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The Innovator’s Dilemma Perspective
O’Reilly, C.A., & Tushman, M.L. (2008). Ambidexterity as A Dynamic Capability: Resolving
the Innovator’s Dilemma.
There are two major camps in the research on organizational change: those that argue for adaptation
(e.g., punctuated equilibrium, dynamic capabilities) and those that argue that firms are inert and
change occurs through an evolutionary process of variation-selection-retention.
The dynamic capabilities approach emphasizes the key role of strategic leadership in appropriately
adapting, integrating and reconfiguring organizational skills and resources to match changing
environments.
- The ability of senior managers to seize opportunities through the orchestration and integration
of both new and existing assets to overcome inertia and path dependencies is at the core.
- These capabilities are seen as a central underpinning of long-run competitive advantage.
Dynamic capabilities: the firm’s ability to integrate, build, and reconfigure internal and external
competencies to address rapidly changing environments. Organizational capabilities are embedded in
existing organizational routines, structures, and processes.
Ambidexterity in this case is the ability to pursue exploitation and exploration simultaneously (since
its paradoxical).
Dynamic Capabilities, Organizational Ambidexterity and Competitive Advantage
Central to the adaptive process are the notion of a firm’s ability to exploit existing assets and
positions in a profit producing way and simultaneously to explore new technologies and markets; to
configure and reconfigure organizational resources to capture existing as well as new opportunities.
Exploitation: is about efficiency, increasing productivity, control, certainty and variance reduction.
Exploration: is about search, discovery, autonomy, innovation and embracing variation.
Ambidexterity is doing both simultaneously.
From a strategic perspective, achieving long-term success requires that firms possess not only the
operational capabilities and competencies to compete in existing markets but also the ability to
recombined and reconfigure assets and organizational structures to adapt to emerging markets and
technologies.
Winners in the global market place have been firms that can demonstrate timely responsiveness and
rapid flexible product innovation, coupled with the management capability to effectively coordinate
and deploy internal and external competencies.
- Dynamic capabilities are reflected in the organization’s ability, manifest in the decisions of
senior management, to maintain ecological fitness and, when necessary, to reconfigure
existing assets and develop the new skills needed to address emerging threats and
opportunities. These capabilities result from actions of senior managers to ensure learning,
integration, and, when required, reconfiguration and transformation.
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- Core competencies (or operational capabilities) are discrete business-level processes and
associated activity systems fundamental to running the business which give it a
contemporaneous advantage.
Key success factors needed to succeed at exploitation demand a short-term time perspective,
efficiency, discipline, incremental improvement and continuous innovation. Key factors needed to
succeed at exploration demand a longer time perspective, more autonomy, flexibility and risk taking
and less formal systems and control.
Ambidexterity requires a coherent alignment of competencies, structures and cultures to engage in
exploration, a contrasting congruent alignment focused on exploitation, and a senior leadership team
with the cognitive and behavioural flexibility to establish and nurture both.
Sensing. Sensing opportunities and threats, particularly in rapidly shifting markets requires scanning,
searching, and exploration. This sensing is difficult for incumbent senior teams, because they are
more sensitive to threats than opportunities and thus over-weigh current threats and fail to adjust their
mindset and entertain new business models.
Seizing. Seizing opportunities is about making the right decisions and executing, what others have
referred to as strategic insight and strategic execution. This involves developing a consensus among
the senior team about the strategic intent, avoiding the decision traps that path dependencies and
mindsets bring, and aligning the business model and strategy.
- Without these capabilities, firms may sense opportunities and threats, but be unable to act on
them in a timely matter.
Reconfiguring. While operational capabilities may provide for competitive advantage at a given point
in time, long term success inevitably requires that leaders reallocate resources away from mature and
declining businesses toward emerging growth opportunities.
- This asset orchestration is how organizations evolve to maintain ecological fitness.
- The capabilities that facilitate asset orchestration involve senior leaders’ willingness to
commit resources to long-term projects, the ability to design organizational systems,
incentives and structures that permit targeted integration across organizational units to capture
the advantages of co=specialized assets, and the appropriate staffing of these units.
Since organizations store knowledge in procedures, norms, rules, structures and processes, these are
skills that typically cannot be bought, or transferred. This suggests that dynamic capabilities are
difficult to imitate. Reaping the benefits of ambidexterity requires a managerial balancing act in which
leaders continually design and realign their businesses with the market.
Exploration, Exploitation, and Organizational Ambidexterity: Dynamic Capabilities in Practice
That organizations cannot simultaneously pursue exploration and exploitation is supported by
research in strategy where attempts to pursue different strategies result in firms being stuck in the
middle or mediocre at both exploration and exploitation.
