The Exploit-Explore Sweet Spot
Kodak, Polaroid, Sears, Britannica/Encarta were once legends. Then they became history. "Those that are the best, when there is a technical change or other discontinuity, there is a huge crisis. They either die or are reborn," Professor Michael Tushman of Harvard Business School told an audience of IESE alumni on Monday, September 15, 2014.
In the case of Sears, it was the Wal-Mart tsunami. For others it was a change or discontinuity of a similar magnitude. "So what is it that happens when the world shifts?" he asked the audience. Complacency, short-term business thinking, and lack of investment and research can stymy a company’s fortunes. As well as a stagnant, inward looking culture and poor leadership.
Most of all, says Tushman, there is a tension between past and future that many companies are unable to overcome. The lack of an overarching identity can stop corporations transitioning from "best today" to continuing competitive advantage as the world changes.
Playing two different games
Tushman is an expert on the relationships between technological change, executive leadership and organization adaptation, as well as innovation streams and organization designs. His research reveals that companies must shed a traditional "either-or" approach to organizational structures and senior teams, or risk tumbling from success into oblivion.
"The better you are at exploiting what you currently do, the worse you are when there is an architectural change," he explains. "You have to play two different games well at the same time: exploitation and exploration."
Finding the balance within paradox
Bridging these two different strategies requires organizational ambidexterity - something that is highly complex and fraught with obstacles and risk. There is a constant paradox that organizations face, says Tushman. On the one hand, the short-term demands alignment and building a strong culture, but at the same time this generates inertia and often isolation at the top. The demography of the senior team - how long that team has been together - is an important source of inertia that holds everyone hostage. "As teams get older, the performance of the organization drops," he says.
The solution to the inertia pathology comes back to structural ambidexterity. It requires splitting the past from the future. It also means building strong senior team integration with a cognitively complex model that can respond to the demands of exploration and exploitation. The team must be able to coherently communicate both messages to more junior teams.
The secret ingredients
There are many household names that have been able to successfully exploit their mature markets while exploring and then scaling new ones. A lesser-known name – the Ball Corporation – has been doing so since 1880. Professor Tushman cites Ball as an example of how robust the explore-exploit cycle can be. From wooden buckets to metal cans and plastic bottles, the Ball Corporation has been exploiting present success while exploring new opportunities for more than a century. The glue that has kept it all together is a leadership capable of articulating an overarching sense of identity. "We aspire to be the world’s greatest container corporation" is a statement of identity that has helped them convert every disruptive threat into an enhancing force for change.
In addition to these key ingredients underpinning longevity, Tushman had this piece of advice: "the only way to get to the future is through punctuated change." And it never hurts to be in the right place, at the right time, with great execution.