Exploitation and exploration

The best companies keep exploitation and exploration in balance, writes Jens Maier

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My book The Ambidextrous Organization – Exploring the New, While Exploiting the Now was published in 2015. How much progress have we made? Are leaders and organizations better at ambidexterity than they were four years ago, when I was writing?

Ambidextrous organizations need ambidextrous leaders; that is, organizations need to build organizational capabilities (e.g. processes supporting exploration) and leaders need to develop their individual competencies to embrace exploration opportunities.

In my experience, exploitation is not the challenging side of the equation. Most businesses are built around processes to get existing products and services out of the door and most leaders are rewarded for doing the same. But without balancing capabilities to create the new while conducting ‘business as usual’, businesses are destined to fail at some point.

There are three important aspects that organizations trying to embrace ambidexterity need to address.

Aspect 1

Structure versus context

This question is very much at the heart of the strategic debate about ambidexterity. Should we create a separate unit to address exploration, safe from the daily exigencies of exploitation, that is, a structural solution? Or should we follow a contextual solution? The contextual solution postulates that leaders in the organization are comfortable in leading with ‘both hands’. For example: in the morning, directing an exploitation project (e.g. Systems, Applications & Products implementation) with clear return on investment (ROI) targets and milestones for an 18-month period; and in the afternoon, sponsoring an exploration project, initially without any ROI, and with three to four months to decide on whether to ‘kill’ or ‘accelerate’ the project. This leads us to the second aspect – do ambidextrous leaders exist? In other words, how feasible is the contextual solution?

Aspect 2

Expand the bandwidth

Bandwidth seems to go right to the heart of ambidexterity. How can we develop leaders who are confident and experienced in leading both exploitation and exploration projects, and with the individual competencies to tackle both successfully? This is about the importance of adaptability, knowing when to put the pen in the other hand. In my experience, the high-flyers from large organizations usually score very high on ‘conscientiousness’ in the Big Five personality test. This means that they are really well-suited to running exploitation projects but are challenged when it comes to dealing with the ambiguity inherent in exploration projects. Many also present with low scores on ‘openness to change’, again meaning they are happier with a steady state than with the new. Individual leaders need to expand their personal bandwidth and the first step is self-insight.

But there is also a bandwidth challenge at the organizational level. As the late professor of corporate strategy CK Prahalad put it: “Capabilities stay when the competencies have gone home.” The organization needs to develop in parallel with its leaders, moving beyond product innovation to embrace business model innovation. Getting leaders from different industries together can kick-start important conversations here. Working on concrete exploration projects with internal project leaders and project sponsors provides the experiences necessary to further develop the organizational capabilities required (e.g. develop robust exploration processes). It simultaneously offers the potential for individuals (namely, project leaders and their sponsors) to get first-hand experiences with exploration projects (inherent ambiguity, ‘failing fast’ etc.).

This leads us to the third and final aspect – the different processes needed to support the different approaches.

Aspect 3

Separate processes

Most organizations today still have no separate processes for exploitation and for exploration projects. For example, ROI is a suitable indicator for an exploitation project, which can follow the traditional funnel model: make the case for ROI, project stage gating to follow. ROI is useless at the very start of an exploration project. The project leaders at the start of an exploration simply do not know enough to calculate the ROI. A robust approach to addressing the ambiguity inherent in an exploration project is to allow for a short period (three to four months) to assess its feasibility. Every exploration project needs a senior leader in the role of sponsor, to run air-cover and stop the idea being quashed too early, to organize a (small) exploration budget and to give access to internal functional experts. The three months are used to examine the business case and to develop a prototype of the new business model. At the end of the three months a review should decide either to ‘kill’ or to ‘accelerate’ the project (the notion of ‘failing fast’). This avoids ‘undead projects’ and limits the risks for the organization and for the project leader and sponsor. Only at this stage should the question regarding ROI be answered.

Progress?

So how much further ahead are we today? Ambidexterity has achieved most impact in the C-suite. Here, the members do not want to fall into the trap of companies like BlackBerry and Nokia in the early 2000s. The challenge is that the debate tends to get labelled with the latest strategic challenge (today it’s digitization) rather than being seen as an ongoing need to balance exploitation with exploration in the face of every new strategic challenge.

The place where organizations could definitely do more is in HR. While the C-suite has its annual top 100, or top 150 meeting, this is often too busy with communications to allow for real debate about whether the organization has exploration-exploitation in balance. Meanwhile, HR owns the top talent pool, often the 30-40 people from across the organization who are ideally placed to stage the debate, often under the auspices of a CEO project.

While some HR leaders own the challenge of leading the debate, too many see themselves as business partners rather than agenda-setters. It’s a missed opportunity. HR could use the high-flyer programme to stage the debate that the C-suite knows it should be having.

— Jens Maier works in the field of leadership and innovation as author, teacher (University of St Gallen), consultant and entrepreneur

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