Most organizations adopt one of two strategies. First, many organizations apply a strategy called exploitation. These organizations strive to refine and optimize all of their practices, products, and services. They might, for example, discard all practices or resources that do not relate to their key products and services. They attempt to complete their existing tasks as efficiently as possible, primarily to maximize profit.
Second, many organizations apply a strategy called exploration. These organizations strive to uncover innovative, novel products and services. They attempt to accommodate the demands of future markets. They may, for instance, establish a department that unearths original and unprecedented solutions, primarily to respond adaptively to changes in the market or industry.
Traditionally, experts maintained that organizations should adopt only one of these two strategies. That is, because resources are scarce, attempts to fulfill one strategy will divert time, energy, and attention away from attempts to fulfill another strategy. Organizations that embrace both exploitation and exploration may fail to reach either of these imperatives effectively (e.g., Hannan & Freeman, 1977;; Miller & Friesen, 1986).
In more recent decades, however, researchers have shown that larger organizations in particular can indeed embrace both strategies--exploitation and exploration--to a pronounced extent (March, 1991). These firms, called ambidextrous organizations, do not merely adopt exploitation and exploration to a moderate degree but strive to maximize both imperatives simultaneously (Gibson & Birkinshaw, 2004;; Tushman & O'Reilly, 1996, 1997). Evidence indicates that ambidextrous organizations are indeed more effective than other organizations, partly because they can be both profitable and adaptable (Gibson & Birkinshaw, 2004;; for a review, see Raisch & Birkinshaw, 2008;; see also He & Wong, 2004)).
Gibson and Birkinshaw (2004) showed that ambidextrous organizations do perform proficiently. This study examined 41 business units across 10 firms. Over 4000 respondents completed the surveys.
To measure ambidextrous approaches, participants first completed questions that assess the degree to which activities align to the extant goals of the organization, epitomizing exploitation. Sample items include "The management systems in this organization cause us to waste resources on unproductive activities (reversed)" and "The management systems in this organization work coherently to support the overall objectives of this organization". In addition, participants completed questions that assess adaptability, epitomizing exploration and reflected by items like "The management systems in this organization evolve rapidly in response to shifts in our business priorities" and "The management systems in this organization encourage people to challenge outmoded traditions/practices/sacred cows".
To gauge performance, participants completed questions that relate to whether managers and customers are satisfied with the progress and performance of this organization, coupled with financial measures such as return on equity. Performance was highly related to an ambidextrous approach. Furthermore, performance was positively associated with both alignment and adaptability.
Sarkees, Hulland, and Prescott (2010) also showed that financial performance is stronger in ambidextrous organizations relative to other organizations. Furthermore, they showed this relationship is partly by marketing ambidexterity.
In this study, 135 companies participated. The respondents were all executive managers of their firms. These managers answered questions that assess whether the strategy of their firm entails exploitation (e.g., "This organization uses its resources effectively") and exploration (e.g., "This organization is flexible enough to allow us to respond quickly to market changes"). Furthermore, these managers answered questions that gauge whether the marketing of this firm embraces both exploitation (e.g., "We apply knowledge from other functional units to better serve our current customers") and exploration (e.g., "We have a broad range of products/services"). Finally, measures of performance were collated, including revenue, profit, customer satisfaction, and introduction of novel products into the market.
The degree to which organizations were ambidextrous was positively associated with all indices of performance. The positive association between ambidextrous strategies and customer satisfaction in particular was mediated by market implementation ambidexterity. These findings were observed even after controlling the size of firms, the age of firms, the industry, the background of CEOs, and market turbulence.
Rothaermel and Alexandre (2009) examined whether an ambidextrous approach to technology enhances performance. They discovered that an ambidextrous approach does increase return on equity and number of patents. Yet, they also uncovered two complications or subtleties.
First, these authors maintained that an ambidextrous approach does not necessarily imply a blend of exploitation and exploration but could instead imply a blend of sourcing technology from experts within or outside the firm. To illustrate, firms can attempt to utilize and refine sources of technology they have utilized before from experts in the organization, called internal exploitation, or from outside the organization, called external exploitation. In addition, firms can seek novel sources of technology--technology they have not utilized before--from experts within the organization, called internal exploration, or from outside the organization, called external exploration. Therefore, according to Rothaermel and Alexandre (2009), managers do not only need to reconcile the tension between exploitation and exploration, but must also reconcile the tension between internal and external sources of information.
