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Why and How to be Ambidextrous? The Relationship between Environmental Factors,
Innovation Strategy and Organizational Capabilities
Pei-Wen Huang
Department of Business Management
Cheng-Shiu University, Kaohsiung, Taiwan
Graduate School of Management
I-Shou University, Kaohsiung, Taiwan
Email: [email protected]
Correspondence:
Pei-Wen Huang, Department of Business Management, Cheng-Shiu University, Kaohsiung,
Taiwan; Graduate School of Management, I-Shou University, Kaohsiung, Taiwan
Email: [email protected]
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Why and How to be Ambidextrous? The Relationship between Environmental Factors,
Innovation Strategy and Organizational Capabilities
ABSTRACT
“Organizational ambidexterity” has become an emerging research trend in both
the organizational management and knowledge management field (Gibson &
Birkinshaw, 2004; He & Wong, 2004). The central theme on organizational
ambidexterity is about organizational capability to simultaneously deal with
paradoxical or conflicting activities such as organizational alignment and adaptation;
evolutionary and revolutionary change; manufacturing efficiency and flexibility;
strategic alliance formation; and even strategic renewal (Adler, Goldoftas, & Levine,
1999; Crossan, Lane, & White, 1999; Gibson & Birkinshaw, 2004; Lin, Haibin, &
Demirkan, 2007; Tushman & O'Reilly, 1996). Exploitation and exploration are the
most recurrent underlying dimensions regarding organizational ambidexterity. This
paper tries to gain more insight on organizational ambidexterity by constructing a
comprehensive conceptual framework.
In particular, our research interest is to
investigate why organizations need to be ambidextrous in the first place? How can
organizations enhance ambidexterity?
A conceptual framework has been proposed
regarding the relationship between environmental factors, innovation strategy and
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organizational capabilities.
Keyword: ambidexterity, innovation strategy
INTRODUCTION
“Organizational ambidexterity” has become an emerging research trend in both
the organizational management and knowledge management field (Gibson et al., 2004;
He et al., 2004). The central theme on organizational ambidexterity is about
organizational capability to simultaneously deal with paradoxical or conflicting
activities such as organizational alignment and adaptation; evolutionary and
revolutionary change; manufacturing efficiency and flexibility; strategic alliance
formation; and even strategic renewal (Adler, Goldoftas, & Levine, 1999; Crossan,
Lane, & White, 1999; Gibson & Birkinshaw, 2004; Lin, Haibin, & Demirkan, 2007;
Tushman & O'Reilly, 1996). This emerging issue has increasingly gained its weight in
research since organizations have to cope with or balance the seemingly contradictory
tension within organizations under more and more dynamic environment and severe
competition (Nonaka, Toyama, & Byosiere, 2001). Due to the dynamism and
complexity of the environment, organizations’ short-term success does not necessarily
guarantee their long term survival. Therefore, research on “organizational
ambidexterity” tries to find out how organizations manage to maintain today’s success
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while preparing to adapt to tomorrow’s changing environment (Jansen, Bosch, &
Volberda, 2005a).
Exploitation and exploration are the most recurrent underlying dimensions
regarding organizational ambidexterity. In general terms, March (1991) described
exploitation related to things like “refinement, choice, production, efficiency,
selection, implementation and execution” and exploration being relevant to “search,
variation, risk taking, experimentation, play, flexibility, discovery, innovation”. March
stressed that both exploitation and exploration are learning activities. In his words,
“the essence of exploitation is the refinement and extensions of existing competencies,
technologies, and paradigms; and the essence of exploration is experimentation with
new alternatives” (1991:85). According to the definitions, exploitative and
exploratory activities would require different and sometimes conflicting resources,
mindsets and organizational procedures (Gupta, Smith, & Shalley, 2006; March,
1991). Therefore, should or could organizations pursue both activities to be
ambidextrous also receives challenges (Raisch & Birkinshaw, 2008).
Traditionally, scholars regard exploitative and explorative innovation demand
different attention and resources (Duncan, 1976; Gibson et al., 2004). Due to limited
resources, they are confronted with the tension between exploiting what they know
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and exploring what they do not know since both exploitation and exploration are
essential capabilities to their long term survival (Lewin, Long, & Carroll, 1999;
March, 1991). Therefore, organizations find themselves under more and more
pressures to cope with the tension between exploitation and exploration (Jansen, Van
Den Bosch, & Volberda, 2006; Tushman & O'Reilly, 1996). Since March’s (1991)
seminal work on exploitation and exploration, these two underlying dimensions of
organizational ambidexterity have been treated as two incompatible or competing
concepts (Tushman & O'Reilly, 1996). They argued that exploitation and exploration
are two ends of the continuum. Owing to limited organizational resources,
organizations have to make a choice between one of them. In other words, the
strategic choice between exploitation and exploration is a trade-off (Liu, 2006).
