Masters Programmes

Assignment Cover Sheet

Submitted by: 1764873

Date Sent: 18/4/2018

Module Title: Strategy Analysis and Practice

Module Code: IB91S0

Date/Year of Module: 1

Submission Deadline: 20/4/2018

Word Count: 2627

Number of Pages: 12

Question: [e.g. question number/title, or description of assignment]

1. How can organisations be designed for change, flexibility and innovation, whilst
retaining their capacity for operational efficiency.

“I declare that this work is entirely my own in accordance with the University's Regulation
11 and the WBS guidelines on plagiarism and collusion. All external references and
sources are clearly acknowledged and identified within the contents.

No substantial part(s) of the work submitted here has also been submitted by me in other
assessments for accredited courses of study, and I acknowledge that if this has been done
it may result in me being reported for self-plagiarism and an appropriate reduction in marks
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Introduction

Since the conception of organizational ambidexterity by Duncan (1976), a myriad of research

has emerged to provide insight on ambidexterity-performance relations. However, due to the
divergence of perspectives and approaches to empirical modelling, research results have been
inconsistent and created much of the veneer around this concept. To answer the question how
organizations can achieve a balanced dimension of organizational ambidexterity (March, 1991;
Tushman & O’Reilly, 1996), this paper will first lay out the conditions in which organizations
operate, such as firm size, internal and external environment, then draw on relevant empirical
studies. This paper will also address research contending March’s (1991) balanced perspective
of a trade-off between exploitative and explorative activities as they provide value to the
discussion.

Clarification of Terminology

In this paper, we define exploitative activities as those that pertain to operational efficiency;
explorative activities as those that are created for innovation, change and flexibility (March,
1991, 2006; Raisch & Birkinshaw, 2008; Tushman & O’Reilly, 1996). Although these definitions
align with what most literature would consider as explorative and exploration activities, they also
share similar conceptual meaning with Gibson and Birkinshaw’s (2004) alignment and
adaptability, with adaptability being associated with new opportunities and alignment with how
activities are coordinated to deliver short-term value. However, one should still not disregard
Gibson and Birkinshaw’s (2004) idea of ambidexterity as the ability to achieve both alignment
and adaptability as it sheds light on the use of organizational and social capital (Fu, Flood &
Morris, 2016; Turner, Swart & Maylor, 2013) in achieving the more traditional sense of
organizational ambidexterity.

Ambidexterity in Small Firms

Early notions of ambidexterity theorized that a dual structure of ambidexterity would ensure
simultaneity as processes and cultures of exploitation and exploration activities are believed to
be distinct and operate under different cultures (Tushman & O’Reilly, 1996). However, a lot of
the studies conducted on structural ambidexterity have been on large firms that have the
resources and the multilayer organizational structures that small firms lack (Tushman & O’Reilly,
1996, 2004; O’Reilly & Tushman, 2008, 2013; Jansen et al., 2006, 2009). At its infancy or
growth stage, small firms are often less mechanistic and have higher levels of resource
constraints (Coetzer, Kock & Wallo, 2017). This creates a more apparent trade-off effect (as in
exploration and exploitation being closer to a zero-sum game) due to resource constraints, as
well as the higher potential for “competency traps” (Levitt & March, 1988) or “threat-rigidity”
(Staw et al., 1981). Henceforth, it is likely that small firms may reconfigure their assets to tilt the
balance towards either extremes to match the external environment they are in. To reduce this
likelihood of excessive exploitation or exploration, smaller firms can adopt sub-organizational
units, as proposed by Voss, Sirdeshmukh and Voss (2008). However, structural partitioning may
have a negative effect on smaller firms in dynamic environments as they possess less slack
resources (Chang & Hughes, 2012; Chang, Hughes & Hotho., 2011). Creating layers of
business units, especially from top-down management may hinder their speed to reaction, by
creating redundant bureaucracies (Voss, Sirdeshmukh & Voss, 2008). In addition, in stable
environments with no imminent threats, the smaller firm may not be able to justify the costs to
seek for new opportunities when they have not refined their operational efficiency to compete
locally. This is because the nature of exploration incurs substantial costs by generating, refining
and testing new ideas, a lot of which may not even come into fruition, thus creating a colossal
amount of sunk costs and requires significant financial slack (Voss, Sirdeshmukh & Voss,
2008). On the other hand, Cohen & Levinthal (1990) argue that only managers with ample
experience have the breadth and depth of industry knowledge to be ambidextrous in making
exploration-exploitation decisions, supporting the use of structural ambidexterity. Yet in dynamic
industries, the importance of exploration increases. In such instances, firms may be motivated
to adopt contextual ambidexterity or the combination of contextual and structural ambidexterity
to exploit as much intellectual capital within the firm as possible (Turner, Swart & Maylor, 2013).
As per Gibson and Birkinshaw’s (2004) theory of contextual ambidexterity, an innovative culture
can be fostered and made to permeate through all layers of a firm through organizational
processes, cultures and controls. Particularly in small firms, contextual ambidexterity has a
higher possibility of working on its own as knowledge can be absorbed more quickly amongst
small firms than larger firm. However, such model is still being developed as there is rarely any
objective measurement of contextual ambidexterity (Chang & Hughes, 2012; He & Wong,
2004). Likert scale-ésque measurements are sometimes used to investigate contextual
ambidexterity-performance relations without the consideration of moderators (Chang & Hughes,
2012; He & Wong, 2004). That being said, the effect of contextual ambidexterity remains
inconclusive as there is also a lack of longitudinal studies of its effect on smaller firms.

