Ambidexterity in discontinuous change
Research Intelligence Brief – The Oxford Review The 3 ways organisations can adapt to discontinuous change and win Nokia, HMV and Blockbuster all famously failed because of disruptive changes to their business environments that they either failed to see or failed to adapt to rapidly enough. The speed of change across many industries has resulted in many businesses struggling or failing altogether due to the rapid and often discontinuous change occurring around them. A new study from the University of Berkley looking at three successful multinational companies has shown that there are three modes of adapting to change. Exploitation and exploration – organisational ambidexterity The basis of dealing with change is organisational ambidexterity. The ability to both exploit current markets and situations and simultaneously to explore the future and develop new responses, services and products for the next ‘bounce’. Core to organisational ambidexterity is the ability of the organisation to adapt to change. This study found three distinct modes of adapting: 1. Structural separation 2. Behavioural integration 3. Sequential alternation. Three ways to adapt - three case studies Nestle – structural separation Nestle has grown into a massive food multinational that has achieved steady if slow growth over the years. In recent years, the company has rebranded itself as a ‘nutrition, health and wellbeing’ company. Executives had realised that in developed markets such as the EU and US, people wanted their food to be healthier, while in developing countries people were suffering from malnutrition due to a lack of certain nutrients in their daily intake. Considering the business is decentralised, its leadership took the approach of developing two wholly owned subsidiaries called the Nestle Nutrition Unit and the Nestle Health Sciences company. These companies handled the research and development while forming close partnerships with academia outside and a number of businesses within the Nestle Group. This form of ‘structural separation’ has enabled Nestle to achieve far faster growth in some sectors, while maintaining its core interests as a food company in a market that is hyper-competitive and rapidly changing.
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Research Intelligence Brief – The Oxford Review Glaxo – behavioural integration Glaxo is another giant multinational, this time in pharmaceuticals. After many years of market and price growth, virtually all its clients, who are mainly the health care arms of governments like the NHS, started to seek cost savings for their healthcare systems. This has caused extensive pressures not just to Glaxo’s profit margins but also to its structure, processes and systems. Thus, the company has looked to generate income from new directions. The company’s response was a form of ‘behavioural integration’ whereby Glaxo reorganised and developed ‘Drug Performance Units’ inside the Group. Each of these must compete internally for resources to develop and exploit their products. In effect the Drug Performance Units are end-to-end self-contained business units wrapped around a particular product. These had to bid for money and were offered bonuses for performance, and were put to the sword if they failed – a number were closed down and a number more have been set up over the years. The Drug Performance Units “decided how to divide their time between exploration-oriented and exploitation-oriented activities because they were accountable for the consequences of those decisions.” This form of behavioural integration requires ambidexterity in each of the Drug Performance Units in order to survive. The units must both exploit the current products, develop new lines and be future focused, whereas the structural separation model of Nestle separates the current exploitative functions from the future facing R&D functions. BMW – sequential alternation In the two companies above exploitation and exploration takes place continuously, however BMW cycles through exploitation and exploration in alternate phases. The challenges faced by the automotive company faced are summed up as follows: “the increasing customer, politicaland regulatory pressures to create more fuel-efficient vehicles and to develop alternative, environmentally friendly transmission technologies. Customers have also begun to search for more flexible mobility solutions, challenging the automotive industry’s traditional ownership-based business model.” The company went through regular phases of developing new models such as the recent electric powered vehicles (2010 – 14) and then into market expansion (for example, between 2002 - 06) where BMW has become one of the biggest full range automotive manufacturers in the world.
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Research Intelligence Brief – The Oxford Review
The researchers developed a model of organisational ambidexterity where they found that organisations need to both exploit and explore. Whether this is done through structural separation, behavioural integration or sequential alternation is a decision the organisation has to make. The lower order capabilities of sensing and seizing comes from the explorative side where managers and leadership assess the progress of explorative phases or organisations through environmental scanning and development. Reconfiguring comes as part of the exploitation phases where the organisation needs to transform itself for the next phase of exploitation with the new products or services. Reference Birkinshaw, J., Zimmermann, A., & Raisch, S. (2016). How Do Firms Adapt to Discontinuous Change?. California Management Review, 58(4), 36-58.
