This is the third and final part of a 3-part article co-written by Frank Mattes and Ralph-Christian Ohr. The first part highlighted that radical and incremental innovation build on two different innovation set-ups (exploration and exploitation, respect. The second part showed in a sample of seven leading firms that ambidexterity is used in two main types – contextual and structural ambidexterity.
In this final part, we illustrate that successful ambidexterity requires a well-managed hand-over from the explorative to the exploitative set-up. Furthermore, we also provide some insights and guidance on how this hand-over can be achieved.
In the time since we wrote the first part of this article series, an extremely valuable research paper on organizational ambidexterity has been published. In this paper , which is a “must read” for everyone engaged in this topic, Stanford University’s Charles A. O’Reilly and Michael Tushman review and condense the research done so far on the subject.
One of the key findings of this paper is that “in uncertain [business] environments, organizational ambidexterity appears to be positively correlated with increased innovation, better financial performance and higher survival rates.”
In uncertain business environments, organizational ambidexterity appears to be positively correlated with increased innovation, better financial performance and higher survival rates.
In the next major step of our thinking process we want to work why a well-planned and actively managed hand-over from explorative work to the exploitative, formal organization at a pre-defined point within the innovation funnel is necessary. In order to frame this discussion and in order to position the examples from the second part of this article, we will introduce a model of the innovation funnel. But we will use a model which reaches farther than most funnel models do.
A key concept in innovation management is – as we all know- the innovation funnel. The funnel describes the main stages and gates every idea has to pass through on its way to a product, service or business model innovation. Typically, the first stage of an innovation funnel is “ideation”, the last one “market launch”.
However, we suggest a model that goes beyond the market launch and adds two more phases. There are two reasons for our suggestion:
Breakthrough innovations should be identified and implemented in iterative processes.
In working with this extended innovation funnel model we have made one more interesting observation: The chances for identifying and implementing successful breakthrough innovations are greatly increased if the individual stages are orchestrated by Design Thinking (see e.g. here). In other words we have found that breakthrough innovations should be identified and implemented in iterative processes.
Nevertheless, for the sake of simplicity in this article, we will use a linear, “waterfall” visualization of the innovation process which – in the light of the thoughts outlined above – is an extended one and comprises six phases:
Figure 1: The extended innovation funnel – our model for discussing ambidextrous set-ups in selected firms
Up so far, we have treated ambidexterity on purpose as a “monolithic” concept in order to keep the discussion streamlined. However, from the practitioner’s perspective implementing ambidexterity requires some more thinking.
Firstly, exploration and exploitation usually refer to different time horizons, as outlined in this article about managing innovation portfolios and hence to managing a portfolio of innovation activities. Secondly, the useful amount of explorative work depends also on the stage of the (extended) innovation funnel.
In general, organizational ambidexterity relies on a balanced tension between separation (“protection” of explorative work from core business) and integration (leveraging assets and capabilities used by exploitative work). Inherently, structural ambidexterity shows a high degree of separation, whereas contextual ambidexterity tends to go along with a more integrated set-up:
Figure 2: Explorative work in the extended innovation funnel
The appropriate amount of explorative work depends on time horizon and stage of the innovation funnel.
In the second part of this article we looked at seven examples of how leading firms are using ambidexterity for balancing radical and incremental innovation. Looking closer at these examples we find that all of these are only covering a part of their respective firm’s innovation funnel:
Figure 3: Positioning the examples for ambidexterity within a generic innovation funnel
Looking at these examples, we find an interesting pattern: Contextual ambidexterity is used mainly in the ideation and concept phase of the funnel whereas leading firms that want to reach far deeper into the funnel choose structural ambidexterity.
Contextual ambidexterity is used in ideation and concept phase, structural ambidexterity is chosen to reach deeper into the funnel.
There may be a number of reasons why this is the case but we think there is a paramount one. The key question is, whether the firm wants to have “just” radical ideas or concepts – or if it even aims at radical innovations (Which requires a much larger commitment). Depending on which goal is pursued, contextual or structural ambidexterity is more favorable. Research  indicates that separating explorative ventures from the core is an essential capability to incubate and grow these ventures and therefore increase likelihood of innovation success. However, structural ambidexterity comes at a higher price, so there is a trade-off decision to be made.
We chose the examples of how leading firms are using ambidexterity not by random. Rather we chose them because they show a number of proven mechanisms that can help in integrating the explorative work into the exploitative organization. Analyzing these examples we find nine different types of integration mechanisms:
We find nine different types of integration mechanisms.
Summarizing what we have discussed so far, the following table provides an overview about how selected leading firms have implemented ambidexterity:
Figure 4: Integration mechanisms used by our sample of firms
Both from a scholarly and from a practitioner’s perspective there is currently no coherent framework at hand that explains which type of ambidexterity is right for a specific firm and what type of integration mechanisms should be applied. However, the rising interest into ambidexterity has brought forward some of the key determinants that are relevant for the decision on the type of ambidexterity. Among them are:
The right types of ambidexterity and integration mechanisms strongly depend on a firm’s individual context, resources and capabilities.
