Ambidexterity: Where it Works and Why
Walmart’s recent announcement of its new health business is a timely reminder of how large corporations can lead disruptive innovation. They gave the new unit autonomy to grow without sacrificing access to the assets of the core business. That is what we call ambidexterity and it was central to Walmart’s approach.
Change Logic’s partners have advocated splitting out innovation units from the core business for more than 20 years. We first learned the approach from P&G, then helped IBM’s famous Emerging Business Opportunities grow billion-dollar businesses in the 2000s (that they forgot this approach when it came to the Cloud is a sadness to us). Ambidexterity means creating separate units to ideate, incubate, and scale new businesses beyond the core. The new ventures need to be separate, but not lose access to the assets and capabilities of the core business that can give them an edge over small startups in fast-moving markets.
We are constantly asked: does this work for digital transformation? It is a fair question as so much of digital is about upgrading core business capabilities to take advantage of big data, machine learning, and other transformative technologies. However, digital is also about radical, disruptive innovation that creates new business models to challenge traditional industry leaders. This is the space for ambidextrous organizations: both optimizing the core business and exploring new businesses.
This is not just a theory, there are firms making clear progress applying the ambidextrous organization to enable digital, business growth. As our recent report on Beating the Odds of Digital Disruption explains, this involves more than applying open innovation, design thinking or the lean start-up methodology.
Here are three examples.
LexisNexis is one of the world’s first online business successes. Its 1979 demonstration of modem dial-up access to legal case information to the US Supreme Court is the stuff of legends. It was due to last 30 minutes, but so impressed where the justices that it lasted nine hours. By 2000, it had become a billion-dollar business providing a wide range of information tools to law firms and many others.
Hidden within this diverse, growing company was a small unit focused on aggregating public records information about individuals for use by law enforcement and insurance companies. A thoughtful divisional manager separated out this unit from the rest of his business, so that it could find new opportunities to grow. LexisNexis realized that linking data sets, such as vehicle registrations and insurance claims to what they already had, would increase the value of the data exponentially. They acquired a data linking software from a small firm in Boca Raton, Florida; and so was born LexisNexis Risk Solutions, a business with its own seat at the top table. From here, they made a series of bold steps to both acquire and build big data solutions that are now vital to the US insurance and health care industries.
LexisNexis identified a new opportunity (ideation), determined that the new capability was valued by customers (incubation), separated it out from the core business, and then scaled the explore business through strategic acquisitions. Today Risk Solutions is a multi-billion-dollar business. It is equal in size to its parent company, and one that can genuinely claim to be a pioneer in big data analytics.
The offices of UNIQA Biztosító in Budapest Hungary is home to two teams. One is the traditional insurer, a subsidiary of Austria’s largest insurance company with businesses across Central and Eastern Europe. The other is Cherrisk, a digital start-up that is creating an online community for risk sharing. It aims to reinvent insurance, challenging the fundamental economics of the industry. The twist is that its founder, Krisztian Kurtisz, is the CEO of both Cherrisk and UNIQA Hungary.
Kurtisz plays two separate games at the same time. In UNIQA Hungary, he applies digital to make improvements to provide better service, lower costs, and more attractive product offerings. In Cherrisk, he is seeking to lead a revolution. His aim is to return insurance to its roots, giving customers the opportunity to return surpluses to the community, rather than paying for a large administrative infrastructure. Although Cherrisk shares the same location and CEO, it is otherwise split entirely from the mothership. UNIQA employees are welcome to apply for jobs in the corporate startup, but only on the condition that they cannot return if it does not work out. This one-way door helps to sustain an entrepreneurial culture, where each decision has consequences.
Kurtisz’s ambidextrous unit started to scale in 2020. Cherrisk has 125,000 active users in Hungary alone and is contributing thousands of Euros to good causes.
Walmart’s healthcare business is not the only area where it has applied ambidexterity to help fuel growth. Walmart’s Store 8 has a mission to identify capabilities that will transform retail and integrate them into Walmart’s business. Its application of ambidexterity is very different from the opportunity-driven model of UNIQA and LexisNexis. Store 8 sets out to find opportunities to incubate for Walmart and builds the capabilities to do so outside the constraints of the main business.
Store 8 identifies needs inside the business, such as new customer segments, reductions in the cost of pharmaceutical supply, or improving store operations. Store 8 then matches these needs with ideas and pitches them to Walmart’s leadership to make sure the idea is a good fit for Walmart. This means that once it has proven the idea, there is a ready-made sponsor to champion and scale the business within the company. Store 8 is the facilitator of innovation, building a pipeline of opportunities.
Store 8’s ventures are starting to have impact. Walmart InHome Delivery is a service now available to more than a million customers in the US. It uses remote sensing and connected technologies to allow Walmart employees to put fresh and frozen groceries in people’s refrigerators. Other new ventures include experiments with technology, partnerships, and experimenting with new value propositions. Once a new idea had been incubated, Store 8 then leverages the physical assets of Walmart to scale the business. For example, a new computer vision technology can be easily tried in 50 stores, improved, and then rolled out in 1,000 stores.
Ambidexterity Key Success Factors
These cases, along with many others we have researched and been associated with over the years, have taught us some key underlying principles for what makes ambidexterity work. You can read more in Charles O’Reilly and Mike Tushman’s, Lead and Disrupt.
- Ambition – the most successful ambidextrous firms start with a burning ambition to do something, not just a general interest in innovation. This is more than a financial goal, it needs to define the strategic frame for the new ventures or hunting zones. For example, the technology firm Nvidia wanted to enable graphic computing to lead the AI revolution. It moved from a niche gaming player to a prime mover in autonomous vehicles, blockchain, and deep computing.
- 3 disciplines – Ideation, Incubation, and Scaling are the 3 disciplines of innovation, and following them with rigor sets you ahead of the pack. Walmart’s Store 8 has clearly distinct approaches to each discipline, ensuring that it does not become victim to the ‘innovation zoo’ with too many ideas, not enough commitment to invest.
- Autonomy – it is rational for business leaders under pressure to perform to cut the uncertain, unproven businesses ahead of the known core. That’s why you need to create separation organizationally with a ring-fenced budget, resources, and even a different location. That’s not because the innovation unit is special and privileged, but because it will not survive unless you do.
- Leverage – the biggest advantage established firms have over the startup is the assets of the core business: customers, manufacturing, back office processes, etc. It sounds contradictory, but the new ventures need to be able to leverage these assets, even as they stay separate. This is one of the most difficult things to manage. IBM’s EBOs may have done it best by creating ‘extended teams’ of managers that were tasked to be the ambassadors of the new ventures within the traditional business. This made them perfectly positioned to navigate the minutiae that is often involved.
- Senior team – most critical is a senior team that can set the ambition, sponsor projects as they are incubated, and protect the explore business as its starts to scale. That means a team that can deal with high-stakes, high-tension conversations about the performance of an emerging business. They need to be as good at killing off ideas that are not supported by data from market experiments, as they are brave when it comes to committing resources to the one that do.
For more on how to apply ambidexterity to Ideate, Incubate, and Scale new businesses please see our report on Beating the Odds of Digital Disruption. If you are interested in learning more about ambidexterity and how to apply it, email me at email@example.com.