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ambidexterity: how organizations can balance innovation and efficiency

In our fast-changing times, organizations must be able to quickly adapt to changes in the markets while also remaining efficient and effective. To address this challenge, we would like to introduce the concept of ambidexterity to you.

Ambidexterity, in essence, means two-handedness and refers to the capability of organizations to simultaneously explore and exploit. Exploration hereby stands for innovation, agility, and the pursuit of new things while exploitation refers to the use of existing efficiencies and the creation of consistent and reliable outputs. An organization that keeps these two worlds in balance will likely outperform its competitors and retain a competitive advantage. But how can you and your organization get there and how can ambidexterity help you on that path? In the following we provide three approaches that each focus on a different organizational level to establish ambidexterity in your organization.

APPROACH ONE: STRUCTURAL AMBIDEXTERITY

The concept of structural ambidexterity describes the separation of an organization into units that are either focused on exploration or exploitation. In that sense it is very similar to the notion of a dual operating system that we covered in our podcast in September. Whilst this organizational structure is frequently adapted by many organizations, we should also bear in mind that it can be very difficult to integrate organizational units with very different foci and mindsets. Take, for instance, the commonly adapted idea to run a separate campus for research and development. In this case, the important task of exploring new ideas and creating innovative outcomes is structurally separated from the core business. Yet, as practice has proven many times, organizations that do so often struggle to integrate these ideas, innovations etc. once they are ready to be implemented in the daily business practice. In these cases, two worlds seem to collide as the organizational units and the respective people have not really interacted before and thus heavily struggle to communicate and cooperate. It is therefore essential not to create such silos but rather ensure constant interaction- especially when you decide to structurally separate exploration and exploitation.    

APPROACH TWO: AMBIDEXTROUS LEADERSHIP

Current research shows that CEOs and top management teams are at the core of establishing and successfully applying ambidexterity in organizations. In doing so, senior managers must have a good sense for the different, changing, and potentially even opposing demands of the business. In that sense, managers face difficult compromises that require different leadership styles or even personality traits. Take, for instance, the compromise between cost-sensitivity on the one hand and risk-taking on the other hand. Depending on the respective situation of the business, leaders must make the appropriate choice, prioritize, and lead accordingly.  Hereby, they must be able to instantly switch between an exploitation mindset, which in our example is represented by cost sensitivity and an exploration mindset, which in our example is represented by taking the risk to explore something new. In this process leaders must be transparent and clear about the rationale of their decision and provide clear guidance to their employees. By doing so they can provide the necessary orientation and impulses that are needed to continuously balance exploration and exploitation in daily business activities.

APPROACH THREE: CONTEXTUAL AMBIDEXTERITY

Contextual ambidexterity shifts the challenge of balancing exploration and exploitation to the employee level, meaning that these individuals are given the room and the task to decide whether – based on the respective context – resources should be allocated towards exploration or exploitation. On the one hand, these individuals are very close to that highly operative decision and can thus judge which choice would be best. On the other hand, this also creates a high level of complexity for these individuals as these decisions are neither simple, nor trivial. Not every individual has the capability to make such complex decisions and your people can easily become overwhelmed. To address this issue, organizations often establish so called simple rules to support their employees. One example is Google’s famous 70-20-10 rule. Here, employees are asked to allocate 70% of their time to the company’s core business (exploitation), 20% to incremental innovation (exploration) and 10% to whatever they want (exploration). How exactly they execute this simple rule in practice is left up to the employees. As a result, they have the freedom to make situational decisions and quickly adapt, whilst also having enough orientation and thus facing a manageable level of complexity. And by the way:  in these last 10%, some of Googles greatest innovations have been created.

To sum up, the three presented approaches towards an ambidextrous organization are by no means mutually exclusive. Rather, they complement each other. In the end, every organization must find those elements that fit best, combine them, and form an ensemble that sufficiently covers all organizational levels. Only by doing so organizations can master the difficult challenge of efficiently exploiting core processes on the one hand and dynamically exploring and innovating on the other hand.

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