What is an ambidextrous organization?

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What is the definition of an ambidextrous organization?

An ambidextrous organization is one that pursues a growth ambition by separating the people responsible for operating a core business from those that explore into new market areas.

It has 3 defining characteristics. First, a shared growth ambition for the overall enterprise, owned by the senior team. Second, an autonomous business unit responsible for exploring new market areas. Third, mechanisms that enable the explore unit to access the assets of the core business to help it scale faster than a startup.

An ambidextrous organization is one that makes a separation between how they manage a core business from an explore business.

What is a core business? The “core business” is the existing source of revenues and profits. It serves a known market opportunity for customers whose needs and preferences are understood. This is managed to deliver the best possible operational performance by delighting its customers sufficiently to grow revenues, containing its costs to grow profits, and so deliver a predictable financial return to its shareholders.

What is an explore business? An explore business is one that aims to develop new sources of revenue by serving customers in new markets, providing new offerings to existing customers, or both. The market opportunity is immature with little data on what customers want, how they will behave, and the range of possible offerings that competitors may introduce. An explore business must manage these uncertainties. For example, although electric vehicles are widely available, it is still not certain what will drive the broad market adoption or even if battery powered cars will fully replace gasoline-powered ones. Performance of battery powered cars is below most customers’ expectations and alternatives like hydrogen remain viable. An Ambidextrous Organization would separate the unit responsible for electric vehicle strategy and execution from the one responsible for gasoline powered vehicles. This permits the explore business (electric or hydrogen power) to manage this uncertainty as it pursues the market opportunity, without the need to attend to the short-term needs of the core (gasoline-powered vehicle) business and separate.

In the recent book Corporate Explorer, Andrew Binns, Michael Tushman and Charles O’Reilly discuss the ambidextrous organization. (Corporate Explorer, pp. 110) “Several years ago, we had the privilege of working with Qi Lu at Microsoft as he and his team executed an extraordinary pivot from Office for desktop to Office 365 online. One team had the Office 365 responsibilities with the drumbeat of daily code releases, iterative product development, and a subscription-based business model. The other team had the legacy Office for Desktop, the product most of us continue to use installed on our computers for Word, PowerPoint, and so on. These two were separate until Office 365 reached maturity and the organization became one. Qi Lu had managed a dual strategy that enabled Microsoft to continue to exploit its core enterprise license model, historically one of the firm’s crown jewels, even as it scaled the software-as-a-service subscription. Matt Prince and Qi Lu created ventures with startup-style independence, able to operate with autonomy within the company so that the fledgling business could grow at its own pace, rather than be held back by a more conservative, mature business. This gives Corporate Explorers control over the resources required to pursue radical innovation. However, these Corporate Explorer teams at Microsoft and Cloudflare were more than facsimiles of the famous [startup] garages. Whereas a startup focuses on a single goal – grow a new venture – these companies had a dual focus – grow the core and grow a new venture. We call this dual approach an ambidextrous organization.”

What is an ambidextrous organization example?

An example of an ambidextrous organization is Amazon. Amazon has pursued a strategy of exploring into new markets, which when successful it then learns to scale into mature businesses that it can exploit for profit, even as it opens new market areas by exploring once again. The ambidextrous organization has three key distinguishing features: a shared ambition for core and explore, autonomy for the explore business, and access to the assets of the core business. Amazon growth strategy demonstrates all these characteristics. This is explained by Charles O’Reilly and Michael Tushman in the book Lead and Disrupt. They identify three distinct phases for execution of this Explore/Exploit growth strategy by Amazon.

What is an ambidextrous organizational structure?

An Ambidextrous Organizational Structure has three key features– autonomy for the new venture, access to the assets of the core business, and a shared ambition for growth that unifies core and explore business.

The autonomy of the organization from the core business is key to allowing it to operate at the speed of a startup business. Often, this means reporting higher in the organizational hierarchy than a similar-sized unit in the core business. This reflects its strategic importance and insulates it, to some degree, from the need to satisfy short-term operational priorities.

It has autonomy in more senses than the formal organizational structure. An ambidextrous organizational structure gives an explore business autonomy to define its own processes, capability requirements, and culture.

Michael Tushman and Charles O’Reilly explain in their book Lead and Disrupt (page 23) that an ambidextrous organizational structure needs the ability to execute critical tasks. The ambidextrous organization needs to select the people, organization, and culture necessary to support the execution of its strategy, rather than being bound to the needs of the core business.

Diagram of an ambidextrous organizational structure by Change Logic

What are the three main versions of the ambidextrous organizational structure?

The ambidextrous organizational structure has three main variations: Focused, Bottom-Up, and Top Down.

Focused – Pursuing a specific opportunity or strategy, often initiated by a CEO or business leader. This is a new unit or set of units that are executing on a growth ambition within well-defined parameters. These teams still need to incubate and scale the new venture, but they usually already have an idea and concentrate on incubation and scaling that. LexisNexis Risk Solution is a good example of the Focused approach to the ambidextrous organizational structure.

Bottom up – using a disciplined approach with formalized processes to facilitate bottom- up idea generation with a path into incubation and scaling. This is often part of building an effort to build repeatable innovation capability. A good example of the Bottom-Up approach to the ambidextrous organizational structure is the Bosch Corporate Accelerator Program, which is designed to teach managers how to validate new business ideas and then propose them for funding to executives.

Top down – a project led from the top of the company that aims to create a portfolio of new businesses by establishing a lab or growth team. This often involves seeking commercialization innovation coming out of research and development (R&D) and/or from relationships with external start- up communities. It may also have schemes for engaging employees in proposing ideas to pursue, but the full-time lab team plays a critical role in developing those ideas, creating teams – often using external entrepreneurs – to pursue them. A good example of the Top-Down approach to ambidextrous organizational structure is Japanese industrial materials company, AGC, building new businesses through its Business Development Division, and IBM had its Emerging Growth Opportunities program.

