An organization serves the community needs, in addition to providing income and self-worth. It contributes to the progress of the society through innovations and inventions. The success of an organization in the long term will depend on its ability to envision business opportunities; ability to innovate and come up with new idea, products and services; its ability to motivate itself, its ability to remain organized and its willingness to take risks. The major challenge of many business enterprise is not only to profit from existing opportunities, but also to remain viable in the long run. While sufficient self-exploitation aids in maximizing current profit, future survival will depend on exploratory activities to find new business opportunities. An organization that pursues two different models of management simultaneously, is called ambidextrous organization. The reward for ambidextricity will vary with time, and are dependent on factors that exist beyond the scope of the organization. Hence, this project will study the extent of organization ambidextricity required to achieve breakthrough innovation at a given time. Such studies will be beneficial for future decision making and act as reference for another organization that want to produce breakthrough innovation through ambidextricity.
Introduction: Almost every business enterprise begins as an exploratory endeavor that is motivated by the lure of making a profit. Once the business achieves a certain level of success, it adopts an exploitative stance and tries to make maximum profit from the new product /services that was discovered through exploration. An organization serves the community needs, in addition to providing income and self-worth. It contributes to the progress of the society through innovations and inventions. The success of an organization in the long term, will depend on its ability to envision business opportunities; ability to innovate and come up with new idea, products and services; its ability to motivate itself, its ability to remain organized and its willingness to take risks. The major challenge of many business enterprises is not only to profit from existing opportunities, but also to remain viable in the long run. While sufficient self-exploitation aids in maximizing current profit, future survival will depend on exploratory activities to find new business grounds. While exploration may not be important in a stable market, it is extremely important for product with changing market trends. For long term survival, an organization will have to adopt both exploitative and explorative strategies. (Judge, 2011)
An organization that pursues two different contradicting models of management simultaneously is called ambidextrous organization (Blarr, 2012). The organization could be a firm, a government or a political party that serves public function. The exploitative and exploratory models help an organization made short and long term profits respectively. Under exploitation, the organization follows rules and eliminates those who do not follow the rules. The main focus of exploitation is to serve existing customers and their needs. The effort of the organization under the exploitation model is to optimize current production conditions and refine competencies, to suit management rules. This model of functioning helps the organization profit from present market. The exploration model of management on the other hand, variance and slack in the organization. This will enable identification of new customers and development of new competencies. Exploration helps the organization create opportunities and profits for the future. Superior management systems have an optimum balance of both exploitation and exploration function. There is no one value of optimum balance that will fit all the organizations. The ratio of exploitation and exploration in the organization will vary and depend on the direction and speed of change happening in the organization environment. (Chen Tsai, 2012)
The exploration and exploitation in an organization can be managed using two approaches. One of the approach is “structural ambidexterity”. In structural ambidexterity, the exploration and exploitation are handled by two different teams or departments in the organization. The other approach is called “contextual ambidexterity”. In contextual ambidexterity, the same R& D department is concerned with achieving the balance in exploration and exploitation. Contextual ambidexterity, promotes individuals who practice exploration and exploitation and is more successful in achieving the optimum outcome. The organization can use rules, rewards, practices and technologies, to bring about behavioral modification in its employees, and achieve the optimum combination of exploration and exploitation behavior. This will help organizational survival and success. (He & Wong, 2004)
The management can control organizational behavior towards exploitation and exploration by controlling the beliefs of the employees and by setting strict boundaries. Clear and effective communication about organizational value and goals, will help build the belief about the purpose of the organization. This will encourage its employees to function in line with these beliefs. Providing clear rules and enforcing them, will prevent unwanted behavior. Likewise, providing a diagnostic and interaction facility, will provide opportunities to the employees to correct themselves and focus their attention on new activities that are in line with the organization’s purposes. Setting up beliefs, enable exploration activities within the boundaries. Likewise, establishing rules will prevent risks and crossing boundaries, while engaging in exploitation function. Balancing exploitation and exploration in a system, is almost like riding the bike and requires continuous adjustment and adapting to changing tension. An imbalance and excessive force in one function (exploitative or explorative) may topple the organization and negatively affect its success. (Andriopoulos & Lewis, 2009)
Review of Literature:
Breakthrough projects in an organization arise through the act of balancing exploitation and exploration. All business organizations, face a certain level of pressure to innovate. It is important that these innovations are made without disturbing the activities to which the organization is already committed. The new stream of activities is to be generated while maintaining the mainstream activities. Projects in the mainstream, support the organization existing business. These projects are based on existing customer needs and already established technologies. It is about being the best at what one does. On the other hand, new stream projects are out of the box projects that require renewal of capabilities and innovation. It aims to support the company, in the future. The present workforce will lack experience on the new stream projects. These new stream projects eventually give rise to breakthrough technologies, services or process and creates business opportunities in the future. Thus new stream projects are components of emerging business, while mainstream projects are part of existing business. New stream projects and innovations happen through exploration, which includes search, fun, flexibility, experimentation, risk taking and discovery (Bögenhold, 2004). It is not necessary that these activities always result in rewards and breakthrough. On the other hand, mainstream projects, are driven through exploitation which includes activities like making the right decision, selection, reﬁnement, production, efﬁciency, implementation and execution. These are rigid activities and will provide definite returns. (Turner, Swart & Maylor, 2012)
According to one theory, being ambidextrous provides the organization, the ability to compete in the changing market and come up with innovative ideas that will help capture new markets. At the same time, it helps the organization improve its efficiency. Exploration and exploitation will go hand in hand. The new innovations made through exploration can help reduce production cost, improves efficiency, thereby enabling profit which is targeted of exploitative activities. Explorative nature, will enable the organization to come up with innovations that will help win the market competition. Exploitation nature, will enable market sustenance. Both these qualities are important to tackle market uncertainties and ensure success. Presently, there is a lack of proper scales that can measure explorative and exploitation activities in an organization, and thus its connection with success is largely unverified. Though rational thinking, may support this theory, the success of ambidexterity is largely depended on the product type and market trends. (Preda, 2016)
Though exploitation and exploration may help achieve organizational success, it is essential that the management maintains the optimum tension that drives these ambidextrous activities in an organization. The success of an organization’s approach in integrating exploitation and exploratory behavior, is determined by its ability to eliminate the tension or to create a tension, so that the optimum ratio of ambidexterity in an organization is maintained. While certain organizations promote socialization to integrate these functions in its employee’s behavior, others use rules and rewards. (Sun & Lo, 2014)
An employee’s or organization’s drive towards exploration is measured in terms of innovation. This in turn is seen as breakthrough ideas, loose adherence to customer satisfaction and passion towards the organization. The exploitative nature of the organization is measured in terms of increased profit, tight adherence to customer orientation and discipline to organizational rules. It is very difficult to create and introduce a management concept that will generate the right tension for ambidexterity in an organization. While certain practices and organizational activities may create tension. If these activities are not rightly balanced, the tension can lead to organizational failure. (Uotila, Maula, Keil & Zahra, 2009)
When an organization lays excessive emphasis on productivity, it loses its flexibility and the ability to create innovations. A study conducted in an automobile industry, found a negative association between economic progress and productivity of the firm. Productivity is not sufficient to succeed in automobiles (for that matter in most technologies) industry. Innovation boosts productivity. The demand for automobile is not directly related to productivity. As production increases demand decreases. At a certain point of time, any amount of efficiency will not boost the declining market. This necessitates the need for managerial activities that can control production, increase demand and improve profit. This explains why exploitation and exploration are interlinked in product management processes. (Kortmann, 2012)
Production management is not only about increasing product efficiency, but also about developing innovative ways to create market and sell the product. When the demand for the product is high, exploitative management buffers the variations in exploration. On the other hand, when the market is low or steady, explorative management can buffer the decrease in exploitative function. The interplay of exploitative and explorative functioning, will help meet the three main practices of product management: process mapping, improvement and adherence to the improvised process. Repeating these practices, will help the organization adapt to changes that occur with time and reap profits. In industries that specializes in technologies, different intra-organizations, networks participate in the production activity. While one unit is engaged in exploration activity, others are concerned with exploitative activities. Process management is about streamlining the activity of different departments in the production network, to speed production time and deliver the product on time. (van der Steen, van Twist, van der Vlist & Demkes, 2010)