What is Ambidexterity? For long-term success firms needed to consider dual structures it was
argued; different structures to initiate versus execute innovation. In this view, ambidexterity occurs
sequentially as organizations switch structures as innovations evolve. Firms adjust their structures by
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the phase of the innovation process: organic structures are employed to explore followed by
mechanistic structures to exploit.
- This approach is predicated on the assumption that the rate of change in markets and
technologies proceeds at a pace that permits firms to choose organizational alignments
sequentially.
An alternative conceptualization may require that exploitation and exploration be pursued
simultaneously, with separate subunits, business models, and distinct alignments for each.
Ambidexterity in this conceptualization entails not only separate structural subunits for exploration
and exploitation but also different competencies, systems, incentives, processes and cultures – each
internally aligned.
- The separate units are held together by a common strategic intent, an overarching set of
values, and targeted structural linking mechanisms to leverage shared assets. These internally
inconsistent alignments and the associated strategic trade-offs are orchestrated by a senior
team with a common fate incentive system and team processes capable of managing these
inconsistent alignments in a consistent fashion.
When ambidexterity is adopted sequentially, the challenge is transforming one internally consistent
strategy and organizational alignment to another. To explore and exploit at the same time requires that
senior management articulate a vision and strategic intent that justifies the ambidextrous form.
The operation of two separate organizational alignments with different competencies, incentives, and
cultures increases the chances for conflict, disagreement, and poor coordination. To improve this
requires a common set of values and shared meanings that provide a common identity, even though
these values may foster different operating norms across the businesses.
Without consensus about the strategy and the importance of ambidexterity, disagreements within the
senior team can undermine the coordination needed to balance exploration and exploitation.
To capture the benefits of exploration and exploitation, the organizational architecture should provide
the targeted integration necessary to leverage both exploitation and exploration and to capture the
benefits of both.
Managing an ambidextrous form brings with it a further set of challenges for senior managers to
communicate clearly their vision and values and deal with the tensions that the pursuit of different
business models requires.
The Determinants and Consequences of Ambidexterity. Ambidexterity may be strategically
important in the notion of innovation streams (and illustrates how technology and markets evolve over
time).
Innovation occurs in roughly three distinct ways:
- Incremental innovation, in which an existing product or service is made better, faster or
cheaper. Although these improvements may be difficult or expensive, they draw on an
existing set of competencies and proceed along a known trajectory.
- Through major or discontinuous changes, in which major improvements are made (typically
through a competence-destroying advance in technology). These improvements typically
require competencies or skills different from what the incumbent has.
- Through seemingly minor improvements, in which existing technologies or components are
integrated to dramatically enhance the performance of existing products or service. These
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architectural innovations, while not based on significant technological advances, often disrupt
existing offerings.
Ambidexterity might be especially important under the conditions as shown in the Figure below.
Figure 1:When should ambidexterity be considered?
If the new opportunity is both strategically important and can benefit from the firm’s existing assets
and operational capabilities, then ambidextrous designs are most appropriate. In these circumstances,
to spin the exploratory unit out is to sacrifice the future, or, at minimum, endure the inefficiencies of
not using available resources.
Although ambidexterity is a difficult managerial challenge, when executed in the appropriate
strategic contexts, these complex designs are associated with sustained competitive advantage.
Ambidexterity was found to occur more likely when the firm’s markets were unstable, changing and
competitive. Other determinants include the diversity of experience in the senior team and
performance shortfalls and pressure on senior management team.
Ambidexterity in Action
Unless made specific, dynamic capabilities remain vague (e.g., routines to learn routines) and add
little other than terminology to our understanding or organizational adaptation. What is needed is the
identification of specific senior team behaviours and organizational processes/routines that allow
firms to manipulate resources into new value creating strategies.
Ambidexterity as a dynamic capability is not itself a source of competitive advantage but facilitates
new resource configurations that can offer a competitive advantage.
- With regard to ambidexterity, a dynamic capability can be seen as a set of actions (or
routines) taken by senior management that permit the enterprise to identify opportunities and
threats and reconfigure assets to adapt to these.
In the absence of an explicit strategy that justifies this experimentation (ambidexterity), the default
option is to focus on short-term profitability, usually by eliminating variance and costs. Unless there
is a clear, intellectually compelling rationale for the importance of both exploration and exploitation,
the short-term pressures will almost always move attention and resources away from the higher
variance, less certain world of exploration.
Proposition 1: the presence of a compelling strategic intent that justifies the importance of both
exploitation and exploration increases the likelihood of ambidexterity.