Recently, the trade-off view of exploitation and exploration has been challenged by
many scholars (Raisch et al., 2008). They pointed out that organizational resources
may not necessarily be limited. For example, organizational knowledge has the
characteristics of being accumulated more and more by just utilizing it (Huber, 1991).
In addition, there are also other means of acquiring resources external to organizations
such as strategic alliance or merger and acquisition (Gupta, Smith, & Shalley, 2006).
Therefore, regarding exploitation and exploration, some researchers have moved from
a trade-off (either/or) thinking to a paradoxical (both/and) one (e.g. Duncan, 1976;
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Gibson et al., 2004). Recent research starts to be interested in the possibility of the
interaction between these two dimensions. Once the organizational resources are not
so limited, organizations seem to be able to manage both activities simultaneously.
Our research interest in this paper is to investigate why organizations need to be
ambidextrous in the first place? What is the impact of environmental pressures
perceived by organizations’ top management team on their strategic choices in terms
of innovation? What are the internal factors that may enhance organizations’
ambidextrous strategy (adoption of both exploitative and explorative strategies)? We
presume that why organizations need to be ambidextrous is the most fundamental
question that we should ask if we are to contribute to the concerning literature.
Furthermore, when top management teams perceive the external pressures to be
ambidextrous, they might be eager to explore the internal factors that enhance such
strategies. Literature regarding how to enhance organizational ambidexterity seems to
be limited. We conclude that when organizations feel the need to adopt ambidextrous
innovation strategy, combinative capabilities and absorptive capabilities could
enhance this strategy and achieve better performance in new product development.
LITERATURE REVIEW AND THEORY DEVELOPMENT
“Organizational ambidexterity” has become an emerging research trend in both
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the organizational management and knowledge management field (Gibson et al.,
2004). Organizational scholars have been trying to define what organizational
ambidexterity is. Broadly speaking, organizational ambidexterity could refer to
organizations’ ability to simultaneously deal with two paradoxical demand such as
alignment and adaptation (Birkinshaw & Gibson, 2004), evolutionary and
revolutionary change (Tushman et al., 1996), efficiency and flexibility (Adler,
Goldoftas, & Levine, 1999), differentiation and low-cost strategy (Porter, 1996),
global integration and local responsiveness (Doz, Bartlett, & Prahalad, 1981),
zero-level capabilities and
higher-order capabilities (Winter, 2003), and incremental
and radical innovation (Benner & Tushman, 2003). More specifically, Jansen, Van den
Bosch and Volberda (2005a) treated organizational ambidexterity as “the ability to
pursue exploratory and exploitative innovation simultaneously”. Tushman and
O’Reilly (1996) described ambidexterity as “the ability to simultaneously pursue both
incremental and discontinuous innovation and change”. Duncan (1976) paid attention
to the structural arrangement to cope with innovation. March (1991), Levinthal and
March (1993) maintained that balance between exploitation and exploration is
advantageous for firm’s long term success. The nature of ambidexterity is also
implicitly recognized in the dynamic capabilities literature which urges the need to
blend two different strategic logic - exploitation and exploration- within organizations
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(Ancona, Goodman, Lawrence, & Tushman, 2001; Eisenhardt & Martin, 2000). In
this paper, we specifically regard organizational ambidexterity embodied on
organizations’ strategic choice. That is, organizations simultaneously adopt
exploitative and explorative innovation strategies.
Scholars that maintain organizational ambidexterity should be pursued by
organizations have two basic assumptions. First, the relationship between exploitation
and exploration is orthogonal rather than two ends of a continuum. Since March (1991)
made a distinction between exploitation and exploration based on organizational
learning theory, most research treated exploitation and exploration as a trade-off under
the constraint of limited organizational resources. However, recent research explored
the possibility of the interactive relationship between these two dimensions, arguing
that not all organizational resources are limited and constrained. Organizational
resources such as knowledge and information may have the characteristics of being
accumulated more and more by using it (Shapiro & Varian, 1998). Second, even
though exploitation and exploration generally require quite different mindset and
organizational routines, both activities could still be executed under different domains
in terms of different knowledge or separate units (Gupta et al., 2006). Exploitation
and exploration would be mutually exclusive when they are considered within single
individual or subsystem. However, across different domains, it is possible that
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organizations arrange two different activities at different units or individuals be
executed. This argument implies that the more resources or individuals that
organizations possess, the more possible that organizations to present ambidexterity.
Therefore, in this paper, we generally consider that not all organizations could pursue
both exploitation and exploration and benefit from the interaction between these two.
The issue of organizational ambidexterity is very contingent on different
organizational conditions both internally or even externally.