Can any organization be ambidextrous?

Yes, any organization can be ambidextrous. Organizations of all sizes need to manage a core and explore business, and so they face the need to separate the activities of each. A small retailer that starts an online delivery service will need to allocate separate resources to managing online orders than those assisting customers and stocking shelves. This could be temporal separation – the same person does the online orders at a different time – or structural – there are two people. The third option is for the same person to do both, this does not work as well because it is hard to develop proficiency in the requirements for the new business model (online orders, ecommerce, digital marketing) at the same time as satisfying the needs of customers in the shop. In a large enterprise, these problems multiply, making an ambidextrous organization structure essential to success.

How can I become more ambidextrous in my thinking?

Leaders of ambidextrous organizations understand that core and explore business units operate on a different logic. The core business aims to eliminate error and drive for the highest possible levels of operational efficiency and effectiveness. An explore business aims to learn through experimentation, placing many small bets to discover how the market will evolve and what it will take to satisfy customer needs.

How can I execute an ambidextrous strategy in my business?

To execute an ambidextrous strategy in your business, start with setting an ambition for growing beyond the core business. Then, define the areas of opportunity, or “hunting zones”, for realizing that ambition. You then need to ideate, incubate, and scale ideas for solving customer problems within those areas of opportunity. The organization responsible for this work needs to be autonomous from the day-to-day operations of the core business, though it still requires access to its assets to help it move faster than a startup.

Is Apple an ambidextrous organization?

No, Apple is not an ambidextrous organization. Apple is a functional organization that manages products led by a decision-making model of “experts leading experts”.

In the article, it discusses the challenges of Apple’s functional organizational structure. “Remarkably, Apple has maintained its functional structure despite experiencing exponential growth over the last 20 years…(there are) organizational and leadership challenges that have come with this growth, including communication within and across larger, increasingly specialized functions. There are hundreds of specialist teams that must come together to develop a product. Cross-functional stalemates are escalated to higher level managers who act as tiebreakers. Development can slow to a snail’s pace without effective collaboration among functional leaders. Functionally separate decision-makers must put their own agendas aside in favor of common project goals…(S)ystem-level design as another challenge area for Apple. A functional approach may be well suited for technical subsystems or technologies (the iPhone camera, enclosure, or a software feature), but what is best for each subsystem may not be what is best for the product as a whole. A system-level view requires careful communication and collaboration across functions. As organizations scale and become more complex, effective communication gets more difficult. Communication needs to take place across functional boundaries and up and down the corporate hierarchy. The more functionally siloed an organization is, the more tangled inter-functional communication becomes, as information must move horizontally across functions and vertically up and down leadership layers. The small, cross-functional Core team structure short circuits this challenge by replicating the communication efficiencies of a small startup within a large organization.

Is Amazon an ambidextrous organization?

Yes, Amazon is an ambidextrous organization. It is the world’s dominant retail business. Amazon has roughly seven times the assortment of goods as its five largest competitors, 5 to 13 percent lower prices, and 13 percent higher customer satisfaction scores. However, Amazon is also a premier technology company (Amazon Web Services). The technology consulting firm Gartner has estimated that Amazon Web Services has five times more computing power than the fourteen other cloud computing companies on the market, including IBM. It provides a cloud computing platform for other retailers like Target, non-profits like Major League Baseball, pharmaceutical firms like Novartis, and government agencies like the CIA. Amazon is also a services and distribution company that stores and delivers products from other firms (Fulfillment by Amazon). Amazon is also a video streaming company (Amazon Prime Video), an electronics hardware firm (Kindle and Alexa), a video production company (Amazon Studios) competing with Apple and Netflix, and a publisher of books (Amazon Publishing).

Amazon has pursued a strategy of exploring into new markets, which when successful it then learns to scale into mature businesses that it can exploit for profit, even as it opens new market areas by exploring once again. The ambidextrous organization has three key distinguishing features: a shared ambition for core and explore, autonomy for the explore business, and access to the assets of the core business. Amazon growth strategy demonstrates all these characteristics. This is explained by Charles O’Reilly and Michael Tushman in the book Lead and Disrupt. They identify three distinct phases for execution of this Explore/Exploit growth strategy by Amazon.

Phase One: Online Retailer and Distributor, 1994 to 2000

Amazon built its internet bookstore along with the technology and physical warehouses sufficient to support its broader retail ambition. It expanded into new retail categories (e.g., music and DVD sales), offered other retailers access to its distribution network, and experimented with online auctions.

Phase Two: Amazon Prime, 2000 to 2005

Amazon converted its customers into platform participants with the introduction of Amazon Prime. This started as a ‘free shipping’ perk for members but became the basis for its ability to profile customer behavior, wants, and preferences, so that it could build ‘recommender engines’ that would help it to sell products in new categories.

Phase Three: Amazon Web Services and Amazon Prime Video, 2005 onward

Amazon Web Services takes the computing assets developed to support the development of its retail business and makes them available to third parties. This is an entirely different business model serving completely distinct customer groups in a separate organization. However, it has leveraged the technology scale of Amazon, and its brand, to become one of the world’s data center ‘hyper-scalers’ alongside Google, Apple, etc.
These explore/exploit strategies shared a common goal of growing Amazon, and each explore business was managed by a separate unit, with a leader specifically charged to pursue growth for the new venture. This autonomy is combined with important points of access to the core business, specifically its online platform and brand identity. These are the characteristics of an ambidextrous organization.

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