative and exploitative work as innovation. However, explorative work is considered the driver of future endeavors. It is the creative process that leads to new products and new ways of thinking. Explorative work creates entirely new ways of doing things and can turn old systems upside down. Exploitative work, on the other hand, tends to improve processes that are already in place. It focuses on how things are currently running and functions to create improvements that optimize current operational processes.

The term organizational ambidexterity was first coined by Dr. Robert Duncan in 1976 in the article The ambidextrous organization: Designing dual structures for innovation. Fifteen years later, Dr. James March published the seminal article Exploration and exploitation in organizational learning which is credited with creating a general interest in the concept of organizational ambidexterity. During the early examination of organizational ambidexterity, operational improvements and innovation were believed to be essentially two separate activities that required different kinds of leadership, group roles, and structures to optimize performance in either area. During the 1990s, it was generally believed that highly functional operational groups involved in activities such as implementation and refinement would not be well suited for creative activities such as innovation, discovery, and experimentation. In other words, it was believed that being well equipped to exploit existing competencies of a group came at the cost of being inefficient at exploring new ones (Raisch & Birkinshaw, 2008).

Mumford et al. (2009) state there are four key elements to being innovative: the expertise brought to the task, the particular types of knowledge applied in solving the problem, the effective execution of processing operations in the generation of a solution, and the strategies used in executing a solution based on the group’s knowledge structures. The counterargument to organizational ambidexterity is that when the key elements for creative innovation are met in a group, tension in the group increases which limits the group’s ability to optimally act efficiently on operational talents. The underlying theory is this tension exists because of the potential conflicts in group interaction when group member attributes and skill sets are not aligned. This state leads to a natural increase in complexity at the task level and increases the ambiguity of shared goals and success measures (Forsyth, 2010).

Another challenge when talking about organizational ambidexterity is the inconsistent definitions of exploration and exploitation from one researcher to another researcher. Gupta et al. (2006) discussed this challenge and examined whether these two attributes should be treated as orthogonal or conversely two ends of a continuum. The idea of exploration appears to have much more consensus and is conceptually easier to understand than exploitation. It is intuitive that a group with a diverse member base, that possesses competing skill sets, would have a wider breadth of intellectual resources at their disposal and therefore be better at innovating new solutions than a group with members that have homogeneous skills and experience. The definitions for exploitation are more diverse and not as precise but appear to have roots in self-presentation theory. It is thought that in an evaluative group environment people tend to engage more in dominant responses than non-dominant responses (Forsyth, 2010). As established tasks get learned, practiced, and refined, an organization can better exploit process performance. However, if norms are challenged, the ability of the group to exploit is decreased. Gupta et al. (2006) also argued that ambidexterity may not always be the desired ideal and that punctuated equilibrium might be more appropriate in certain situations. Punctuated equilibrium is the concept that shifting through periods of exploration and exploitation is a better approach than trying to optimize to achieve desirable levels of each attribute simultaneously.

Therefore, some worthy questions for examination are: Do ambidextrous organizations really perform better than non-ambidextrous organizations? Can the principles of ambidexterity be applied across a wide variety of groups; on the other hand, are these principles only applicable to subgroups within large organizations (that can more effectively operate simultaneous groups that are respectively explorative and exploitative)? Lastly, is ambidexterity always a worthy pursuit or are there limits to its utility?

To answer the question of whether ambidextrous organizations performed better than other organizational models, an empirical study was conducted by Gibson and Birkinshaw (2004) using data collected from 4,195 individuals in 41 business units. For the purposes of their study, Gibson and Birkinshaw referred to explorative qualities as adaptability and exploitative qualities as alignment. Through statistical modeling, they found that there was indeed a strong correlation between the dependent variable of performance and companies that possessed both high levels of alignment and high levels of adaptability (indicating ambidexterity). Based on previous work, Gibson and Birkinshaw identified various methods used by groups to increase ambidexterity such as: worker recruitment and training, decentralized group structure, trust, shared culture and vision, flexible managers, and supportive leaders.