Two streams of research on the antecedents of organizational ambidexterity were
mostly studied in the literature, namely structural ambidexterity (Duncan, 1976) and
contextual ambidexterity (Gibson et al., 2004). According to Duncan, the most
important factor to influence organizational ambidexterity is its formal structure. By
deliberately separating different units to execute different tasks, organizations manage
to solve the conflicting demands from exploitation and exploration. The main
argument in structural ambidexterity follows the logic of organizational design
theories in that organizational structure supports knowledge-related activities within
organizations (Ettlie, Bridges, & O'Keefe, 1984). In a meta analysis of organizational
factors influencing innovation, Damanpour (1991) concluded formalization,
centralization, horizontal differentiation, and vertical differentiation as four most
important structural constructs. Some other research argued that configuration,
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complexity, formalization and centralization as critical (Blackburn & Cummings,
1982). In the organizational ambidexterity literature, decentralization and
formalization are two most studied constructs (e.g. Jansen et al., 2005a, 2006) . As for
the more precise picture of being ambidextrous organizations, Benner & Tushman
(2003) explicated a more specific picture:
Ambidextrous organization designs are composed of highly differentiated but weakly integrated
subunits. While the exploratory units are small and decentralized, with loose cultures and
processes, the exploitation units are larger and more centralized, with tight cultures and processes.
Exploratory units succeed by experimenting- by frequently creating small wins and losses (Sitkin,
1992). Because process management tends to drive out experimentation, it must be prevented
from migrating into exploratory units and processes. In contrast, exploitation units that succeed by
reducing variability and maximizing efficiency and control are an ideal location for the tight
coordination associated with process management efforts (2003: 252).
The nature of studying organizational structure is to find out how conflicting
organizational activities could be reconciled through organizational arrangement.
Broadly speaking, this research stream recognized the fact that organizational
ambidexterity could be achieved as long as conflicting activities are balanced.
Organizational structure reflects how exploitation and exploration are coordinated and
arrayed within organizations. Generally, conflicting activities must be executed
separately.
In contrast to structural ambidexterity, another research stream treats
organizational ambidexterity as a trait of organizational behavior. By studying the
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requisite contextual conditions, they claimed the significance of the organizational
systems and process for enhancing organizational ambidexterity. Gibson and
Birkinshaw (2004) termed contextual ambidexterity as “the behavioral capacity to
simultaneously demonstrate alignment and adaptability across an entire business unit”.
Therefore, to achieve ambidexterity, organizations’ task is to arrange a set of process
and system that could enable as well as encourage organization members to perform
ambidextrous behavior by their own judgment. This research stream generally
considers the contextual factors such as connectedness, trust, stretch, discipline and
support as most influential.
Although scholars are eager to examine the antecedents of organizational
ambidexterity, empirical findings did not completely support the ambidexterity
hypothesis in the strategy literature. Some studies found that firms pursuing different
strategies at the same time may not result in better performance than those focusing
on either one strategy (Ebben & Johnson, 2005; Ghemawat & Costa, 1993; Porter,
1980). In this paper, we argue that to achieve organizational ambidexterity, some
contingent conditions must be met. To be more specific, both external and internal
conditions must fit to make the organizations perform better. In the following sections,
we first explicate the dimensions of organizational ambidexterity. Then we try to find
out the factors affecting organizations to be ambidextrous.
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Though organizational ambidexterity embodied on many organizational aspects,
such as alignment and adaptation (Gibson et al., 2004), evolutionary and
revolutionary change (Tushman, O'Reilly, & Anderson, 2004), efficiency and
flexibility (Adler et al., 1999; Ebben & Johnson, 2005), this paper focuses on aspects
related to organizational innovation. We are interested in organizational innovation in
that capabilities of innovation have been regarded as main sources of competitive
advantages (Grant, 1996a; Marsh & Stock, 2006). In addition, through innovation,
organizations evolve and adapt to the changing environment (Nelson & Winter, 1982).
Organizations adapt to the changing environment by utilizing their existing
technology or knowledge and also by creating new ones (Teece, Pisano, & Shuen,
1997). In the following section, we discuss different types of innovation and the
relationship between organizational ambidexterity.
Innovation and Organizational Ambidexterity
Technological Innovation has been considered one of the most important
sources of competitive advantages in the literature. However, the field of innovation is
very broad. Therefore, before investigating any further the relationship between
innovation and organizational ambidexterity, we would like to clarify the concept of
innovation first.
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Innovation has been generally distinguished between technological and
administrative innovation. Technological innovation is more task-oriented and
knowledge or technology focused. On the other hand, administrative innovation
pertains to organizational structure, administrative processes and human resources
management (Damanpour, 1996). In this paper, we focus our research on
technological innovation. In other words, we are more concerned about the
knowledge or technology that organizations utilize or create to produce new products
to satisfy different market demand. To further classify its concept, technological
innovation is distinguished between component knowledge (knowledge of core
concepts of components) and architectural knowledge (knowledge of how the
components and competence can be combined and linked) (Henderson & Clark, 1990).