The innovations that happen in the exploratory unit can be done either to meet the needs of the current customers, or to create new opportunities for the future. Most innovations are marked by change in technology or technology growth. This has to be communicated to the exploitative unit of the production process. The exploitative unit responds to changes happening for explorative activities. Newer technology innovations, increases demand for new skills and talents. Thus an inflexible industry that focusses solely on exploitative producing, will lose flexibility and eventually fail to succeed in the market. Thus the R& D of every production unit continuously aims to increase efficiency in the latest technology. The employees need to remain flexible and adjust to the changes in technology. Once the employees have adapted to the innovation, they have to return back to the protocol of adhering to best practices and increase competency. Thus, production units, wants its employees to remain flexible to repeat back and forth from exploratory to exploitative function. (Zacharias, 2014)
Critical thinking and decision making are important components of explorative functions. On the contrary, exploitative function is part of the organizational routine. At the macro level this repetitive routine is important in taking the organization forward. On the contrary, exploitative function acts at micro level and in the minds of the individuals. These mental functions are triggered by happenings in the market. (West, 2012)
Most of the exploratory functions we see in an organization are intuitive in nature, and are taken as immediate response to recognition of a situation. The majority of the activities in an organization is exploitative in nature and arise from adherence to rules. Explorative activities are restricted to a few individuals for a short period of time. With excessive emphasis on exploitation, the organization begins to accumulate competences and rewards, and this slowly drives out exploratory tendencies. The positive reward associated with competence, makes the organization engage more and more in the same repetitive exploitative activity, and eventually the organization loses its drive towards innovation. Every innovation need not necessarily end in success and rewards. When an idea fails, the mind tries to find a better solution. Innovation and exploratory behavior can also lead to a chain of unrewarding outcomes, and thus less favored by many organizations. There are limitations to human cognitive ability and this can limit the outcome of exploration activities. Nevertheless, it is important that all efforts taken under exploratory activities are rationally valid. (Popadić, Černe & Milohnić, 2015)
An ambidextrous organization sets an environment that favors mutual learning and progress of the organization and its individuals. At any given time, people in an organization hold a set of beliefs about the organization, based on the tension in the environment. The organizational procedures, norms, rules and forms, codes for the knowledge, based on which the organization and the individuals in it function. The beliefs of individuals in an organization, often match to meet the knowledge set by these organizational code. Changes in the external environment and in knowledge, will change codes and this in turn will influence the beliefs.
In an organization where socialization is low, the individual’s learning from organizational codes is slow. When socialization in an organization is high, individual’s learning from organization code is high. The learning process cannot be completely exploited, as it will make adaptation difficult, with time. Thus the learning process must have the right balance of exploitative and explorative functions. In order to establish a routine, companies want to work out the right ratio of both functions in the learning process. Arriving at the right ratio is a dilemma and can be only be found through trial and error. The optimum ratio will be decided based on the outcome. (March, 1991)
Most individuals in an organization choose functions that are exploitative, as they are sure to pay off well. Only few choose exploratory function, as passion drives their actions and helps them overcome risk. Individuals in an organization vary in their ability to perform explorative and exploitative role. For example, striatum and ventromedial prefrontal cortex of the brain is important for exploitative functioning and decision making. On the other hand, frontopolar cortex is important for explorative decision making. Thus, individual performance will depend on the development in these respective brain areas. Learning in an organization, is effectively reinforced when it is connected with an economic value. The area concerned with reinforment in the brain is the medial orbifrontal cortex and it is the same area that appreciate the value of rewards. (Lin & McDonough, 2014; Lin, McDonough, Lin & Lin, 2012)
Both exploration and exploitation activities have tradeoff (Luger, 2014). The organization must make a right decision, on how much resources it can allot for either activity. Exploration may give benefits in the long run, but it is uncertain and risky (O'Reilly & Tushman, 2013). Exploitation will provide definite short term benefits. Understanding an organization’s decision about investments, and strategies it adopts for exploratory and exploitative activities will help determine an optimum balance of the company. The rules, practices, customs, investments, incentives and hiring practices, will give an idea on the organizational ambidextricity, and help define the optimum levels for each activity. The exploratory and exploitative activity can be studied at the level of the individual, organization and social system. The preference for risk taking will determine the amount of resources allocated at each level toward exploratory activities. Therefore the purpose of this project, will be to determine practices at an individual and organizational level that support exploratory behavior and to determine the optimum level for each activity in an ambidextrous organization that makes breakthrough innovations. The reward for ambidextricity will vary with time, and are dependent on factors that exist beyond the scope of the organization. Hence, this project will study the extent of organization ambidextricity required to achieve breakthrough innovation at a given time. Such studies will be beneficial for future decision making and act as reference for another organization that want to produce breakthrough innovation through ambidextricity.