To research whether ambidexterity is a concept with applications outside of large organizations, Lubatkin et al. (2006) used multisource survey data, including CEOs and top management team members from 139 small- to medium-sized firms (SMEs) to investigate the background and consequences of ambidexterity. Their research focused on the central role that top management plays in ambidexterity and if their influence had an overall effect on performance at the SME level. The researcher’s findings led to the conclusion that the dual pursuit of an exploratory and exploitative approach positively affects performance at the SME level. It also uncovered that behavioral integration by top management teams is essential to achieving ambidexterity. The researchers acknowledge that because of the bigger ecosystems at larger corporations some of the statistical associations may be weaker if the same tests were performed on this group. Regardless, the research points to the influence that the top management team has on positive innovative outcomes and the importance of leadership in driving ambidextrous organizations.

To better understand the underlying dynamics behind ambidexterity in group collaborations, Tiwana (2008) conducted a study using 42 innovation-seeking project alliances to examine the relationships between bridging ties and strong ties. The purpose of this study was to examine whether ambidexterity had applications across groups and in collaborative matrixes. Bridging ties cross structural holes creating the potential for innovation but lack the capacity for integration (usually due to interaction within cross-functioning teams). Strong ties create integration capacity but are short of innovation potential (theorized based on the existing evidence). Tiwana makes the argument that bridging ties harmonize with strong ties in enhancing alliance ambidexterity at the project level. While bridging ties create access to diverse, structural hole-spanning capabilities and perspectives, it is strong ties that assist in integrating these capabilities and perspectives so that groups can realize an innovation. Tiwana (2008) also suggests that these ties influence alliance ambidexterity because they assist in knowledge integration at the project level. Since Tiwana elected to use stepwise regression it is wise to be a bit skeptical of his empirical results. However, intuitively his assertions make sense and it is interesting to explore how ambidexterity can transcend across groups operating within two different environments.

Accepting the notion that organizations are capable of pursuing exploration and exploitation simultaneously, and that ambidexterity leads to superior performance, Jansen et al. (2008) wanted to investigate how this practice might lead to the presence of conflicting goals. They did this by surveying executive and senior managers at Dutch branches of a large European financial services firm. By design, ambidexterity creates conflicting goals and role ambiguity which naturally can cause challenges within groups. These researchers found that senior teams who have transformational leadership were more likely to be associated with high levels of exploratory and exploitative innovations than those that had a more transactional leadership style. Based on their analysis, the researchers reported that organizational ambidexterity requires the development of shared vision, which is an integral part of transformational leadership. Transformational leaders are also better equipped to deal with conflict as it arises, which is an inherent challenge of ambidextrous organizations.

Building from the literature on innovation, Andriopoulos & Lewis (2009) examined ambidexterity innovation through the lens of new product design consultancies because of the inherent need for these types of businesses to innovate. When the researchers polled the leadership of these firms about the inherent tension between present-day operational innovation and forward-thinking competitive innovation, they reported that these issues were not perceived internally as dilemmas per se but rather paradoxical attributes of ambidexterity.

Andriopoulos & Lewis (2009) identified three paradoxes related to ambidextrous organizations. The first paradox, the paradox of strategic intent, highlights an organization’s aspiration to improve good business practices while simultaneously trying to achieve profit-breakthroughs through the creation of new products. The paradox of customer orientation highlights an organization’s need to work within constraints in order to stay in line with client expectations, while at the same time operating with enough autonomy to avoid stifling the ability to properly service the client with new ideas. Lastly, the paradox of personal drivers highlights the perception that creativity is somewhat lessened when exposed to procedural constraints (ex. timelines, resource allocation, etc). Andriopoulos & Lewis (2009) make the argument that ambidexterity needs to be shared responsibility across organizational levels to effectively stimulate virtuous cycles of ambidexterity (see figure 1).

Figure 1. Andriopoulos & Lewis (2009) Virtuous Cycles of Ambidexterity

Andriopoulos & Lewis (2009) hypothesize that three factors help achieve this objective: taking a multilevel approach, employing complementary tactics when setting up systems, and learning synergies that make sure knowledge transfer is optimized among groups.