The distinction between component knowledge and architectural knowledge is useful
for us to examine how innovations affect different kinds of organizational knowledge
(Benner, 2002).
Incremental and Radical Innovation Since Schumpeter’s (1942) notion of
creative destruction, literature on technological innovation has differentiated different
kinds of innovations in terms of their impact on organizations’ established capabilities
or the degree of radicalness or novelty compared with their existing knowledge or
technology (Damanpour, 1991; Henderson & Clark, 1990). Incremental innovation
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refines and improves existing components or products while radical innovation
represents departure from existing organizational knowledge. They are mostly
conceptualized as two ends of a continuum. In addition to radical and incremental
innovations, Henderson and Clark (1990) further identified two more categories:
modular and architectural innovations. Modular innovations depict the innovation that
change the core concept of the core components and leave the products’ architecture
intact. To the contrary, architectural innovations reconfigure the existing components
and create new relationships among them. To simplify our analysis of technological
innovation, we regard architectural innovation as one kind of incremental innovation
and modular innovation as radical one. In the same vein with Henderson and Clark
(1990), we regard these different types of innovation are just matters of degree and
there are no definite boundaries between these different categories. Moreover, the
degree of radicalness or novelty should be defined in terms of organizations’ existing
knowledge. For example, radical innovation adopted by small firms may be treated as
incremental innovation in larger organizations. Therefore, the distinction between
different types of innovation is helpful for us to understand possible outcomes of
innovations.
Definition of Exploitation and Exploration Exploitation and exploration are two
recurrent dimensions in the organization management literature such as innovation,
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organizational design, organizational alignment and adaptation, organizational
learning, and even strategic alliance. The key issue on organizational ambidexterity is
the balance between exploitation and exploration. We would like to discuss two
aspects regarding exploitation and exploration. First is the issue of definition, and the
second one is the relationship between these two dimensions.
The definitions of exploitation and exploration receive a lot of debate. Gupta and
his colleagues (2006) argued that the ambiguity lies in whether these two represent
different types of learning or they can be simply distinguished by the presence or
absence of learning. To be more specific, most researchers agree that only exploration
involves learning activities. As for exploitation, whether it also represents a kind of
organizational learning to certain degree has not reached a consensus.
Those who agree that both exploitation and exploration are learning activities
assert that both activities move along with the learning curve even when they are just
reusing past knowledge. March (1991) described exploitation related to things like
“refinement, choice, production, efficiency, selection, implementation and execution”
and exploration is relevant to “search, variation, risk taking, experimentation, play,
flexibility, discovery, innovation”. March stressed that either exploitation or
exploration includes at least some learning. In his words, “the essence of exploitation
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is the refinement and extensions of existing competencies, technologies, and
paradigms and the essence of exploration is experimentation with new alternatives”
(1991:85). According to Baum and his colleagues, “exploitation refers to learning
gained via local search, experiential refinement, and selection of existing routines and
exploration refers to learning gained through processes of concerted variation,
planned experimentation, and play” (2000:768). Drawing on learning literature,
Benner and Tushman (2002) also defined exploitation and exploration by the location
of search. They claimed that exploitation involving local search for firm’s existing
technological capabilities while exploration is a distant search for new opportunities.
Though both exploitation and exploration are learning activities, they follow entirely
different learning trajectories. He and Wong (2004) distinguished exploitation from
exploration by whether organizational innovation aiming at improving existing
product-market domains or entering new product-market position. In contrast, some
scholars assert that there is no learning at all when organizations are engaged in
exploitation since they just reuse their existing knowledge. That is, exploration is the
only activity that accounts for learning and leads to innovation. Rosenkopft and
Nerkar (2001) explicitly treated all activities as a kind of exploration. In conclusion,
we follow Yell’s (1979) assertion that “even when an organization is attempting to do
nothing more than replicate past actions, it accumulates experience and goes down the
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learning curve, albeit in an incremental manner.” Drawing on organizational learning
theory, we regard both exploitation and exploration as important organizational
approaches of utilizing, searching, and creating organizational knowledge. Regarding
the relationship between exploitation and exploration to organizational innovation, it
is generally considered that exploitation lead to incremental innovation and
exploration inclines for radical innovation. Different outcome of innovation needs
different types of innovation activities. Through exploitative and explorative activities,
organizations accumulate learning experience to refine and improve their
organizational effectiveness. To avoid competence trap and failure trap, both activities
are required (Ancona et al., 2001; Benner & Tushman, 2002; Eisenhardt & Martin,
2000; Levinthal & March, 1993; Liu, 2006; March, 1991, 1996, 2006). Particularly,
the balance between exploitation and exploration has been widely accepted as critical
to organizational success (Levinthal et al., 1993; Lewin, Long, & Carroll, 1999;
March, 1991). As March noted, “Adaptive systems that engage in exploration to the
exclusion of exploitation are likely to find that they suffer the costs of
experimentation without gaining many of the benefits. They exhibit too many
undeveloped new ideas and too little distinctive competence. Conversely, systems that
engage in exploitation to the exclusion of exploration are likely to find themselves
trapped in suboptimal stable equilibria” (1991). Therefore, how to achieve a balance
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between these two activities became central issue in the organizational ambidexterity
literature.
