Week 4: Learning Flashcards
Learning in companies
- In organizational settings, learning refers to the processes of creating, retaining and transferring knowledge.
- Learning is key to sustained competitive advantage, because it is one of the most important factors that ensure a continuous fit between a company’s knowledge and capabilities and the environment which changes (more or less radically) over time
- Strategic innovation produces a radical disconnection between the environment and what the company knows
Learning in the context of strategic innovation is thus critical:
ineffective knowledge and routines must be disregarded, effective ones must be retained, and new ones must be learnt quickly
Exploration and exploitation
In the midst of strategic innovation, it is unlikely that a company suddenly shifts overnight from one capability to another, to a business model to another, or to a business area to another. Instead, strategic innovation should be considered as an evolution of the company, which involves complex processes.
One of the greatest challenges for strategic innovators is being able to combine effectively two logics: exploitation and exploration.
Exploration
Exploration is a logic that involves play, creativity, experimentation, trial-and-error, risk-taking, discovery. New entrepreneurial ventures are generally associated with this logic.
Exploitation
Exploitation is a logic that involves efficiency, execution, discipline, streamlining, sticking to what already works as it provides short-term success, nurturing the core business, incremental innovation. Large incumbent companies are generally associated with this logic.
Exploration and exploitation in innovation streams
The success of long-term strategic survival (and thus, of strategic innovation) is to combine exploration and exploitation. We can now reconceptualize the “success paradox” (see Week 1) as a form of dominance of exploitation over exploration in established companies: “Established organizations will always specialize in exploitation, in becoming more efficient in using what they already know. Such organizations will become dominant in the short-run, but will gradually become obsolescent and fail” (Jim March).
There are two consequences:
* strategic innovators need to simultaneously manage a portfolio of innovation streams, where some are more exploitative (they rely on existing capabilities, competences, resources, processes, etc…) and some are more explorative (they are more distant from the current position, they need different capabilities, competences, resources, processes, etc…)
* the relationship between exploitation and exploration is complex, difficult and needs to be managed, since innovation streams present substantial organizational challenges.
* The problem is not exploitation per se, but overlooking the importance of exploration for the long-run strategic success of the company in favor of exploitation.
two consequences of exploration and exploitation in innovation streams
There are two consequences:
- strategic innovators need to simultaneously manage a portfolio of innovation streams, where some are more exploitative (they rely on existing capabilities, competences, resources, processes, etc…) and some are more explorative (they are more distant from the current position, they need different capabilities, competences, resources, processes, etc…)
- the relationship between exploitation and exploration is complex, difficult and needs to be managed, since innovation streams present substantial organizational challenges.
The problem is not exploitation per se, but overlooking the importance of exploration for the long-run strategic success of the company in favor of exploitation.
Structural ambidexterity
- In general terms, ambidexterity occurs when instances of exploration and exploitation are coupled together.
- One solution for managing the contradictory pressures from explorative and exploitative innovation streams is to develop structural ambidexterity.
- Structural ambidexterity uses organizational design as a way to solve these pressures. In a structurally ambidextrous organization, exploration and exploitation occur simultaneously in structurally separated units.
- However, separation is not just structural: it usually also requires competencies, organizational processes, incentives, systems and cultures, that are aligned within the unit but (radically) different between the exploratory and the exploitative units.
- Integration occurs at the level of the senior executive team, which uses its power to shelter the exploratory unit and works to remove the resistance to change due to the presence of misalignment between units.
4 components of Ambidextrous leadership
Successful ambidextrous leadership has four components:
* A clear strategic intent that justifies the need for exploitation and exploration, including the explicit identification of those organizational assets and capabilities that can be used for competitive advantage by the exploratory unit (resource-sharing)
- Senior management commitment and oversight to nurture and fund the new venture and protect it from those who would kill it integration
- Sufficient separation from the exploitative business so the new venture can develop its own architectural alignment and the careful design of the organizational interfaces needed to leverage the critical assets and capabilities from the mature side of the enterprise, including clear criteria to decide when to either drop the exploratory unit or integrate it back into the organization
- Purpose, values, and a culture that provide for a common identity across the explore- and-exploit units that helps all involved see that they are on the same team.
Structural ambidexterity and other organizational design solutions
Structural ambidexterity is not the only solution to this problem. Companies can use different designs to tackle strategic innovation issues. Compared to structural ambidexterity:
- spin-outs present even more separation between exploration and exploitation, are to be preferred when there are little to zero market or technology synergies with other units of the company
- cross-functional teams are embedded in the existing functional organization, and are to be preferred when the resistance to change (inertia) is low. The main cause for failure of cross-functional teams is cultural, political (e.g., status, allocation of resources) and community resistance, as it is embedded within the existing organization.
When is structural ambidexterity needed?
fig
y-axis: Strategic importance (low, high)
x-axis: Possibility to leverage core resources and competencies (low, high)
Spin-out (low, low)
Existing biz unit or outsource (low, high)
Independent biz unit (high, low)
Structural ambidexterity (high, high)
Contextual ambidexterity
- Contextual ambidexterity is the behavioral capacity to simultaneously demonstrate alignment (i.e., exploitation) and adaptability (i.e., exploration) across an entire business unit.
- It focuses on the design of a cultural context characterized by an interaction of stretch, discipline, and trust.
- It is centered on the individuals rather than on the organizational unit.
- It requires a supportive organizational context that encourages individuals to make their own judgements as to how to best divide their time between the demands for exploitation and exploration.
Ambidexterity and business models
- The reason for this is countering, reactively or proactively, those companies, often new entrants, that are attacking established companies by means of disruptive business model innovation (Christensen), which starts through gaining market share from unattended, secondary demand, and gaining customer traction rapidly. The success of disruptive new entrants relies on the radical difference between their business models and established companies’ business models.
- As strategic innovation by large incumbents very often involves exploitation (sustaining profits through the core business) and exploration (venturing into new areas for the long-term survival of the company), such companies need to adopt multiple business models at the same time.
- How can established companies manage this conflict between business models?
4 potential strategies companies can use to manage cannabilisation risks between business models
y-axis: Nature of conflicts between the established business and the strategic innovation
x-axis: level of market relatedness between the established business and the innovation
Phased separation strategy (End game is separation but it starts integrated) (low, low)
Integration strategy (low, high)
Separation strategy (high, low)
Phased integration strategy (End game is integration but it starts separated) (high, high)
Separation strategy (high, low)
- Separation strategy is appropriate when conflicts between the business models are high and the two models have low possibility of synergy.
- In this case, the new business model is hosted in a new unit, separate from the parent. This model is the most similar to “structural ambidexterity”.
- Key success factors: leaving the new unit to develop its own culture, granting more autonomy in making financial and operational decisions, providing integration with a supportive, insider senior management.
- Example: Nestlè and Nespresso.
Integration strategy (low, high)
- Integration strategy is appropriate when conflicts between the business models are low and the two models have high possibility of synergy due to market similarity.
- In this case, the new business model is hosted within the parent company.
- Key success factors: embracing the new business model in a creative way ( defeating cognitive inertia) that builds upon the competences of the established competitors and restores the margins in the business to a higher level than the attacking companies have.skill in devising non- trivial corporate and business strategies that differentiate the company from competitors, not imitate them.
- Example: SMH and Swatch.
