I’m just reading Schermerhorn et al. There’s an interesting chapter on innovation which captures the topic of flexibility vs. rigidity, or exploration vs. exploitation, that I’ve recently discussed with a group of research fellows in the context of the dichotomy of exploration vs. exploitation: “too much emphasis on exploration will yield a whole list of potential ideas for new products and processes to new clients and customers in new markets, but little pay-off . . . Conversely, an emphasis on exploitation stresses control and evolutionary development. Such exploitation can be planned with tight budgets, careful forecasts, and steady implementation. It is often much easier to stress exploitation because most organizations have a structure and culture that emphasize stability and control.” (2010, pp. 381–382)
The classic solution is of course to create separate units, depending on the focus. Christensen and Overdorf give a framework about that. They look at a given innovation in two dimensions: How well does the innovation match the company’s values? And how well does it fit the organization’s processes? (2010, p. 13)
- Both Processes and Values fit well: No new capabilities required, so the suggestion is to form a small team, light-weight within the organization to handle the innovation. The team members stay under the formal control of their line managers. In my company, we do this all the time pulling in knowledge carriers from all parts of the organization depending on what they contribute and their availability.
- Does fit well in terms of Values, but not Processes: This innovation brings new types of problems, which means, new processes are required. It is still a sustaining, not a disruptive innovation, but needs a stronger project focus to solve the new structural requirements. So the suggestion is to form a heavyweight team where people focus fully on the task.
- Does fit well in terms of Processes, but not Values: A disruptive change that would fit process-wise, but not within the firm’s value framework. A heavyweight team that works as a spin-off is suggested, but work can at times happen in-house to benefit from existing processes.
- Fits neither Processes nor Values: A disruptive change that is suggested to be worked on through a spin-off, by a heavyweight team with its own processes, cost structures allowing for lower profit margins, etc. I saw that at companies who founded independent research centers.
So that’s the “do things together where they fit, otherwise spin them off” suggestion. If competences required don’t fit very well, as Christensen describes very well in his book, the company may be looking the wrong direction until it is too late. For a large part, this goes back to the discussion of capabilities: Competences have their “shadow side,” as De Wit and Meyer call them, “not only difficult to learn, but difficult to unlearn as well. The laborious task of building up competences makes it hard to switch to new competences, even if that is what the market demands . . . in the same way as few concert pianists are able (and willing) to switch to playing saxophone when they are out of a job.” (2010, p. 258) And it goes all the way back to Porter about which De Wit and Meyer say, “long run above-average performance results from selecting one of the three defensible positions available to the strategist: cost leadership , differentiation or focus. According to Porter, these three options, or ‘generic strategies’, are the only feasible ways of achieving a sustainable competitive advantage. A firm that does not make a clear choice between one of the three generic strategies, is ‘stuck in the middle’ and will suffer below-average performance.” (2010, 261, emphasis mine)
Now, coming back to whether you want to explore or exploit, more recent suggestions go towards doing both: The hype is then to “write with both hands,” or use “ambidextrous” structures such as described by Mirwo, Hoelzle, and Gemuenden who say that “Exploitative activities are usually associated with mechanistic structures and routinized activities that help to raise productivity in these business units. Processes are tightened and are optimized for activities that lead to a better performance in a known environment. Generally, explorative activities are associated with less certainties and a higher risk for failure—but also with the potential for higher success.” (2008, p. 1) The authors then take a different approach and rather than looking at the innovation, they look at how it is received in the organization, and present a typification of the different barriers that are met. Three of the barriers they identify are linked to characteristics of the organization: project processing, strategic importance and inter-departmental collaboration. (2008, p. 4) If we were looking at rigidity—or missing flexibility—the authors map that to being determined by an organization’s structure and strategy.
Two are individual barriers: availability and motivation of key resources. Those are the ones which the authors see as the main reasons inhibiting innovation. Finally, they see external task influences as a barrier, which is well confirmed by the three industry examples explained in detail by Christensen.