The Relationship (Tension) between Exploitation and Exploration The main
reason that exploitation and exploration have been treated as two ends of a continuum
is the concern of organizational scarce resources. Most scholars have regarded these
two dimensions requiring different organizational resources and attention. As
mentioned in the above section, one of the premises of organizational ambidexterity is
that the relationship between exploitation and exploration could be orthogonal. That is,
organizations could arrange both activities simultaneously when there is slack
resource and when these activities could be executed by separate organization units or
members.
Katila and Ahuja (2002) explicitly treated exploitation and exploration as two
distinct dimensions to be distinguished from those who position local search and
distant search in a unidimensional spectrum. The empirical findings support their
argument about exploitation and exploration. When these two activities are not
limited to resource constraints, the interaction between these two could positively
affect organizations’ new product introduction, which is consistent with March’s
(1991) assertion. Based on organizational learning perspective, Katila and Ahuja
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(2002) also recognized that organizations engage in many kinds of search activities to
solve problems. They define exploitation as “search depth”, which describes how
deeply organizations use and reuse their existing knowledge. As for exploration, they
call it as “search scope”, describing it as how widely organizations explore new
knowledge.
Although organizational learning helps the development of exploitation and
exploration, it also inhibits innovation in some way. Exploitation may lead to
competence trap and exploration may lead to failure trap owing to the effect of
organizational learning. Therefore, it is not easy to maintain a balance between
exploitation and exploration.
Pressures for Exploitation and Exploration Although proposals of
“organizational ambidexterity” advocate ambidextrous organizations would
outperform non-ambidextrous firms, few studies have asked the most fundamental
issue: “why organizations need to be or have to be ambidextrous?” We posit that,
since it is not easy to keep both exploitation and exploration balanced, “being
ambidextrous” is not necessarily the organizations’ first priority. To make sure firm’s
current viability, most firms would incline for exploitative strategy since its outcome
is more certain and could be expected in the short term. When the market competition
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is intense, exploitative strategy seems to be the most secured way to remain survived.
On the other hand, since explorative strategy means experimentation and variation, its
outcome is uncertain and can not be expected. Therefore, we do not reckon the fact
that all organizations would opt for ambidexterity in terms of innovation in the first
place. Therefore, we wonder what the factors that affect organizations’ innovation
strategy are. In the organizational ambidexterity literature, most studies focused on
the internal antecedents that affect organizational ambidexterity. In this paper, we
would like to fill the literature gap to argue that environmental conditions may be
major forces of firm’s strategic choices which is consistent to the logic of contingency
perspective. We posit that the different extent of task environment pressures perceived
by organizations’ top management team may play an important role on the decision
making.
Therefore, in this paper, we would first infer that organizations would choose to
be ambidextrous only when they perceive the pressures to be so. However,
ambidextrous organizations do not necessarily outperform other forms of organization.
This argument is analyzed from two aspects. First, not all organizations perceive the
same degree of environmental pressures even when they are in the same industry. We
argue that organizations would choose to be or not to be ambidextrous according to
the top management teams’ perception of the environmental pressures. Our rationale
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is in the same vein with the integration-responsiveness framework in the international
business theory. The fit between environmental pressures and organizations’ strategic
choice is our first concern. Second, when organizations feel the pressures to pursue
both exploitative and explorative innovation simultaneously, they have to possess the
abilities to do so. Only when they want to be ambidextrous and are capable of being
one, would they perform better than other firms. In this section, we would first discuss
the pressures for exploitation and exploration that perceived by the organizations’ top
management team. We argue that the strategic choice between either exploitative or
explorative innovation, or to do both, is the result of environmental pressures.
Traditional contingency theories suggest that environment has significant impact
on organizations’ strategy (Burns & Stalker, 1961; Dess & Beard, 1984; Miller &
Friesen, 1984). The fact that managerial perceptions of organizational environment
shaping managerial choice has long been reckoned in several research (e.g. Duncan,
1972; Lawrence & Lorsch, 1967). One way to understand the effect of environment
on organizations is through managerial perceptions (Sharfman & Dean, 1991).
Organizations behave in the way that how managers perceive the environment and
respond to it. Three most studied dimensions of the environment are “munificence”,
“complexity” and “dynamism” (Dess & Beard, 1984).