Does the organization that achieves breakthrough innovations, promote exploration by investment in R& D and Product Development?
Hypothesis: The organization that makes breakthrough innovation, invests more money in exploration activities.
Data for this study is quantitative in nature, and employs correlation/regression analysis to demontrate the relationshp between R&D spending and innovation, as it relates to the two companies of interest. Related data was thus collected via the two company’s annual performance statements, and other publicly released financial data. More specifically data was collected for the years 2001 to 2015, for both Samsung and Nokia. Through published information, and visit to organistaion, the number of new products released, and investment in R&D can be deermined.
Innovataion is the primary dependent variable. Innovation is assumed to be a derivative of investment. That is to say that the hypothesis assumes that the greater the comany’s investment in R&D the greater the growth in innovation and products brought to market. The time frame studied, which covers a 15 year period, allows for the long-term, high-tech projects to reach frutition as well as shorter-term R&D projects, to show long-term, rather and short-term impact of investment on innovatin.
Investment is th primary independent variable. The hypothesis states that as investment in research and dvelopment is incraesed, a growth in innovation is also experienced. Investment is independent of other factors, and at the descretion of management. It can be measured through dollars spent per year, but should be tracked over time, because investment may result in the development of a single concept over multiple years.
The control variable will be years in business. As such, both the Ho and Ha must be adjusted, and the regression model designed to accomodate any differences created by R&D already completed, as a result of years in business. As such the hypothoses tested will be as follows
Ho: There is no relationship between the dollars spend on R&D and the measure of innovation experienced within a company, adjusting for years in business, such that r = 0.
Ha: There is a relationship between the dollars spend on R&D and the measure of innovation experienced within a company, adjusting for years in business, such that, r ≠ 0.
The data collected will be analyzed using descriptive statistics, and through correlation/regretion analysis. More specifically, ANOVA will be used to create not only an analysis of the regression, but to define the significance of the variance within the regression. Further, Levene’s test must be used to test the data for heteroscedasticity. This will provide a linear description of the relationship between our selected dependent and independent varible inorder to show the strength of correlation, or relationship between R&D investment and innovation. The model of the relationship, as hypothesized, gives a basic estimation of, or explation of, how investment can be used to predict innovation in product line. While this method cannot be used to assume a direct cause-and-effect-relationship between these two factors, it can be used to show a strong bond, or relationship in their movement.
Expected research outcome:
The company that made the breakthrough innovation is expected to have a higher emphasis on exploratory behavior, when compared to the company that has lower product breakthrough. The optimum ratio of both the activities of each company will be determined, to identify the ambidextrous nature of both orgsanistion. This research will help understand the advantages and disadvantages of ambidextricity. It will also help assess the importance of each activity towards organizational success.
The project funding will also guide managers in organizing activities to suit organizational needs. An interesting aspect of this study is that it uses different measures to study ambidextrecity. Samples from two industries will be compared to their performance and this will be linked to the ambidextricity. This study is important, as it will help validate the given hypothesis: Breakthrough products and services are produced by an organization that encourages exploratory practices at individual and organizational activities. High ambidextricity and low ambidextricity comes with a cost.
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