Chermack et al. (2010) suggested using organizational ambidexterity for leveraging teams toward organizational effectiveness based on the totality of the existing research although they cautioned there are a few studies that suggest the pursuit of ambidexterity might not be appropriate for every industry. However, a case is made that it can be generalized that in our new business climate, where only the most agile corporations will survive, organizational ambidexterity becomes a key competitive advantage.

A review of the existing literature supports a compelling argument that one can assume that the theory of ambidexterity is an essential attribute of a company that wants to compete in today’s business climate. As we continue to globalize, the ability for an organization to be able to concurrently operate optimally in both day-to-day operations and future innovations will trend away from merely being a competitive advantage into being an operational necessity. In this regard, transformational leadership is encouraged because it supports an ambidextrous environment. Recent history is peppered with companies that have succeeded because of their exploratory abilities. For instance, Avon began as a company selling books door to door, Tiffany & Co began selling paper, and Google started as a service to search electronic bulletin boards (Carlson & Saint, 2009).

With respect to further research, as ambidextrous theory continues to grow, it will be important to evaluate whether these principles can be applied universally. Although I have attempted to address all the original questions I put forth, the issue of ambidexterity always being a worthy pursuit was difficult based on the existing research. Therefore I only was able to currently address it at a cursory level.

Another issue about ambidexterity is there appears to be a lack of any meaningful prescriptive models for innovation that would instruct an organization on how to apply ambidextrous principles. There is empirical evidence to imply that ambidexterity is worth pursuit at both the SME and large corporate level, but there is limited information on how to successfully implement what has been discovered so far in real-world applications.

Also, social orientation theory does not seem to be addressed in any of the articles on organizational ambidexterity. It seems intuitive that the extent to which group members have positive or negative orientations would play a significant role in the execution of ambidextrous principles. However, in discussions of the formation of teams, researchers rarely mention issues related to this paradigm.

Although there is a growing body of literature on ambidextrous groups, there still is a need to dissect the complexities. As our world gets more technologically complex the importance for industry to balance the creative process of ideation with the business goals of optimizing operational practices will become increasingly more important. This is further highlighted by new emerging project management paradigms such as Scrum that are predicated on ambidextrous groups and were developed to accommodate this trend.

To conclude we look at Raisch et al. (2009) who examined some of the fundamentals that make organizational ambidexterity controversial. They examined four questions they refer to as ambidexterity’s “central tensions”: Must organizations take a static or dynamic perspective on ambidexterity? Should organizations achieve ambidexterity through differentiation or integration? Can ambidexterity arise internally, or do firms have to externalize some processes? Lastly, does ambidexterity occur at the individual or organizational level?

The static versus dynamic controversy Raisch et al. (2009) references is whether static models are appropriate when framing ambidexterity. As identified earlier, the need for ambidextrous models is evident. However, a problem in this type of research is that modern contingency theory states alignment comes not from static configurations but rather a dynamic process which makes modeling a difficult task.

The controversy around differentiation and integration is rooted in the discussion of whether organizations can create ambidexterity within a single business unit or if it is better fostered through unique business units working together. Further research in this area can confirm or discredit the ability of a single group to optimally be ambidextrous.

There is some speculation that the best way to create ambidexterity is to outsource the set of tasks that are not part of your organization’s core competencies. The idea is that organizations can create synergies by sharing their respective expertise. This controversy is predicated on the supposition that ambidexterity cannot be achieved through integration. If further research makes a strong case that ambidextrous integration is possible, this issue becomes moot.

In this post, I have primarily focused on the dynamics and leadership effectiveness of ambidextrous groups. However, regarding the final controversy discussed by Raisch et al. (2009), there is some speculation that ambidexterity is better optimized at the individual level (i.e. worker recruitment), implying group formation, training, and resource acquisition could be the most viable methods for creating operational ambidexterity. Currently, there is no empirical evidence to back this claim up and therefore it would be another good area for further study.

References: