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Essay: Organizational ambidexterity – a balance between exploration and exploitation

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INTRODUCTION
How an organization is structured is of immense importance as it directly relates to the survival and the performance of that organization. A well-structured organization facilitates improved communications and enhanced productivity with a scope of inspiring innovation. It is capable of developing distinct competitive advantages by boosting the efficiency and increasing the productivity in response to outside pressures. It can be defined as the “outcome of shaping and aligning all the components of an enterprise towards the achievement of an agreed mission, is a straightforward business process the is “so critical it should be on the agenda of every meeting in every single department”.” (Stanford, n.d.).
Kodak, a world renown company fizzed out of the industry it once led. For the previous generation, a moment worth cherishing and treasuring forever was celebrated as a “Kodak moment”. The same term today comes across as a corporate bogeyman in the market when new, ground-breaking advancements come encroaching. While the core business of the firm was selling film, as cameras went digital and social media slowly became the new trend, people shifted from clicking pictures and storing their hardy copies in albums, to posting them online. This led to the bankruptcy of the once remained most powerful companies in the world. All this was an outcome of the myopic sight of the company which underestimated the rise of digital technologies. Kodak in fact did invent technology, however did not invest in it thus falling behind in the rat race. Another leader from the same industry, Fuji Photo Film on the other hand aggressively explored new opportunities as a result if which it created adjacent products to its film business like magnetic tape optics, videotape and also collaborated in a venture with Xerox. This sailed the boat for Fuji, whereas Kodak continued to drown in the sea of advancements.
Through this essay, our aim is to explore how an organization can be designed without compromising its competence and working efficiency, while preserving the flexibility and promoting innovation.
FIRM PERFORMANCE AND AMBIDEXTERITY
Organizational ambidexterity has been shown to be positively associated with firm performance, growth of sales, subjective ratings of performance innovation and firm survival (Cottrell & Nault, 2004;  Bierly & Daly, 2007; Auh & Menguc, 2005; Adler, Goldoftas & Levine, 1999). It is argud that the effects of ambidexterity on a firm’s performance are liable to the firm’s environment, and proves to be more beneficial where there is uncertainty and a sufficient flow of resources, hence, sometimes proving more beneficial for larger firms. Organizational ambidexterity in firms with uncertain environments creates a positive atmosphere for increased innovation within the firm, enhanced financial performance, all contributing to better survival rates in the market.
Figure 1: Organizational ambidexterity and firm performance
Figure 1 shows the relationship between Organizational Ambidexterity and Firm Performance. The curve displays an upward slope which points out to positive firm performance when accompanied with organizational ambidexterity. This throws light on a somewhat directly proportionate relationship between firm performance and organizational ambidexterity.
Ambidexterity is alternatively understood as the adroit use of both hands. Today, ambidexterity is a phenomenon which companies are increasingly adopting in order to reduce the tension between the different units of exploration and exploitation.
According to O’Reilly and Tushman, 2004, an ambidextrous organisation succeeds in both exploiting the present and exploring the future. Over the years, various scholars have suggested different structures and strategies to run and divide resources appropriately between the processes of exploration and exploitation. Largely, these strategies focus on either separation or integration tactics (Andriopoulos & Lewis. 2009).
THE BALANCE BETWEEN EXPLORATION AND EXPLOITATION
“As described by Andriopoulos & Lewis (2009), a strategic intent paradox is created where commercial success, exploitation, is caught in a tug of war against artistic expression, exploration.” (Veronica Johansson And Louise Trens, 2013). Organizations that solely engage in exploration processes tend to suffer the experimentation costs and do not gain many of its benefits. Such organizations frequently exhibit undeveloped ideas and lack distinctive competence. One such example is of the telecom giant, Ericsson, which in the 20th century led the global system development for mobile communications. The company went into decline as it continued to focus exclusively on exploration.
Chen and Katila (2008) observe, “Exploration and exploitation need not always be competing activities, but can and should be complementary (p. 208).”
The right balance between exploiting the existing competencies and ensuring the survival of the organisation in the dynamic business environment by exploring new opportunities is what is needed for an organization to sail its boat successfully without drowning. “Exploiting” old certainties and “Exploring” new opportunities is the key to long term sustainability for any organisation. An example of one such organization which to struck the right chord between balancing exploring and exploiting is Ciba Vision. Led by Glen Bradley in the early 1990s, Ciba Vision manufactured contact lenses and was gradually losing ground to Johnson & Johnson which had the economies of scale for contact lenses. To cope with the situation, the organizational resources of Ciba Vision were redirected towards developing innovations and the company came up extended-wear contact lenses which killed the old ones. Ten years after Bradley’s move to ambidexterity, the annual revenues of Ciba Vision grew from $300 million to more than $1 billion.
Figure 2: Exploration, Exploitation and Firm Performance
Figure 2 shows us the relationship between the firm performance, exploration and exploitation in three dimensions. As it can be observed, high levels of exploitation coupled with low levels of exploration (indicating sole focus on exploitative activities) gives us a moderate performance of the firm (surface of the plot). On the contrary, the firm attains the highest level of performance when high exploitative activities are coupled with high explorative activities, thus yielding rising levels of organizational ambidexterity.
When medium levels of exploitation are combined with medium levels of exploration, the graph shows a convex dint which points out towards companies which don’t possess either exploitative, or explorative activities. Organizations that implement organizational ambidexterity of medium levels, are less successful in comparison to those which practice high levels of ambidexterity. This is why such organizations are often “stuck in the middle” with very bleak, or almost no scope of betterment.
Ambidextrous firms that maintain comparatively higher levels of exploitative as well as explorative activities are capable of enhancing their performance to a much greater degree, as compared to those firms which tend to either focus on only exploitative or only explorative capabilities, thus lowering their levels of ambidexterity. To add to this, organizations which don’t focus on ambidexterity and don’t follow a clear and focused strategy invites the risk of remaining “stuck in the middle”. Creating a working environment which conducts explorative and exploitative activities of medium level are less ideal in comparison to a firm which stays focused on its strategies.
1.HOW TO ACHIEVE AMBIDEXTERITY
1.1 STRUCTURAL AMBIDEXTERITY:
A way to strike the balance between exploration and exploitation is through what we call Structural or Simultaneous ambidexterity. O’Reilly and Tushman in 2008 noted that this “entails not only separate structural units for exploration and exploitation but also different competencies, systems, incentives, processes, and cultures—each internally aligned (p. 192).” In this, common strategic aims and values, and several various mechanisms facilitating their association would hold the two sub units together.
Structural ambidexterity emphasises on the organization’s capability to sense and clench new prospects and upcoming opportunities through simultaneous exploration and exploitation. In this, the processes of explorations and exploitation are structurally divided amongst the separated organizational units which are overlooked and synchronised by the higher level managers(O’Reilly & Tushman, 2004, 2016; Tushman & O’Reilly, 1996). Structural ambidexterity thus facilitates different units of the organization to use strategies, processes and structures which best suit them. As practical and promising it seems, simultaneous ambidexterity does place a gigantic load of responsibilities on top executives. This shows its dependence on a strong leadership as also noted by by Tushman and O’Reilly themselves (2011). Also, in sequential ambidexterity because we separate the processes of exploration and exploitation into different units, the flow of knowledge and information is hindered in the organisation. Limiting a single unit to innovation while the other is solely focusing on exploiting would lead to lack or no communication among individuals within the organization thus isolating rather than integrating them (Gibson and Birkinshaw, 2004).
One example of a successful ambidextrous is Alphabet. The two subsidiaries owned by Alphabet, Google and the new X focus on different businesses. Google focuses on exploiting the core business that is Android and search ads. On the other hand, X focuses on projects like self-driven cars. Dividing the exploration and exploitation into different subsidiaries helps achieve excellence in exploration as well as exploitation in the organization.
1.2 SEQUENTIAL AMBIDEXTERITY:
Over the years, many scholars have stressed over the importance of balancing exploitation with sufficient levels of exploration (Levinthal and March, 1993; March, 1991, 2006).  Sequential ambidexterity aims to utilize both exploration and exploitation in the same unit, but at different times (Andriopoulos & Lewis, 2009).
Organisations which solely stress on exploitation by allocating resources towards the refinement of existing technologies instead of prioritising the development of new skills and enhancing the capabilities, might be able to achieve success in the short term at the risk of becoming an obsolete in the future (Holmqvist, 2004; Leonard-Barton, 19920.
In his paper in 1976, Duncan threw light on the need for firms restructure themselves in a sequential manner. It highlighted how it is possible for an organization to achieve sequential ambidexterity by shifting their structure to align with the organisation’s strategies, which are bound to change as a consequence of the changing environment and business dynamics.
Sequential ambidexterity presents itself as a viable option for small and medium sized organizations which might fall short of resources to pursue simultaneous ambidexterity. By oscillating between the phases of exploration and exploitation, it   creates a balance between the exploration and exploitation processes of a slow and relatively stable organization (Chen & Katila, 2008; Goosen, et al., 2012; Ramachandran & Lengnick-Hall, 2010; Rosenkopf & Nerkar, 2001; Tempelaar & Van De Vrande, 2012). This strategy is best fit for units with scarce resources (Eriksson, 2012) because the separation of a single unit into two smaller units can be costly to manage and carry out further (Liu and Leitner, 2012).