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Environmental Munificence Starbuck (1976) conceptualized environmental
munificence as the extent to which the environment can support sustained growth.
Aldrich (1979) referred as environmental capacity. To synthesize, Dess and Beard
(1984) treated environmental munificence as organizations’ seeking opportunities to
grow and therefore generate slack resources as organizations’ buffer for scarcity. One
of the important factors that determine environmental munificence relates to the
industry product life cycle. Rate of market growth implies for the environmental
capacity that organizations could expand in the market. When the product market is
growing, organizations may obtain more resources from the environment and are
more capable of adopting explorative innovation strategy. Therefore, environmental
munificence not only supports the existing product market but also represents the
capacity to encompass new products.
Proposition 1-1.
Top management teams’ perception of environmental
munificence has a positive effect on their adoption of both exploitative and
explorative (ambidextrous) innovation strategies.
Environmental Dynamism A dynamic environment is characterized by
unpredictable change (Lawless & Finch, 1989). Changes in technologies, customer
preferences, and demand or supply of products and services make current products
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and services obsolete and therefore require new variations (Jansen et al., 2005a;
Sorensen & Stuart, 2000). To minimize the threat of obsolescence, organizations need
both incremental and radical innovations to satisfy the existing market and prepare for
the emerging market. By exploitative and explorative activities, organizations search
information extensively to lessen pressures of uncertainty. Facing dynamic
environment, organizations are under the pressures to respond to all kinds of change.
Proposition 1-2.
Top management teams’ perception of environmental
dynamism has a positive effect on their adoption of both exploitative and
explorative (ambidextrous) innovation strategies.
Environmental Complexity This dimension refers to the amount and variety that
organizations should deal with in the environment (Lawless et al., 1989). As the
amount and variety increases, the degree of complexity increases too. For example,
environmental density means the concentration of competing firms. When the
competition is more intense and concentrated, organizations would need more effort
on monitoring customers, suppliers and competitors. Under complex environment,
organizations would feel the need to keep improving their existing market and to
explore new opportunities or possibilities.
Proposition 1-3. Top management team’s perception of environmental
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complexity has a positive effect of their adoption of both exploitative and
explorative (ambidextrous) innovation strategies.
Fit Between Environmental Factors and the Adoption of Strategy
The concept of fit is a central theme both in the strategic management literature
and contingency perspectives (Porter, 1996; Venkatraman, 1989; Zajac, Kraatz, &
Bresser, 2000). Porter argued that strategic fit is fundamental to both competitive
advantages and the sustainability of those advantages. In this regard, we posit that the
concept of fit is very similar to our notion of organizational ambidexterity. In addition,
the concept of fit in the strategy literature also stands for better performance
(Ginsberg & Venkatraman, 1985; Katsikeas, Samiee, & Theodosiou, 2006; Lukas, Tan,
& Hult, 2001). Organizations that adopt a “fit” or “matching” strategy with the
environmental demand would end up with superior performance.
The concept of “fit” between strategy and environment depicts the
appropriateness of the adopted strategy by organizations (Zajac et al., 2000).
Organization adopting “fit” strategy would outperform others because this strategy
matches the environment demand or conditions. Regarding the central issue of this
research, the adoption of innovation strategy depends on the environmental pressures
perceived by top management teams. When top management teams perceive the
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pressures to deal with and manage both existing and emerging product market and
therefore adopt an ambidextrous innovation strategy, organizations would be better off
than if they do not adopt a fit strategy.
Proposition 2. Firms perceived high degree of munificence, dynamism and
complexity and adopt ambidextrous strategy would outperform those perceive
the same degree of environmental needs but do not adopt ambidextrous strategy
Capabilities to be Ambidextrous
The key issue in how organizations can be ambidextrous resides in how both
exploitation and exploration can be simultaneously managed. As we mentioned before,
March (1991) maintained that an appropriate balance between exploitation and
exploration is critical for firm’s survival and growth. Tushman and O’Reilly (1996)
also suggested that an ambidextrous organization is like a juggler that can both
compete in mature markets (where cost, efficiency, and incremental innovation are
important) and develop new products and services for emerging markets (where
experimentation, speed and flexibility are vital). They argued that an ambidextrous
firm that is capable of operating simultaneously to explore and exploit is likely to
achieve superior performance than firms emphasizing on one at the expense of the
other. Therefore, when we consider how organizations can be ambidextrous, we
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wonder what capabilities organizations can possess to engage in both exploitation and
exploration.
Since organizations’ ability to be ambidextrous is discussed at an organizational
level, we investigate what capabilities organizations have to possess to facilitate their
innovation performance in terms of new product development. Two capabilities are
identified as most important capabilities that contribute to organizational
ambidexterity: combinative capabilities and absorptive capabilities. We discuss how
these two capabilities may enhance the implementation of ambidextrous innovation
strategy in details.
