Building Ambidexterity Into an Organization

A company’s ability to execute today’s strategy while developing tomorrow’s arises from the context within which its employees operate.

The technological downturn, political turmoil and economic uncertainty of the last five years have reaffirmed to managers the importance of adaptability — the ability to move quickly toward new opportunities, to adjust to volatile markets and to avoid complacency. But while adaptability is important, it is not enough. Successful companies are not just nimble, innovative and proactive; they are also good at exploiting the value of their proprietary assets, rolling out existing business models quickly and taking the costs out of existing operations. They have, in other words, an equally important capability we call alignment — a clear sense of how value is being created in the short term and how activities should be coordinated and streamlined to deliver that value.

For a company to succeed over the long term, it needs to master both adaptability and alignment — an attribute that is sometimes referred to as ambidexterity.1 For example, Finland’s Nokia Corp. is trying out a vast array of new mobile technology offerings, while continuing to invest in its dominant handsets franchise. GlaxoSmithKline Plc is experimenting with alternative organization models, alliance partners and technologies in its search for new blockbuster drugs, and it is also pushing hard to maximize the return from its existing drug portfolio.

The trouble is, it’s difficult to find the right balance between adaptability and alignment. Focus too much on alignment and the short-term results will look good, but changes in the industry will blindside you sooner or later. Lloyds TSB Bank Plc, based in the United Kingdom, delivered spectacular shareholder returns throughout the 1980s and 1990s, in large part through CEO Brian Pitman’s single-minded focus on return on equity. But little attention was paid to understanding changing customer needs or to the morale of the workforce, which ultimately undermined the company’s performance. From 1998 to 2003, Lloyds TSB lost 60% of its market value.

Similarly, too much attention to the adaptability side of the equation means building tomorrow’s business at the expense of today’s. Consider the case of Sweden’s Ericsson, which has led the technological development of the mobile telephony industry. Ericsson developed one of the first analog mobile systems; it led the industrywide development of the global system for mobile communication; and it has pioneered general packet radio system and third-generation mobile technology standards. But the impressive growth in sales in Ericsson’s systems business masked a high-cost and bloated organizational structure.

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References

1. A number of business writers have used the term “ambidexterity” over the years. See R.B. Duncan, “The Ambidextrous Organization: Designing Dual Structures for Innovation,” in “The Management of Organization Design: Strategies and Implementation. Volume 1,” eds. R.H. Kilmann, L.R. Pondy and D. Slevin (New York: North-Holland, 1976), 167–188; E. McDonough III and R. Leifer, “Using Simultaneous Structures To Cope With Uncertainty,” Academy of Management Journal 26, no. 4 (1983): 727–735; M.L. Tushman and C.A. O’Reilly III, “The Ambidextrous Organization: Managing Evolutionary and Revolutionary Change,” California Management Review 38, no. 4 (1996): 8–30; and C.A. O’Reilly III and M.L. Tushman, “The Ambidextrous Organization,” Harvard Business Review 82 (April 2004): 74–82. For a full description of the research and statistical analyses, please refer to C.B. Gibson and J. Birkinshaw, “The Antecedents, Consequences and Mediating Role of Organizational Ambidexterity,” Academy of Management Journal 47, no. 2 (2004): 209–226.

2. Duncan argued that ambidexterity should be managed through “dual structures.” The concept of structural separation between different types of activities is also evident in much of the organization literature. See P.R. Lawrence and J.W. Lorsch, “Organization and Environment: Managing Differentiation and Integration” (Boston: Harvard University Press, 1967); P.F. Drucker, “Innovation and Entrepreneurship: Practice and Principles” (New York: Harper & Row, 1985); and J.R. Galbraith, “Designing the Innovating Organization,” Organizational Dynamics 10 (winter 1982): 5–25.

3. The term “contextual ambidexterity” is new, but a number of similar ideas can be found in the literature. See P.S. Adler, B. Goldoftas and D.I. Levine, “Flexibility Versus Efficiency? A Case Study of Model Changeovers in the Toyota Production System,” Organization Science 10 (January 1999): 43–68; and S. Ghoshal and C.A. Bartlett, “Linking Organizational Context and Managerial Action: The Dimensions of Quality of Management,” Strategic Management Journal 15 (summer 1994): 91–112.

4. The concept of market orientation emerged in the early 1990s. See B.J. Jaworski and A.K. Kohli, “Market Orientation: Antecedents and Consequences,” Journal of Marketing 57 (July 1993): 53–70; and J.C. Narver & S.F. Slater, “The Effect of a Market Orientation on Business Profitability,” Journal of Marketing 54 (October 1990): 20–35.

5. See S. Ghoshal and C.A. Bartlett, “The Individualized Corporation: A Fundamentally New Approach to Management” (New York: Harper Business, 1997).

6. The term “country-club context” was first used by Robert Blake and Jane Mouton to describe a particular type of individual in their managerial grid. While their work focused on the individual level of analysis, there are strong parallels with our work on contextual ambidexterity. See R.R. Blake and J.S. Mouton, “Corporate Excellence Through Grid Organization Development: A Systems Approach” (Houston: Gulf Publishing Co., 1968).

7. This example is taken from H. Bruch and S. Ghoshal, “Lufthansa: The Challenge of Globalization,” London Business School teaching case, ECCH no. 396-142-1 (Bedfordshire, United Kingdom: European Case Clearing House, 2000).

8. See A. Campbell, J. Birkinshaw, A. Morrison and R. van Basten Batenburg, “The Future of Corporate Venturing,” MIT Sloan Management Review 45 (fall 2003): 30–37.

9. For additional insights on this approach to leadership, see J. O’Toole, “When Leadership Is an Organizational Trait” in “The Future of Leadership: Today’s Top Leadership Thinkers Speak to Tomorrow’s Leaders,” eds. W. Bennis, G.M. Spreitzer and T.G. Cummings (San Francisco: Jossey-Bass, 2001); B.A. Pasternack and J. O’Toole, “Yellow-Light Leadership: How the World’s Best Companies Manage Uncertainty,” Strategy+Business 28 (second quarter 2002); and B.A. Pasternack, P.F. Anderson and T.D. Williams, “Leadership as an Institutional Trait,” Strategy+Business 26 (second quarter 2000): 11.

Acknowledgments

We acknowledge the contributions of James O’Toole, Tom Williams and others at Booz Allen Hamilton Inc., the World Economic Forum and the Center for Effective Organizations.