Some of the firms we have portrayed focus on getting “just” radical ideas or concepts whereas others are setting their goals deeper in the innovation funnel. Probably the main reason for the choices made by these firms may be individual preferences regarding the trade-off between budgets / resources and results: Providing a contextual ambidextrous set-up that yields radical ideas is relatively cheap – whereas a structural ambidextrous set-up that aims at realizing breakthrough lighthouse projects requires more resources.
Every firm has its own, individual split of budgets and resources into incremental, “adjacent markets and technologies” and breakthrough innovations. The individual split is determined by various factors, such as the firm’s innovation strategy (first-to-market, fast follower, etc.). As stated above, more explorative budget allows for larger and far-reaching ambidextrous set-ups.
Quite a number of recent breakthrough innovations have a cross-industry or business model innovation character. In a contextual ambidextrous set-up it is usually more difficult to come up with a breakthrough of this kind than in a structural ambidextrous set-up. Hence if a firm sees innovation opportunities mainly in cross-industry or business model innovations it will more likely opt for a structural ambidextrous set-up.
Structural ambidexterity makes it easier for establishing outside-in Open Innovation since organizational provisions (contact partners, responsibilities, processes, metrics, etc.) are easier to be defined. Hence if a firm want to push outside-in Open Innovation, structural ambidexterity is more preferable than contextual.
Also for the question which is the most effective integration mechanism we have not found a coherent framework. Judging by case evidence, we see two key questions that firms are considering in this respect:
The firm’s KPI system, its culture and its processes largely depend whether a breakthrough idea or concept should be “pushed” into the exploitative organization or being “pulled” from it. An example for a “push”-integration mechanism is e.g. providing a turn-key business whereas “pull”-mechanisms comprise e.g. showcases and voice of customer.
Generating a radical innovation idea and introducing it successfully to the market requires some capabilities that are not designed into an exploitative organization. These capabilities include “sensing” (what is out there? Where are untapped opportunities?), “seizing” (taking risk, managing the fuzzy front-end), “spearheading” (driving a radical innovation and managing all known unknowns, in particular with respect to customer acceptance) and “spanning the chasm” (managing first sales successes and the critical gap between the early adopters and slower-adopting market segments). The most effective integration mechanisms also address the specific capabilities to be built up, e.g. by focusing on education (capability: “sensing”) or on management alignment (capability: spearheading).
Balancing incremental and radical / breakthrough innovation is a key challenge for any firm’s innovation management. By looking at the exploitative and explorative innovation – the underlying paradigms – we found that ambidexterity is a key concept for achieving this balance.
We discussed that ambidextrous set-ups have different value in the stages of the innovation funnel. We have also found that leading firms apply contextual ambidexterity mostly to identify and conceptualize breakthrough innovations, whereas structural ambidexterity is chosen if the breakthrough innovation is to be driven farther into the innovation funnel.
We foresee that in the future innovation management will focus on the parallel management of breakthrough and incremental innovations – in other words, we will have two innovation funnels within one.
Having arrived at this point, some key questions surface: How should the innovation budget be split between exploitative and explorative innovation? What is the optimal type of ambidexterity that a firm should apply? How should the integration between explorative and exploitative innovation be designed? And finally, how should the parallel management of the “two funnels in one” be conducted?
We will try to answer these questions in a study that is planned for the first half of 2014. And we will report on the key findings right here. Please stay tuned – and get in touch with us if you want to discuss ambidexterity with us and share your opinions.
About the authors
Frank Mattes, contributing editor, Germany. Frank is the founder and CEO of innovation-3, a leading Open Innovation catalyst. Frank has collected more than 15 years of experience in managing projects and innovation. He worked for specialized medium-sized national consulting companies as well as for The Boston Consulting Group. Additionally he was working at C-level for an eBusiness firm, an IT firm and a Professional services firm. He wrote several books, numerous articles and is a sought after speaker. More information about innovation-3 and Frank can be found at www.innovation-3.com
Dr. Ralph-Christian Ohr has been working in several innovation, division and product management functions for international, technology-based companies. His interest is aimed at organizational and personal capabilities for high innovation performance. He authors the Integrative Innovation Blog.
Charles A. O’Reilly, Michael Tushman: Organizational Ambidexterity: Past, Present and Future, Academy of Management Perspectives (2013), http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2285704
Geoffrey A. Moore: Crossing the Chasm, 3rd edition, HarperBusiness (2014)
Axel Roseno et al.: Distinctive dynamic capabilities for new business creation: sensing, seizing, scaling and separating, International Journal of Technology Marketing (2013)