Combinative Capabilities
The resource-based view of the firm maintains that the source of competitive
advantages depending on the development of firm’s specific competence and
capabilities (Barney, 1991; Wernerfelt, 1984, 1995). However, recent research has
moved beyond “local search” within organizations and stressed that reconfiguration of
organizational resources and knowledge is also critical to the development of
competitive advantages (Rosenkopf & Nerkar, 2001). Based on Henderson and
Cockbun’s (1994) logic, local search is similar to search for organizational
“component competence”, which is fundamental to everyday task requirement; while
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reconfiguration is parallel to “architectural competence”, which is to utilize and
integrate the existing component competence and to generate new component
competence. Either of these capabilities is vital to firm’s sustained competitive
advantages. It is this capability of integrating knowledge rather than knowledge itself
that constitutes competitive advantage(Boer, Van den Bosch, & Volberda, 1999).
Several studies have tried to capture the essence of organizational reconfiguration.
Kogut and Zander (1992) recognized firms’ ability to synthesize and apply existing
knowledge as “combinative capabilities”. The purpose of knowledge or resources
combination is to generate new forms of existing knowledge that would ultimately be
commercialized in the market. This concept is also similar to the concept of
“integration” (Grant, 1996a) and “reconfiguration” (Henderson et al., 1990). Since
exploitation means the refinement and improvement of existing knowledge, we regard
combinative capabilities as one of the “process facilitators” that contribute to the
performance of ambidextrous strategy. The importance of organizational
“combinative capabilities” to organizational ambidexterity is in that they are the
sources of organizational uniqueness (Katila & Ahuja, 2002). The fundamental
technological knowledge possessed by organizations may be similar across the
industry. However, what makes organizations to be distinct and unique from others
are the processes and systems utilizing and integrating organizational knowledge. In
28
the literature, “routines” (Nelson et al., 1982) and “metaroutines” (Adler et al., 1999)
represent some characteristics of combinative capabilities since they are the distinct
ways that organizations solve problems. Three types of combinative capabilities,
namely systems capabilities, coordination capabilities and socialization capabilities,
are generally discussed in the literature (Boer et al., 1999; Jansen et al, 2005b; Van
den Bosch, Volberda, & Boer, 1999). Each of the capabilities has its special function
for organizations’ innovation. Therefore, though we discuss these capabilities
distinctively, we would also like to emphasize the need for all of these three
capabilities to achieve organizational ambidexterity.
Systems capabilities This type of capabilities is relevant to the formal
mechanisms of combining organizational knowledge and resources. Organizations
employ rules, procedures, instructions and communication channels to complete task
requirements. Systems capabilities are very useful for integrating organizations’
explicit knowledge. The innovation literature has recognized formalization as an
important antecedent of ambidexterity (Damanpour, 1991; Jansen et al., 2005a, 2006;
Khandwalla, 1977). Systems capabilities such as formalization integrate and combine
organizations’ knowledge or resources in most efficient fashion because they
eliminate unnecessary communication and coordination (Boer et al., 1999).
Formalized working rules and procedures enhance organizational efficiency in
29
integrating and combing knowledge and resources. However, they might hamper
organization’s innovativeness since they allow less variation and constrain
organizational development within existing reference of frame. Therefore, systems
capabilities alone do not enhance organizational ambidexterity.
Coordination capabilities Based on knowledge-based view, organizational
knowledge is dispersed and embedded in organization members. One of
organizations’ primary tasks is to coordinate and therefore collect the efforts made by
different specialists (Grant, 1996b). Organizational coordination is regarded as
solution to align conflicting goals within organization members (Lawrence et al.,
1967). Kogut and Zander (1996) argued that coordination converges conflicting
expectations within organizations. Hence, coordination capabilities facilitate lateral
communication across disciplines and organizational boundaries (Henderson &
Cockburn, 1994; Teece et al., 1997). Coordination capabilities complement systems
capabilities since systems capabilities mostly depending on vertical communication.
Boer, Van den Bosch and Volberda (1999) deemed coordination capabilities as
organizations’ way of relating individuals, tasks and divisions. Mechanisms such as
cross-functional interfaces, participation in decision making and job rotation are
employed by organizations to coordinate organizational activities (Jansen, Bosch, &
Volberda, 2005b). In turbulent environment, mutual adjustment is regarded as vital
30
way of knowledge coordination (Mintzberg, 1979). Mutual adjustment needs
interaction and coordination capabilities facilitate frequency and quality of interaction
within organization members or among divisions. Technological innovation,
especially in terms of exploration, requires variety of knowledge, thinking and ideas.
Coordination among individuals and organizational activities enhance the possibility
of creating new knowledge. To enhance organizations’ ambidextrous innovation
strategy, both systems and coordination capabilities should be in place to complement
each other.