Second, the absorptive capacity of organizations, often measured by the investment into research and development, may moderate the benefits of ambidextrous strategies. Absorptive capacity refers to the extent to which organizations can recognize, assimilate, and apply new information. Without this absorptive capacity, organizations may not be able to integrate these diverse sources of information.
As Rothaermel and Alexandre (2009) showed, after controlling past performance, industry characteristics, level of diversification, and number of technologies, an ambidextrous strategy--that is, a blend of internal and external sources of information--was positively associated with return on equity and number of patents. Specifically, if about half the technologies were sourced externally rather than internally, return on equity and number of patents was particularly elevated. This relationships, however, was primarily observed when investment into research and development was high.
The benefits of ambidextrous approaches may not be observed in smaller firms. For example, Ebben and Johnson (2005) restricted their sample to small firms. They showed that firms that either emphasize efficiency, epitomizing exploitation, or flexibility, epitomizing exploration, outperformed firms that apply both strategies.
If organizations depend solely on exploitation, they often overlook vital trends and changes in the market. They depend excessively on their existing capabilities and do not develop other abilities or resources efficiently, called a competency trap (Gupta, Smith, & Shalley, 2006). They might perform specific operations well but do not adjust rapidly enough to novel opportunities or threats. They seem myopic rather than broad (Levinthal & March, 1993) and rigid instead of flexible (Leonard-Barton, 1992), unable to respond effectively to unexpected changes in the market or industry.
Yet, if organizations depend solely on exploration, they often squander resources rather than work efficiently. Their activities are too risky and not profitable (Levinthal & March, 1993), sometimes called the failure trap (Gupta, Smith, & Shalley, 2006). They do not utilize their existing capabilities effectively.
In ambidextrous organizations, the benefits that accrue from one strategy can be utilized to facilitate the other strategy. For example, the financial returns of exploitation can be invested to explore novel products and solutions.
Gibson and Birkinshaw (2004) undertook a study to examine the workplace characteristics or contexts that promote both exploitation and exploration. Managers answered questions that assess the degree to which the organization has implemented a performance management system that enforces both discipline and challenging targets. Typical items were "be more focused on getting their job done well than on getting promoted", "use their appraisal feedback to improve their performance", "reward or punish based on rigorous measurement of business performance against goals", and "make a point of stretching their people". Managers also answered questions that gauge the extent to which the systems foster support and trust, epitomized by items like "treat failure (in a good effort) as a learning opportunity, not something to be ashamed of", "give everyone sufficient authority to do their jobs well", "push decisions down to the lowest appropriate level", and "give ready access to information that others need".
As this study showed, a rigorous performance management system and supportive practices, when combined, promoted an ambidextrous approach. That is, if organizations had cultivated this blend of a rigorous performance management and support, activities were more aligned to overall goals, reflecting exploitation, and innovative practices were rife, reflecting exploration.
Jansen, George, van den Bosch, and Volberda (2008) clarified the qualities of senior management teams that foster an ambidextrous approach (see also Lubatkin, Simsek, Ling, & Veiga, 2006). They uncovered three key determinants of this approach.
First, when the senior management team share an inspiring vision, they are more likely to foster an ambidextrous approach. That is, when committed to this vision, managers are able to integrate the diverse tendencies associated with exploitation and exploration into a unified framework or strategy.
Second, when senior management teams are cohesive and collaborative, an ambidextrous approach is also more likely to be achieved. These teams tend to work more efficiently and embrace debates--and, therefore, can reconcile the conflicting tendencies that exploitation and exploration can provoke.
Third, when the bonuses of senior managers are aligned to firm performance, an ambidextrous approach is also more likely to be realized. These bonuses emphasize shared goals, inspiring individuals to diverge from their personal inclinations and embracing opposing perspectives. Individuals who prefer exploitation may embrace exploration and vice versa. Transformational leadership also magnified the associations between these characteristics of senior teams and the achievement of ambidextrous strategies.