They key advantage of sequential ambidexterity is that is allows the organization in supervising projects at different stages by utilizing diverse managerial practices. Though effective at the project level, sequential ambidexterity proves to be problematic when it comes to larger units and organizations. If firms constantly switch back and forth between exploration and exploitation in order to achieve sequential ambidexterity, it can lead to dislocation in the firm and destruction of core organizational capabilities (Christensen & Overdorf, 2000). In some cases, firms might not be able to survive such frequent transition and reconfiguration of strategies and structures in the short run too.
1.3 CONTEXTUAL AMBIDEXTERITY:
In some ways, contextual ambidexterity can be similar to sequential and structural, however a few things make it stand apart from the two. Gibson and Birkinshaw theorised contextual ambidexterity in 2004 and defined it as “the behavioural capacity to simultaneously demonstrate alignment and adaptability across an entire business unit.” (Gibson and Birkinshaw, 2004, p. 209). They stressed on the interaction of stretch, discipline an trust through contextual ambidexterity in order to achieve the balance between exploitation and exploration. According to Gibson and Birkinshaw, by creating a supportive organization, it is the decision of individuals about how to divide their time appropriately between the conflicting demands of alignment and adaptability (Gibson and Birkinshaw, 2004, p. 211). Thus, the emphasis of contextual ambidexterity lies upon the individuals, rather than the units in making adjustments between exploitation and exploration.
One such example of a successful ambidextrous firm is Toyota. Toyota tries to achieve contextual ambidexterity by using the “meta-routines” as termed by Adler, or “harmonic” ambidexterity as referred by Simsek (Simsek, et al., 2009). In this, the workers carry out the routine tasks automobile assembly (exploitation), and at the same time they are expected to keep changing or rotating their jobs (exploration), thus making them more efficient. Here, the firm culture and the larger management system promotes individuals to practise exploration and exploitation. [http://www.hbs.edu/faculty/Publication%20Files/O%27Reilly%20and%20Tushman%20AMP%20Ms%20051413_c66b0c53-5fcd-46d5-aa16-943eab6aa4a1.pdf]
Khazanchi, Lewis and Boyer (2007) view alignment and adaptability as a consequence of an environment which promotes both control and flexibility in the unit at the same time.
As easy as it seems to imagine contextual ambidexterity in a given organisation, it can actually be tough for some organisation structures to be able to successfully adapt into it. Decisions that weigh more importance to the organisation cannot be left to be taken care of by the lower level employees or the employees with lesser experience. Sooner or later, the interference of a senior manager will be required to ensure the well-being of the organisation and to carry out the complex structural changes.
2. CHALLENGES
Research has shown that ambidexterity leads to higher performance but at the same time it emphasises that the tension between two distinct capabilities is a key challenge. Most organisations fail to strike the correct balance between exploration and exploitation and thus are unsuccessful in achieving ambidexterity. One of the most famous example of a previously successful organization which took a considerable amount of time before it struck the right balance in exploration and exploitation is Nokia. In spite of its exploitation focused strategy, it was a while before the company perfected its structure, as well as strategy.
A firm’s dynamic capabilities is its “ability to integrate, build and reconfigure internal and external competencies to address rapidly changing environments (Teece, Pisano & Shuen, 1997, p. 516)”. These capabilities contribute to the decision making of the Senior Managers in the organization, helping them to reallocate and reconfigure their skills and assets in order to explore new innovations and exploit the existing competencies (O’Reilly & Tushman, 2008; Taylor & Helfat, 2009). This may come across as a complex decisions for the Senior Manager to be able to successfully sense and grasp upcoming oppurtunities.
Disagreements and conflicts may come across as a challenge at the top level of managers in some organizations. This makes the implementation of ambidexterity in the organization a relatively tough task.
3.CONCLUSION
In conclusion to the above discussion, we understand that it is imperative for the long term survival of an organization to be designed with flexibility for change without cutting down on its ongoing operations and competencies. This is a achieved through organizational ambidexterity. Organizations need to keep up with new innovations and ideas in order to become more viable in the long term. This will ensure the longevity of the firm and not only its short sighted profits. Future success is promised when sufficient exploration is coupled with sufficient exploitation. It is of great importance that firms orchestrate their assets allowing them to further mature their capabilities to be able to compete with other organizations. Though not a full proof road to success for every organization, ambidexterity does play the role of a guiding light which can lead many to the road to long term success and profits.

References

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