The authors then apply that barrier framework to different project setups. In a setup of “contextual ambidexterity” (2008, p. 4), the projects suffer from low attention. This appears to be in line with what Christensen and Overdorf says about a light-weight team; I can confirm that from some of the organization I’ve worked with: When you have come up with the business case for your project, and get the resources against their internal cost rate (FLCR: Fully Loaded Cost Rate), you are, as one example, still competing with customer projects who of course generate more revenue. And as the line manager of a resource is typically closer to the market unit, hence the client, he can always find reasons to pull a resource off your project. This is true for resources that you can bill externally. For resources who are not on utilization based plans, the opposite can even be true, and people may be putting down customer projects in order to protect their own pool of resources—even if that harms the overall strategy of the company. “Generally, it seems to be tempting for managers to follow short-term oriented incentives.” (2008, p. 4)
Next, the authors look at “structural ambidexterity.” (2008, p. 5) So that’s when the business unit driving the innovation is separated from the rest of the organization to some degree—it corresponds to the cases mentioned above, where either values or processes do not fit well, but not to a point where neither nor fit and you’d want to set up a spin-off. The issue with the separate units, as observed by Mirwo, Hoelzle, and Gemuenden, is that it is difficult to synchronize their outcomes with the actual production processes.
Mirwo, Hoelzle, and Gemuenden did some detailed research in the context of the German automobile industry and looked at their R&D departments. They see an explorative approach in the “R” of that structure, and the exploitative in the “D” (2008, p. 6)—but it remains to be discussed whether these nuances are apt to explain our more general discussion with regards to this topic: An R&D department in itself is already a structure designed to innovate, so in terms of “flexibility,” it is necessarily biased as opposed to, say, a services organization. In some IT companies, I’ve had the opportunity to observe a gradually increasing rigidity from the development organization—which has to be explorative by design, through the field services organization, which has to bring in their utilization, but only in sofar as it covers its cost plus a set margin—all the way through to the sales organization, which is looked at, and bonused, on a quarterly basis. I recently was discussing with somebody from a consulting organization (one of the Big 5) who confirmed the same to be true for their consultants. It may also be worthy, from my point of view, to look at the personnel attrition rate in those different departments depending on how myopic their measurement is. I have seen firms where the “half-time” of a sales person was less than six month, while that same kind of situation would be disastrous for a development resource who needs years to become an expert in a certain field.
I’d conclude that the real decision very much depends from both the firm’s characteristics—values, processes, in short capabilities—as well as from the actual innovation at hand, just as Christensen and Overdorf writes. It may make sense to keep in mind what the Roman philosopher Virgil (70–19 BC) wrote: “We are not all capable of everything.” And if we are capable of something in particular, it may be wise to chose the work area—or “ecological niche”—well.
Christensen, C. M. (1997). The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail (2nd ed.). Harvard Business School Press.
Christensen, C. M. & Overdorf, M. (2010). Meeting the Challenge of Disruptive Change. In HBR’s 10 Must Reads (1st ed., pp. 7–23). Boston, Massachusetts: Harvard Business School Publishing.
De Wit, B. & Meyer, R. (2010). Strategy: Process, Content, Context—An International Perspective (4th ed.). Cengage Learning.
Mirwo, C., Hoelzle, K., & Gemuenden, H. G. (2008). ‘The Ambidextrous Organization in Practice: Barriers to Innovation within Research and Development’, Academy Of Management Annual Meeting Proceedings, 1–6. [Online]. Available from: http://search.ebscohost.com.ezproxy.liv.ac.uk/login.aspx?direct=true&db=bth& AN=33717691 (Accessed: January 27, 2014).
Porter, M. E. (2008). ‘The five Competitive Forces that shape Strategy’, Harvard Business Review, 86 (1), 78–93. [Online]. Available from: http://search.ebscohost. com.ezproxy.liv.ac.uk/login.aspx?direct=true&db=bth&AN=28000138 (Accessed: 28 Feb 2013).
Schermerhorn, J. R., Hunt, J. G., Osborn, R. N., & Uhl-Bien, M. (2010). Organizational behavior (11th ed.). Wiley.