Today all organizations struggle with keeping a balance between day-to-day operations and innovation activities and outcomes. A successful innovation portfolio of an organization should include both activities aligned with the company vision, and more exploratory initiatives. In addition, near-term operational activities need to be balanced by longer-term moonshots.
Petra Andersen, for Forskningspolitikk
Gone are the days when an organization sticks with one top-down strategy only. An ever-changing world and new business contexts demand an ongoing dialogue with both users, customers, and colleagues.
Organizations must therefore provide an aspirational vision and stay open to new opportunities that may support the wider goals of the organization. In other words, an organization must allow for new thinking and experimentation along with traditional “business as usual” activities – to simultaneously exploit and explore.
The concepts of exploitation and exploration were introduced by James March in his paper on organizational learning (19911). He argues that “maintaining an appropriate balance between exploitation and exploration is a primary factor in system survival and prosperity”.
Many organizations therefore develop an ambidextrous strategy (Charles O’Reilly and Michael Tushman, 20042). Ambidexterity is the ability to perform exploitative and exploratory activities with equal skills. Exploitation is when an organization improves the activities that it currently does, and exploration is when it seeks out new innovations. Exploiting existing markets and technologies and at the same time exploring new ones to benefit from important future opportunities is characterized as organizational ambidexterity.
The two different approaches require a very different organizational configuration and a different approach to people and behavior, architecture, routines, and culture.
An ambidextrous organization
All organizations must find their modus operandi for going ambidextrous as the organizational architecture of an organization can shift between states of exploitation and exploration.
Two types of ambidexterity in organizations are often identified (Gibson and Birkenshaw, 20043), namely structural and contextual ambidexterity.
Structural ambidexterity separates the exploitation and exploration activities in an organization, with the risk of not aligning exploration with core business needs and values. Whereas a contextual ambidexterity supports the idea of employees making their own choices of how they divide their timebetween exploitation-oriented or exploration- oriented activities in their daily work. The latter type has a stronger connection to the organizational performance and allows employees to work and cooperate with colleagues and external actors, and to handle different non-routine tasks.
Contextual ambidexterity is often illustrated by how the Toyota production system operates. The culture of the company allows for workers to combine routine tasks (exploitation) with change initiatives to become more efficient and innovative (exploration).
Ambidextrous strategy in practice
An ambidextrous organization aims to balance the capability to exploit current business and exploring future opportunities simultaneously. It can be challenging to find a good balance, and tensions between the two approaches are familiar in many organizations. To excel in both areas is rare.
Tesla is a great case of an ambidextrous organization with an inbuilt ability to work with both exploitative and explorative innovations. Most car manufacturers must be ambidextrous, and Tesla has taken it to the extreme by working with SpaceX and investing in new challenging ventures alongside the car production.
Different modes of ambidexterity can be found in combination in organizations. Google fostered ambidexterity by creating a new organizational umbrella structure Alphabet that separated existing businesses as Google Search from explorative business models and practices as found in, for example, GoogleX, a development division.
Ambidexterity also exists in the public sector. The Norwegian Altinn co-operation which enables digital dialogue between business, public agencies and private individuals, shows how an ambidextrous leadership successfully can encourage both exploration and exploitation behaviors among employees. Ambidexterity can thus by deployed not only to an organization, but to a leadership for innovation that results in employee exploration activities.
To succeed, an ambidextrous organization requires flexibility. Decentralization, as by cutting out layers of management and empowering autonomous teams to act quickly, may lead to such flexibility. Feedback loops from frontline employees to top managers become quicker and shorter allowing better dynamic market insights, or – as may be more relevant in the public sector – a better understanding of user needs and social systems.
Portfolio management for the future
An ambidextrous approach can also be applied to the portfolio management of an organization. An ambidextrous portfolio is an important tool that can be used to tackle the trade-off between exploration and exploitation, and for making decisions securing that the organization does not over-invest in “what is” at the expense of “what could be”.
Top management needs to understand the importance of adopting an agile approach to decisions on both resources and priorities as organizations often operate in unknown and ever-changing landscapes. Organizations must therefore have an ambidextrous approach to investments that simultaneously pursuit and support both incremental and more radical innovation sometimes with contradictory strategic goals.
Today, all organizations operate in increasingly turbulent environments, and try to cope at their best with the different societal challenges. Therefore, in order to address these problems, organizations must apply an ambidextrous approach to their operations and proactively explore the future. This also applies to public sector organizations. Organizations must build capabilities for ambidexterity and allow for both exploitation and exploration, for efficiency and innovation. Only then businesses can sustain a competitive advantage and public institutions transform government services in such a way that citizens and communities get the services and the policies they need.
1 Exploration and Exploitation in Organizational Learning, p. 71
2 The Ambidextrous Organization (hbr.org)
3 Building Ambidexterity into an Organization,
MIT Sloan Management Review