To expound further on how contextual ambidexterity can lead to balanced ambidexterity, Gibson
and Birkinshaw (2004) purport that this can be done through performance management and
social support, which create ambidextrous and innovative individuals within an organization. If
one takes an organization as a unit of analysis, then according to the theory, it is possible for
the organization to engage in both exploitation and exploration simultaneously. While this can
be helpful for organizations operating in dynamic and competitive environments, how to quickly
coordinate activities and manage conflicting views in a single business unit or a flat organization
still poses potential challenges and requires further research (Wang & Rafiq, 2014). While
Birkinshaw and Gupta (2004) propose the use of “professional development, knowledge transfer
and a more participative strategic-planning process” to ensure alignment and adaptation,
O’Reilly and Tushman (2008) emphasize on the importance of shared vision and strategic intent
to foster the necessary context. Both approaches (the use of processes and the nurturing of
organizational culture) (Birkinshaw & Gupta, 2004; O’Reilly & Tushman, 2008) to contextual
ambidexterity are able to coexist and, in my opinion, add value when implemented together.

Contextual Ambidexterity as a Complement to Structural Ambidexterity

The idea of structural partitioning used in conjunction with contextual ambidexterity has
emerged in recent literature to overcome the hurdles both theories face in practice (Kauppila,
2010; O’Reilly & Tushman, 2011). While contextual ambidexterity strives to promote the
simultaneity of exploitation and exploration within an organization, it may be impractical for
multilayer organizations where innovative ideas can derive from heuristics due to the possible
inability of individuals to exercise conscientious judgement and divide their time between the
two activities (Gibson & Birkinshaw, 2004). Structural partitioning, characterized by spatial
separation and parallel structures, allows for more specialization in innovation as well as
improving efficiency (Jansen, Van Den Bosch, & Volberda, 2006, Raisch & Birkinshaw, 2008).
This minimizes the risk of a “competency trap” when employees are too focused on delivering
value to existing customers without taking notice of radical industrial changes (Levitt & March,
1988). This being said, the practical implications of this theory can be lost in translation, as R&D
divisions in organizations are sometimes ambidextrous business units and can succumb to the
same flaw of an organization without a separated division for innovation, as they sometimes do
perform efficiency enhancing tasks i.e. process innovation (Hill & Birkinshaw, 2014). It is in this
context where moderators should be implemented to ensure that departmentalization does its
supposed duty. Moderators may include upper management (Lubatkin et al., 2006), paradoxical
mindsets (Andriopoulos & Lewis, 2009), distinct alignments for both exploitative and explorative
units (O’Reilly & Tushman, 2011), knowledge integration (Jansen et al., 2006, 2009; Tiwana,
2008), an overarching vision and coordination processes (O’Reilly & Tushman, 2008). Such
moderators create contexts for cross-fertilization, as separate business units coordinate
activities aligned with the organization’s strategic view and integrate knowledge (He & Wong,
2004). According to prior literature, the interaction effect between exploitative and explorative
activities is assumed to have a positive effect on firm performance (He & Wong, 2004; Simsek,
2009).