Socialization capabilities These capabilities are contrary to systems capabilities.
Systems capabilities are solid structure of how organizations arrange organizational
activities and solve problems while socialization capabilities are the soft mechanisms
that make organizations stick together. In the innovation and ambidexterity literature,
connectedness (Jansen et al., 2005a, 2006) represents social relations that exist among
organization members. Formal procedures and arrangement within organizations
though directly help solve problems, informal interaction among individuals also help
exchange and flow of organizational knowledge. From knowledge-based view,
organizations are social communities that integrate different expertise (Kogut et al.,
1992). Therefore, socialization capabilities that organizations possess may enhance
organizations’ ambidextrous strategy.
31
Different dimensions of combinative capabilities perform different functions for
achieving organizations’ ambidextrous strategy. We posit that the interaction between
these capabilities could moderate the relationship between ambidextrous strategy and
innovation performance.
Proposition 3. The strength of the relationship between ambidextrous strategy
and new product development performance is positively related to combinative
capabilities (the interaction of systems, coordination, socialization capabilities).
Absorptive Capabilities
In the previous section, we discuss that organizations choose to be ambidextrous
under environmental pressures. This particular environment is characterized as
munificent, dynamic and complex. Under such hypercompetitive context,
organizations not only create and commercialize new knowledge by utilizing existing
knowledge, they have to sense the opportunities and threat and seize the opportunities
to obtain useful resources (Teece, 2007). Cohen and Levinthal (1990) refer such
ability to sense and seize new knowledge outside of organizations as absorptive
capabilities. More specifically, they define absorptive capabilities as “the firm’s
ability to value, assimilate, and apply new knowledge”. Such capabilities enable firms
in hypercompetitive context to explore new knowledge outside organizations
32
therefore contribute to organizations’ exploration. Absorptive capabilities are
especially essential for firms’ under selection pressures.
Hypothesis 4. The strength of the relationship between ambidextrous strategy
and new product development performance is positively related to absorptive
capabilities.
-----------------------------------------------------------------------------------------
Insert Figure 1 here
-----------------------------------------------------------------------------------------
Our specific relationships among these constructs are depicted as above (Figure 1).
We explicated that the adoption of organizations’ innovation strategy (specifically
ambidextrous strategy here) is affected by top management team’s perception of
environmental pressures. Organizations’ new product development performance
depends on whether organizations adopt a “fit” strategy with their external
environment. As for how organizations could enhance their new product development
performance when they adopt an ambidextrous strategy, it depends on organizational
capabilities. Combinative capabilities and absorptive capabilities are two
“process-facilitators” we inferred from the literature. These two capabilities provide
the requisite capabilities of exploiting existing organizational knowledge while
33
maintaining unique by exploring new knowledge and possibilities.
Conclusion
This paper explores the organizational ambidexterity from strategic management
perspective and knowledge-based view. Previous issue did not explicitly link the
strategic choice of innovation strategy with knowledge-based view. We tried to fill
this literature gap and emphasize the fit concept between strategic choices and
environmental demand for ambidextrous organizations. Based on knowledge-based
view, we argue that when organizations perceive the pressures to engage in both
exploitative and exploration activities, certain organizational capabilities are essential
to the achievement of organizational ambidexterity. Previous research seems to put
less emphasis on organizational capabilities. In an era of knowledge economy,
knowledge-based view would provide more insight on the concerning issue.
In conclusion, our research aims to provide more insight from different and more
related perspectives to the concept of ambidexterity. Organizations’ strategy is often
determined and influenced by their environment, especially when this environment is
highly dynamic and competitive. To consider the fitness of the innovation strategy
adopted by organizations, we posit that environmental pressures should be examined
in the first place. Strategic management literature has put lots of emphasis on the
34
concept of fit, stating that the adoption of fit strategy would support organizations’
growth. Previous research on organizational ambidexterity did not emphasize the
concept of fit between environment and strategy. We fill the literature gap in this
research. Another contribution of this research is that we not only examine
organizations’ external environment, we argue that certain capabilities in terms of
knowledge-based view should be taken into account as well. Since the nature of
organizational ambidexterity is the tension between exploitation and exploration, such
capabilities should be able to combine and integrate different knowledge activities
within organizations. We propose that combinative capabilities and absorptive
capabilities positively enhance the relationship between ambidextrous strategy and its
performance on new product development. For managerial implication, we presume
that this conceptual framework regarding organizational ambidexterity would give
managers a comprehensive picture of why they have to adopt ambidextrous
innovation strategy and how to simultaneously manage exploitative and explorative
innovation capabilities when they have to do so.
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Figure 1. Research Framework
Environmental
Pressures
Munificence
Dynamism
Complexity
Ambidextrous
Strategy
New Product
Development
Performance
Combinative Capabilities
Absorptive Capabilities