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Research Intelligence Brief – The Oxford Review Editor’s Post-Script Whilst the organisation has a decision to make about the mode of adaption to adopt there is, however, good evidence from other studies to show that both behavioural integration and to a lesser extent sequential alternation requires the management to be flexible and have the capability to occupy both mind-sets (exploitation and exploration) to make them work successfully. It was problems in this aspect (flexibility and capability of the management) that led to the downfall in companies like Kodak. Developing ambidextrous management and workers is no mean feat. The structural separation mode that Nestle shares with organisations like Honda is often a good approach but requires excellent communications and understanding between the exploitative and explorative sides of the organisation. Additionally, whilst the study cites BMW as an example of sequential alternation, I am less convinced as they do actually carry out both exploitative and explorative functions simultaneously as an organisation. They are more of a structural separation organisation; however, it is the leadership (not the organisation) that engages in sequential alternation. Overview In a new study researchers from the University of Berkley have found that there are 3 modes of organisational ambidexterity: 1. Structural separation – where the exploitative and explorative (R&D) functions are kept separate. 2. Behavioural integration – where the same organisational functions are responsible for both exploitation and exploration. 3. Sequential alternation where the organisation alternates between exploitation and exploration.
www.oxford-review.com Copyright 2016©The Oxford Review - All rights reserved
www.oxford-review.com Copyright 2016©The Oxford Review - All rights reserved
Research Intelligence Brief – The Oxford Review Glaxo – behavioural integration Glaxo is another giant multinational, this time in pharmaceuticals. After many years of market and price growth, virtually all its clients, who are mainly the health care arms of governments like the NHS, started to seek cost savings for their healthcare systems. This has caused extensive pressures not just to Glaxo’s profit margins but also to its structure, processes and systems. Thus, the company has looked to generate income from new directions. The company’s response was a form of ‘behavioural integration’ whereby Glaxo reorganised and developed ‘Drug Performance Units’ inside the Group. Each of these must compete internally for resources to develop and exploit their products. In effect the Drug Performance Units are end-to-end self-contained business units wrapped around a particular product. These had to bid for money and were offered bonuses for performance, and were put to the sword if they failed – a number were closed down and a number more have been set up over the years. The Drug Performance Units “decided how to divide their time between exploration-oriented and exploitation-oriented activities because they were accountable for the consequences of those decisions.” This form of behavioural integration requires ambidexterity in each of the Drug Performance Units in order to survive. The units must both exploit the current products, develop new lines and be future focused, whereas the structural separation model of Nestle separates the current exploitative functions from the future facing R&D functions. BMW – sequential alternation In the two companies above exploitation and exploration takes place continuously, however BMW cycles through exploitation and exploration in alternate phases. The challenges faced by the automotive company faced are summed up as follows: “the increasing customer, politicaland regulatory pressures to create more fuel-efficient vehicles and to develop alternative, environmentally friendly transmission technologies. Customers have also begun to search for more flexible mobility solutions, challenging the automotive industry’s traditional ownership-based business model.” The company went through regular phases of developing new models such as the recent electric powered vehicles (2010 – 14) and then into market expansion (for example, between 2002 - 06) where BMW has become one of the biggest full range automotive manufacturers in the world.
www.oxford-review.com Copyright 2016©The Oxford Review - All rights reserved
Research Intelligence Brief – The Oxford Review
The researchers developed a model of organisational ambidexterity where they found that organisations need to both exploit and explore. Whether this is done through structural separation, behavioural integration or sequential alternation is a decision the organisation has to make. The lower order capabilities of sensing and seizing comes from the explorative side where managers and leadership assess the progress of explorative phases or organisations through environmental scanning and development. Reconfiguring comes as part of the exploitation phases where the organisation needs to transform itself for the next phase of exploitation with the new products or services. Reference Birkinshaw, J., Zimmermann, A., & Raisch, S. (2016). How Do Firms Adapt to Discontinuous Change?. California Management Review, 58(4), 36-58.
www.oxford-review.com Copyright 2016©The Oxford Review - All rights reserved
Research Intelligence Brief – The Oxford Review Editor’s Post-Script Whilst the organisation has a decision to make about the mode of adaption to adopt there is, however, good evidence from other studies to show that both behavioural integration and to a lesser extent sequential alternation requires the management to be flexible and have the capability to occupy both mind-sets (exploitation and exploration) to make them work successfully. It was problems in this aspect (flexibility and capability of the management) that led to the downfall in companies like Kodak. Developing ambidextrous management and workers is no mean feat. The structural separation mode that Nestle shares with organisations like Honda is often a good approach but requires excellent communications and understanding between the exploitative and explorative sides of the organisation. Additionally, whilst the study cites BMW as an example of sequential alternation, I am less convinced as they do actually carry out both exploitative and explorative functions simultaneously as an organisation. They are more of a structural separation organisation; however, it is the leadership (not the organisation) that engages in sequential alternation. Overview In a new study researchers from the University of Berkley have found that there are 3 modes of organisational ambidexterity: 1. Structural separation – where the exploitative and explorative (R&D) functions are kept separate. 2. Behavioural integration – where the same organisational functions are responsible for both exploitation and exploration. 3. Sequential alternation where the organisation alternates between exploitation and exploration.
www.oxford-review.com Copyright 2016©The Oxford Review - All rights reserved
