After decades of research into corporate innovation, one immutable rule stands out: never leave the business responsibility for leading today’s market in charge of disrupting tomorrow. This Core/Explore or Explore/Exploit challenge is a concept strongly championed by our founder Professor Mike Tushman from HBS. A core operating business and an exploratory venture have different business logics and rhythms. Combining them is like crossing the positive and negative wires of an electrical circuit.
The alternative is to separate out the explore ventures from the core business in a unit. We call this an ‘ambidextrous organization’, where core and explore have separate reporting lines. This is not the same as creating an innovation lab or unit. An explore business unit does not just ideate and incubate, it takes the new venture to market, and matures it to the point that it can either graduate back into the regular business or become a standalone unit.
The most successful implementation of the ambidextrous approach was at IBM in 2000-2010, when the corporation managed to scale several units to more than $1 billion revenue. However, Amazon adopts this approach to all of its new businesses, quickly separating out promising new ventures, while ensuring that they conform to corporate rules like using Amazon APIs and management system.
My colleagues Charles O’Reilly and Mike Tushman have described these cases and many more in their book, Lead and Disrupt, now in its second, expanded edition.
There are three critical enablers of Ambidextrous Organizations: Ambition, Autonomy, and Access.
- 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.
- Autonomy – 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. It is rational for business leaders under pressure to perform to cut the uncertain, unproven businesses ahead of the known core. A distinct unit allows some insulation from these short-term pressures.
- Access – the biggest advantage established firms have over the startup is the assets of the core business: customers, manufacturing, back-office processes, etc. 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. See more on how to organize Access for new ventures in our book, Corporate Explorer.
Getting these three success factors right – ambition, autonomy, and access – is the work of the senior team. There are always tensions between explore and exploit – contention over resources, channel conflict, strategic disagreement. That is normal. The senior team need to have the ability to manage the high-stakes, high-tension conversations about how to balance the needs of both.