16
1.7 The Dilemma of Exploration Versus Exploitation
One of the most intellectual and practical challenges that organizations face is how
to balance the goods and services they currently deliver to customers, against the
need to develop the future innovations their continued existence depends upon.
Many once-dominant companies have faltered when developing products needed
to address market changes – to either retain current customers or gain new ones.
Kodak excelled at analog photography and was the uncontested global leader for
decades on end. It failed, however, to make the leap to digital cameras and adjust its
business model to succeed in an increasingly digital world.
Organizations must create a dual capacity to exploit their current business while
exploring new opportunities. These “ambidextrous organizations” have been extensively analyzed by Charles O’Reilly of Stanford University and Michael Tushman
of Harvard University. Ambidextrous organizations pursue sustaining innovations
that increase business success, instead of solely focusing on creating new markets.
Typically, they have most of the traits shown in Table 1.2 and are able to pursue
disruptive, exploratory innovations which are critical for the organization’s future
(O’Reilly and Tushman 2004).
Much of the discussion on how to implement ambidexterity examines structural
aspects, such as the creation of separate units to pursue new opportunities while
keeping the same general manager to lead both the new unit and the parent company
(O’Reilly and Tushman 2004). However, there are equally if not more relevant
aspects to consider, such as having strong, shared values within the organization,
which enables corporate headquarters to relinquish some autonomy to divisions
without losing overall alignment and strategic fit.
Govindarajan (2016) recently developed a practical framework to allocate time
and resources to the competing and opposing demands of managing today’s needs
and tomorrow’s possibilities:
• Manage the present core business at peak efficiency and profitability.
• Identify and abandon old and irrelevant practices, ideas, and attitudes.
• Convert breakthrough ideas into new products/services and business.
Table 1.2 Some traits of the exploitative and explorative domains observed in ambidextrous
organizations
Ambidextrous organizations
Exploitative business
Explorative business
Type of innovation
Sustaining innovation
Disruptive innovation
Strategic intent
Cost, profit
Learning, growth
Critical tasks
Operations, efficiency
Nimbleness, new business models
Culture
Efficiency, risk-averse, quality
Speed, risk-taking, flexibility
Leadership style
Authoritative, top-down
Visionary, involved
Adapted from Frederik (2015)
H. Campos
1.7 The Dilemma of Exploration Versus Exploitation
One of the most intellectual and practical challenges that organizations face is how
to balance the goods and services they currently deliver to customers, against the
need to develop the future innovations their continued existence depends upon.
Many once-dominant companies have faltered when developing products needed
to address market changes – to either retain current customers or gain new ones.
Kodak excelled at analog photography and was the uncontested global leader for
decades on end. It failed, however, to make the leap to digital cameras and adjust its
business model to succeed in an increasingly digital world.
Organizations must create a dual capacity to exploit their current business while
exploring new opportunities. These “ambidextrous organizations” have been extensively analyzed by Charles O’Reilly of Stanford University and Michael Tushman
of Harvard University. Ambidextrous organizations pursue sustaining innovations
that increase business success, instead of solely focusing on creating new markets.
Typically, they have most of the traits shown in Table 1.2 and are able to pursue
disruptive, exploratory innovations which are critical for the organization’s future
(O’Reilly and Tushman 2004).
Much of the discussion on how to implement ambidexterity examines structural
aspects, such as the creation of separate units to pursue new opportunities while
keeping the same general manager to lead both the new unit and the parent company
(O’Reilly and Tushman 2004). However, there are equally if not more relevant
aspects to consider, such as having strong, shared values within the organization,
which enables corporate headquarters to relinquish some autonomy to divisions
without losing overall alignment and strategic fit.
Govindarajan (2016) recently developed a practical framework to allocate time
and resources to the competing and opposing demands of managing today’s needs
and tomorrow’s possibilities:
• Manage the present core business at peak efficiency and profitability.
• Identify and abandon old and irrelevant practices, ideas, and attitudes.
• Convert breakthrough ideas into new products/services and business.
Table 1.2 Some traits of the exploitative and explorative domains observed in ambidextrous
organizations
Ambidextrous organizations
Exploitative business
Explorative business
Type of innovation
Sustaining innovation
Disruptive innovation
Strategic intent
Cost, profit
Learning, growth
Critical tasks
Operations, efficiency
Nimbleness, new business models
Culture
Efficiency, risk-averse, quality
Speed, risk-taking, flexibility
Leadership style
Authoritative, top-down
Visionary, involved
Adapted from Frederik (2015)
H. Campos