Mom, van den Bosch, and Volberda (2009) also examined the characteristics of leaders that foster an ambidextrous approach. As they discovered, if managers participate in many cross-functional interfaces as well as maintain strong connections outside the organization, they are more likely to demonstrate the hallmarks of both exploitation and exploration. Cross-functional interfaces include work in cross-disciplinary teams or coordination of work across many departments. Managers who participate in this work embrace and reconcile diverse perspectives more effectively.
Although the principle of ambidextrous organization seems compelling, the pursuit of exploitation and exploration tends to evoke many conflicts, tensions, and paradoxes. For example, to promote exploitation, managers must encourage individuals to orient their attention to the dynamics within the organization, to embrace existing policies, to maintain determination, and to fulfill their responsibilities. In contrast, to promote exploration, managers must encourage individuals to orient their attention to trends outside the organization, embrace novel possibilities, and to diverge from their responsibilities occasionally and consider other opportunities (Dougherty, 1996). Because of these complications, many experts have reflected upon how to reconcile these tensions.
To develop an ambidextrous organization, researchers have recommended hundreds of practices. Most of these practices, however, can be divided into two classes: structural and contextual. First, some experts discuss the structure or architecture of responsibilities that can facilitate this endeavor. They may, for example, argue that some workgroups or departments should focus solely on exploitation, whereas other workgroups or departments should focus solely on exploration or integrating these two philosophies (Gupta, Smith, & Shalley, 2006), sometimes called spatial separation (see Puranam, Singh, Zollo, 2006). In addition, they may recommend that all workgroups pursue a strategy of exploitation at some times and exploration at other times, sometimes called temporal separation (see Puranam, Singh, Zollo, 2006).
This structural approach, however, does raise some concerns. In particular, when this approach is applied, organizations may not be able to coordinate and integrate exploitation and exploration effectively. As workgroups dedicate themselves to one strategy, their capacity to shift their attention to another strategy diminishes (e.g., Gibson & Birkinshaw, 2004).
The second approach was designed to overcome this problem. Specifically, some experts maintain the philosophy of ambidextrous strategies should be imbued in all employees, called a contextual approach (e.g., Ghoshal & Bartlett, 1997). That is, HR and other managers should introduce team building, socialization, and other initiatives that instill this perspective into the daily tasks of all individuals.
Andriopoulos and Lewis (2009) reported many case studies to show that organizations need to reconcile the immediate needs of customers with the exploration of future possibilities. Customers are more likely to purchase goods that satisfy their immediate concerns. Yet, to foster exploration and to accommodate emerging opportunities, organizations need to create products and services that do not align to the more immediate concerns of most customers. They need to focus on innovations that may not be valued now.
To resolve this tension, several management practices are often applied. First, many teams initially attempt to focus their attention on immediate needs and problems of clients. Yet, they engage in brainstorming techniques to resolve these needs as creatively and innovatively as possible. As novel and effective ideas emerge, they may then consider other opportunities or markets in which they can apply and integrate these solutions creatively.
Andriopoulos and Lewis (2009) also discussed the complementary roles of discipline and passion. Organizations that emphasize exploitation value discipline. These organizations introduce a variety of initiatives to ensure that employees reach specific targets and apply particular routines. Roles and goals are explicit, procedures are standardized, and performance is assessed closely. In contrast, organizations that emphasize exploration value passion, encompassing a sense of challenge, pride, and personal expression.
Yet, managers feel that discipline and passion actually complement, rather than conflict with, one another. Without passion, discipline can provoke resentment, alienation, and rigidity. Without discipline, however, individuals may feel unfocussed and sometimes unfulfilled.
To foster both discipline and passion, Andriopoulos and Lewis (2009) uncovered a variety of initiatives that managers consider. For example, managers may encourage employees to engage in a diversity of tasks, some of which involve incremental improvements and discipline and some of which involve radical innovations. Other managers inspire employees to conceptualize their roles as practical artists, needing to switch between the left and right brain--a conceptualization that entails both discipline but creativity.
According to Baum, Li, and Usher (2000), an ambidextrous approach is ultimately rooted in the sources of information and learning that organizations utilize. To foster exploitation, for example, individuals should be encouraged to search the reservoirs of knowledge within the firm and utilize the existing routines extensively to refine these procedures over time. In contrast, to foster exploration, individuals should be encouraged to experiment and play with diverse technologies and possibilities.
