Building and Managing an Ambidextrous Organization
Research // When it comes to digitalization, companies often find it difficult to make fundamental changes to their business model without losing sight of their core activities. Being ambidextrous, i.e. doing one thing without letting the other go, can help companies successfully manage this balancing act. However, they may face a few challenges along the way.
Various industries and its incumbent firms can be characterized as rather traditional, conservative, and slow. However, many of these firms have been doing great in recent years – some even without lifting a finger. The insurance industry is a showpiece case for this. Looking back, business is stable, firms are earning money, and changes are rather incremental and long-term. It may seem reasonable that top management teams neither felt the need to adjust their organizations’ business models nor the necessity to adapt it to changing business environments. Unfortunately for many, times are changing. Not only did the Covid-19 pandemic disrupt many businesses and industries, but firms are now facing more and more internal and external challenges, with boundary conditions becoming increasingly more complex. While consumer needs are changing, competition from startups and firms from other industries (i.e., industry convergence) is increasing, and regulatory burdens and cost pressure are mounting, digital transformation becomes inevitable.
Although many firms successfully exploit their core business, they lack the capacities to create new strategic opportunities and innovation, particularly in the digital space. Managing business-as-usual while, at the same time, creating innovations is one of the main challenges for most firms, especially in an unstable environment. This is referred to as organizational ambidexterity 1, i.e., balancing exploitation (alignment) and exploration (adaptability) to excel at today’s core business while also focusing on tomorrow’s upcoming challenges 2. Research has shown empirically that ambidexterity can fundamentally drive firm renewal, long-term performance, and survival. 3,4,5
Organizational ambidexterity is achieved by developing a set of processes or systems that foster and encourage individuals to assess themselves in how to allocate their resources between exploitation or exploration 6,7. However, building an ambidextrous company is challeng-
ing – there is no ‘one size fits all’ approach.
Technology as a Key Driver
To investigate how ambidexterity can be implemented and managed in practice, we accompanied and observed an insurance company in a longitudinal study on its transformation journey toward an ambidextrous organization 8. Based on our empirical findings, we show that five strategic levers were essential to develop the firm from an exploitation-focused runoff platform to a multi-national insurance conglomerate with exploratory business units. These levers include organizational design (e.g., organizational structure and business model), strategic management (e.g., strategy and leadership), technology (e.g., innovation and IT), organizational learning (e.g., dynamic capabilities and adaptation), and organizational change (e.g., culture and mindset).
We argue that technology enables organizational change, while digital transformation can serve as a dynamic capability of the firm to drive change and organizational renewal. Dynamic capabilities are defined as an ‘organization’s ability to integrate, build, and reconfigure internal and external competencies’ 9. For instance, it is easier for firms with a digital business model to set up interdisciplinary project teams or to shift capabilities from one part of the firm to another – where they create more value. At the same time, people can work (remotely) in an agile mode,
“Building an ambidextrous company is
challenging – there is no ‘one size fits all’ approach.”
anytime and from everywhere. While traditionally, employees needed to have specific expertise in the exploitation part of the firm, the exploration part focuses more on creating innovative solutions for customers and partners and makes new capabilities necessary. Furthermore, the search for new talents will become one of the biggest challenges for many firms in the years ahead, according to industry experts. In recruiting, firms should therefore focus on employees and managers that possess both exploitation and exploration skills.
The Role of Culture
Culture plays an essential role in managing organizations and running a business. Although exploitation and exploration differ, firms should create a culture based on shared values and a joint vision. Leadership is much more dispersed in ambidextrous organizations, so the respective roles have to be adapted to contextual requirements, while people are taking changing responsibilities in different situations. Firms in other industries (e.g., Amazon) have shown that building a customer-centric organization can enhance business and performance. The number of customer interactions should be increased to learn about customer needs and preferences before developing new products and services. At the same time, it might also be helpful to create a culture that is open to new ways of working. For instance, firms could adapt (agile) methods and concepts from other industries (i.e., implement, measure, and iterate to create quick wins and learn from mistakes). Employees will find out that they can benefit from working differently (e.g., reducing complexity and saving time). Lastly, firms may implement a feedback culture that encourages communication and collaboration across business units. Hence, combining exploitation and exploration offers opportunities to create know-how synergies.
Our empirical insights show that building an ambidextrous organization is a challenging task that requires time, effort, and the willingness to take risks. At the same time, balancing exploitation and exploration is challenging, especially in unstable environments. Furthermore, creating innovation is never a single event. It rather is a sequential trial-and-error process. Aligning exploitation and exploration is an enduring challenge, but empirical evidence shows that becoming ambidextrous pays off. Therefore, organizational ambidexterity demonstrates that the conundrum of simultaneous exploitation and exploration can be solved, enhancing organizations’ long-term competitiveness and performance.
1 Gibson, C. B., & Birkinshaw, J. 2004. The Antecedents, Consequences, and Mediating Role of Organizational Ambidexterity. Academy of Management Journal, 47(2): 209–226.
2 Duncan, R. B. 1976. The ambidextrous organization: Designing dual structures for innovation. In R. H. Kilmann, L. R. Pondy, & D. Slevin (Eds.), The Management of Organization Design: 167–188. New York: North-Holland.
3 O’Reilly, C. A., & Tushman, M. L. 2008. Ambidexterity as a dynamic capability: Resolving the innovator’s dilemma. Research in Organizational Behavior, 28: 185–206.
4 O’Reilly, C. A., & Tushman, M. L. 2013. Organizational Ambidexterity: Past, Present, and Future. Academy of Management Perspectives, 27(4): 324–338.
5 Raisch, S., & Birkinshaw, J. 2008. Organizational Ambidexterity: Antecedents, Outcomes, and Moderators. Journal of Management, 34(3): 375–409.
6 McDonough, E. F., & Leifer, R. 1983. Using Simultaneous Structures to Cope with Uncertainty. Academy of Management Journal, 26(4): 727–735.
7 Tushman, M. L., & O’Reilly, C. A. 1996. Ambidextrous Organizations: Managing Evolutionary and Revolutionary Change. California Management Review, 38(4): 7–30.
8 Schumacher, C., Maas, P., & Vogl, M. 2020. Striving for Balance: A Dynamic Process Perspective on the Implementation of Ambidexterity, (Paper under review).
9 Teece, D. J., Pisano, G., & Shuen, A. 1997. Dynamic Capabilities and Strategic Management. Strategic Management Journal, 18(7): 509–533.