Posted by: Monideepa Tarafdar | November 18, 2009

Ambidexterity

“Ambidexterity” (Tushman and O’Reilly 1996) is defined as the ability of a company to simultaneously explore (that is, go out of the comfort zone of its existing products and markets to create new ones) and exploit (leverage and strengthen existing capabilities and products to serve existing or related markets).  Most companies stress on one or the other. For example, over the last 50-60 years, American and Japanese auto manufacturers have exploited their technical know-how and manufacturing capabilities to build and market cars and trucks across a number of customer segments. Similarly, retail companies use their procurement and  inventory management processes to stock and sell items across a large number of categories. To each category they bring to bear similar and re-usable skills in supplier development/management, distribution, logistics, forecasting and warehousing. Apple is an example of a company that primarily explores. Its products- computers, music players-cum-smart phones, music distribution system – require very different skills and processes. Music distribution through iTunes requires a platform for storing and providing download functions and copyright relationships with music companies where as computer manufacturing requires design and manufacturing skills. Of course, companies very rarely only pursue either exploration or exploitation – there is always some of the other, but one of the two is pre-dominant. But just as we find it difficult to use both right and left hands with the same ease and skill, it is difficult for companies to be ambidextrous.

Why is it hard to do both? Traditionally these two orientations have required radically different capabilities. Exploration requires risk taking, innovation and experimentation and exploitation fine-tuning, efficiencies and little allowance for slack. The latter works well with routine, bureaucracy and predictable and well-oiled processes, whereas the former requires non-routine discovery, unpredictable scenarios and constant learning. It is difficult to simultaneously establish these paradoxical requirements, cultures and contexts within the same company. At the same time however, excessive pursuit of any one creates problems. Too much exploitation means that the company may become short-sighted and miss out on emerging and impending changes that it can take advantage of or must respond to. The ongoing churning in the auto industry presents an example of firms with excessive exploitation-at-the-cost-of-exploration (for instance, those with primarily carbon fuel technology products and manufacturing skills) pruning their exploitation activities and reallocating resources to exploration (for instance, developing alternate fuel vehicles). Too much exploration on the other hand leads to endless cycles of new products, processes, learning, discovery without consolidation of market share or brand for a specific product. A certain degree of ambidexterity is therefore important.

A number of developments in the last 10-15 years had made it easier to be ambidextrous. First, processes have become increasingly digital, which means they can me more easily re-used when a company explores. Amazon started out as a book seller. Today it is a book seller plus a retailer plus a platform for other retailers plus a music distributor plus a movie rental plus an advertising billboard plus a book publisher plus a book-reading-habit-changer – it is an explorer. At the same time, it is the largest online retailer, has one of the best-rated customer service functions and the largest e-book seller. So clearly it is good a exploiting. One reason is why it can be ambidextrous is that many of these businesses are hosted on the same technology platform and hence the cost to develop new channels for new partners, vendors and customers is lower. So the same website that is used for selling can be used for displaying products of partners, for taking customer feedback and for payments – all very different activities. Further the same softwares can be re-used – the software for product-search can be applied to search-based advertising, making it easy to get into new market segments (exploring) with existing (exploited and well-tested) digital infrastructure.  Second, there is increasing software-isation of products – hardware components are being replaced by software applications. Instead of taking those wire-bound and color-marked “Trip-Tiks” from AAA we now have a GPS which is essentially a software with a speaker and a screen. The speaker and screen are generic and are used in many other products-computers, mp3 players and smart phones. The software is essentially bits and bytes and does not have to be stored or inventoried physically, and can be developed using generic resources such as microprocessors and compilers/coders.  Combining these “generic” components in “non-generic ways” and thus entering into new product-market domains is  far less expensive and difficult. So we see Sony “exploiting” its know-how in digital display technologies to “explore” markets for consumer entertainment (TV), computers (displays) and books (e-book reader), and we see Apple selling phones and computers – both sets of products significantly software-ised so that they can be made from generic hardware, essentially chip sets.

With increasing pace of change in technology therefore, ambidexterity is becoming easier.

Reference:

Tushman, M. L., & O’Reilly, C. A. The ambidextrous organization: Managing evolutionary and revolutionary change. California Management Review, 38, 1996, 1–23

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