Klarner and Raisch (2013) uncovered an interesting approach that could, in principle, be applied to foster an ambidextrous organization. Specifically, according to Klarner and Raisch (2013), organizations should introduce changes at a moderate but regular pace. The regularity of changes may enable certainty, stability, and efficiency, whereas the moderate pace of change enables innovation and growth.
Klarner and Raisch (2013) examined whether the regularity and pace of change affect the performance of firms. This study examined 120 insurance companies in Europe. To characterize the regularity and pace of change, the researchers scrutinized the annual reports of these companies. They identified all strategic changes, in which the scope of operations changed. These changes included diversification, in which the company entered another nation or segment, or refocusing, in which the company withdrew from a nation or segment (Wischnevsky, 2004). The researchers then calculated a measure of change frequency, equal to the number of years in which a strategic change was implemented, and change regularity, equal to the extent to which periods of stability rather than change tend to be equal in length.
After controlling previous performance, firm size, firm age, and environmental dynamism, change regularity was positively associated with firm performance, as gauged by return on equity. In contrast to regular change, other forms of change were not positively associated with performance. These other forms of change include punctuated change, in which the organization is usually stable but then shift the strategy over a short period, focused change, in which the organization is usually changing besides a short period, and temporally switching, in which organizations exhibit several years of stability and then several years of change or vice versa. In short, regular change facilitates experimentation or risk taking as well as enables organizations to exploit market or industry fluctuations, without overwhelming individuals with unexpected, erratic, and stressful change.
Sarkees, Hulland, and Prescott (2010) developed a measure of ambidextrous strategies, adapted from items that were utilized by Gibson and Birkinshaw (2004), comprising six questions. Three of the items reflect the extent to which the strategy revolves around exploitation: "This organization works coherently to support its overall objectives", "This organization uses its resources effectively", and "Management provides clear goals and objectives for the functional units". Three of the items reflect the extent to which the strategy revolves around exploration, including "We are encouraged to challenge outdated traditions and practices", "This organization is flexible enough to allow us to respond quickly to market changes", and "This organization evolves rapidly in response to shifts in our business priorities".
Cronbach's alpha for these two subscales approximated .83 and .83 respectively. Confirmatory factor analysis also substantiated a solution that entails two factors instead of one factor: GFI = .94, CFI .95, and IFI = .96.
Sarkees, Hulland, and Prescott (2010) also developed a measure to gauge the degree to which the marketing of organizations is also ambidextrous. Four of the items correspond to marketing exploitation, such as "We focus on refining our existing products/services", "We are very efficient in serving our current customers", "We work well with other functional units in this organization", and "We apply knowledge from other functional units to better serve our current customers". In addition, four of the items correspond to marketing exploration, including "We interact regularly with customers in emerging market segments", "We focus on developing new product/services for our customers", "We have a broad range of products/services", and "We have extensive customer service capabilities".
Cronbach's alpha for these two subscales approximated .76 and .68 respectively. Confirmatory factor analysis also verified a solution that entails two factors instead of one factor: GFI = .93, CFI .93, and IFI = .93.
Mom, van den Bosch, and Volberda (2009) developed a measure that gauges the degree to which managers themselves demonstrate both exploitation and exploration. Exploitation comprised seven items, including "Activities you carried out as if it were routine" and "Activities which clearly fit into company policy". Cronbach's alpha was .87. Exploration comprised seven items as well, including "Activities requiring you to learn new skills or knowledge" and "Searching for new possibilities with respect to products/services, processes or markets". Cronbach's alpha was .90. Confirmatory factor analysis substantiated the two factors: NFI = .93, CFI = .95 and RMSEA < .7.
Rather than utilize scales, some researchers define ambidextrous organizations as firms that fulfill criteria for excellent exploitation and excellent exploration. For example, Andriopoulos and Lewis (2009) defined ambidextrous organizations as firms that generate high profit and loyal clients, indicative of exploitation, but are ranked in the Business Top 10 for innovative design, indicative of exploration.
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Last Update: 7/19/2016