Temporary Decentralization and Temporal Cycling (Punctuated Equilibrium)

Since the question does not specify the simultaneity of explorative and exploitative activities, as
it only requires the retention of operational capabilities, I will thus take a synchronic view of
ambidexterity. Synchronicity (Hughes, 2018; Gupta, Smith & Shalley, 2006) in the context of
organizational learning is defined as the simultaneous existence of both explorative and
exploitative capabilities; they are just not functioning at the same time. This being said, the
complete stop of exploitation activities in pursuit of exploration seems quite implausible in
specific industries where product delivery is frequent, hence may pose some managerial and
practical issues. This view encourages us to take a longitudinal view of organizational evolution,
which is a dimension that is sometimes lacking in the empirical research of other ambidexterity
models. Temporal cycling (punctuated equilibrium) is used to denote a phenomenon whereby
firms “vacillate” between exploration and exploitation (Brown & Eisenhardt, 1998; Siggelkow &
Levinthal, 2003; Boumgarden et al., 2012). The underlying notion is that ambidexterity is a
dynamic concept, one that reconfigures according to its external environment and changes over
time. This is not to be confused with dynamic ambidexterity (Uotila, 2017), as the simultaneity
and consistency of exploitation and exploration. A specified mechanism for temporal cycling,
temporal decentralization, is postulated by Siggelkow and Levinthal (2003) as a possible
solution to operating in challenging and rugged external landscapes. In Siggelkow and
Levinthal’s research (2003), the definition of decentralization is the separation of exploration and
exploitation through different business units or even organizations i.e. subsidiaries. The
rationale is as follows: reintegrators (those that have decentralized and reintegrated again) are
able to avoid local peaks (current exploitation peaks) by avoiding basins of attraction to reach
global peak (optimal destination in the simulation) (Siggelkow and Levinthal, 2003). Siggelkow
and Levinthal (2003) use the heights of local peaks to illustrate the attractiveness of each new
opportunity, such that a firm decentralizes to distance from its present activity configuration
(low-high or high-low exploitation-exploration combinations) to achieve high dexterity on both
activities. This theory corresponds to the need to escape from competency traps and will
ultimately lead the organization towards the optimal destination through hiking a series of local
peaks (Siggelkow and Levinthal, 2003; Levitt & March, 1988). This simulation is echoed by
Uotila (2017) with the use of structural punctuated equilibrium as a potential method to avoid
low local peaks in highly complex but stable environments. Siggelkow and Levinthal’s (2003)
research also highlights the importance of the interdependencies (cross-fertilization) across the
two activities as one of the major factors for an organization’s ability to move towards higher
peaks. Reintegration allows firms to combine their expertise in both dimensions, thus generating
an interaction effect or synergies that would lead to better new product development (Katila &
Ahuja, 2002).

As with simulations, they are contingent on agents being rational and making fully conscientious
decisions, such that in real life can be quite difficult to attain. One method that organizations can
pre-empt local equilibria is by infusing contextual ambidexterity, especially in dynamic
environments. This is to prepare organizations with big environmental changes by arming itself
with some extent of flexibility. Temporal decentralization, as a drastic organizational change,
may be more helpful for organizations of a more rigid, mechanistic nature, and that
environmental threats are imminent and severe enough to warrant the costs and risks of
reintegration (Siggelkow and Levinthal, 2003). Nonetheless, organizations’ external
environments are constantly changing with the onset of advanced technology and organizations
need to survive by adapting accordingly through configurations of unabsorbed slack and
strategic intents. Anecdotal evidence has concurred with the analysis, as with HP and USA
Today boosting long-run performance by molding organizational structures according to shifting
strategic intents (Boumgarden et al., 2012). These accounts demonstrated ways of refocusing
the organization by way of achieving synergies by reintegration and spinning off units that are
mature and those that deserve their own separate attention (Gilsing & Nooteboom, 2006).
Despite anecdotal evidence supposedly being more descriptive than empirical modelling and
objective measure, precisely how organizations regroup and reintegrate to achieve synergies
are left out of the research due to heightened sensitivity. This implicitly shows that structural
reorganization may be insufficient in guaranteeing long-term performance as absorptive
capacity and process reintegration may also be significant factors in determining success
(Gupta et al., 2006).

Domain Ambidexterity

One theory has emerged in the late 1990’s to the early 2000’s to challenge the core foundation
of ambidexterity, the use of internal resources to achieve ambidexterity, and that is domain
ambidexterity (Larsson et al., 1998; Holmqvist, 2004; Lavie & Rosenkopf, 2006). This theory
acknowledges a core aspect of business that some other theories have neglected, and that is
the relational assets of an organization (Kale, Sing & Perlmutter, 2000; Lavie & Rosenkopf,
2006, 2011; Stettner & Lavie, 2013; Gilsing & Nooteboom, 2006). Network and alliances have
formed an integral part of business and is often overlooked in ambidexterity research due to
resource constraint being a dominant antecedent for research. Assuming interorganizational
relationships can be linked to transaction cost and internalization theories that are
predominantly in organizational learning research. However, organizations can be designed to
accommodate this theory by specializing in only one domain, either exploration and exploitation,
or developing “architectural competence” (Henderson & Cockburn, 1994). “Architectural
competence” is dubbed to delineate the ability to acquire outside knowledge and willfully
integrate it into the organization (Henderson & Cockburn, 1994). Domain ambidexterity is able
to circumvent some of the issues of using internal linkages, such as bounded rationality,
resource constraints and dilution of contextual characteristics (Chang & Hughes, 2012). As the
organization focuses on delivering operational efficiency, utilizing external linkages to explore
opportunities frees up resources all the while increasing cognitive variation, gaining access to a
pool of experiences, experimenting and trialing, all of which ultimately lead to the creation of
new knowledge (Baum et al., 2000; Gilsing & Nooteboom, 2006; Holmqvist, 2004). Previous
research in domain ambidexterity has mostly been on R&D intensive industries such as the
software industry in the U.S. (Lavie & Rosenkopf, 2006), Sweden (Holmqvist, 2004) and the
pharmaceutical industry in the Netherlands (Gilsing & Nooteboom, 2006), whereby the
industries are modular and the required speed of innovation outpaces the speed of reintegration
or solo experimentation (Stettner & Lavie, 2013). To sustain or increase operational efficiency,
interorganizational alliances normally take the form of outsourcing (Parmigiani, 2007), resource
pooling (Moller et al., 2005), etc. Albeit taking diverse forms, all interorganizational alliances are
founded on the concept of trust and mutual interests (Kale, Sing & Perlmutter, 2000; Benner &
Tushman, 2003). Hurdles preventing the smooth integration of knowledge involve those typically
heard in transaction cost economics, such as the hold-up problem, moral hazard, adverse
selection etc., hence this mode of exploration must ensure that alliance management and
controls are put in place to protect proprietary assets and that benefits outweigh the risks (Foss
& Foss, 2013; Kale, Sing & Perlmutter, 2000).

Conclusion
This essay investigates some of the major themes and theories in organizational ambidexterity
research, which are increasingly referenced in further research as disruptive technology is
threatening the ways businesses operate. In an environment where technology is almost
omnipresent, it is of vital importance that businesses are equipped with the flexibility to
experiment and innovate. Comprehending the antecedents, processes and consequences of
ambidexterity (Simsek, 2009) allows organizations to be more conscientious in designing the
facets of their organization that best apply to their current predicaments. Notwithstanding, the
definition of organizational ambidexterity must remain homogeneous in further research to
generate value, as consensus amongst previous research results is all too sporadic. All in all, as
with organizations being entwined with its internal and external dynamics, O’Reilly and
Tushman (2007) describe achieving organizational ambidexterity quite appropriately as a
“dynamic capability”, one that assures competitive advantage, repeats and readapts over time
to survive the inevitability of natural selection.
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