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This research-paper reviews the impact that organizational structures have on the strategies of business organizations and how companies may resolve the inherent dilemma associated with balancing the conflicting adaptive pressures associated with short-run efficiency and long-run effectiveness.
The research-paper proceeds as follows. First, the basic adaptive challenge is discussed, followed by a discussion of the role that organizational structure plays for meeting this Next, the research-paper reviews basic challenges in form of the constraints that organizational structures create for the realized strategy of the firm in the form of (a) strategy formulation constraints, (b) growth constraints, and (c) adaptation constraints. The final part of the article discusses how organizations can adopt ambidextrous structures that meet the dual challenges of short-run efficiency and long run effectiveness.
The Adaptive Challenge
Adaptation to environmental challenges represents perhaps the key task for managers of business organizations. This task is made difficult by the potentially conflicting tasks of efficiently exploiting current assets and knowledge while simultaneously ensuring future competitiveness arising from the development of new assets and knowledge (Eisenhardt & Martin, 2000; March, 1991, Teece, Pisano, & Shuen, 1997). Normally, exploitation and exploration are viewed as mutually conflicting activities, and the key reason for this appears
to be that they pose substantially different requirements for the organization in terms of the underlying organizational processes and structures (Gibson & Birkinshaw, 2004; Jansen, van den Bosch, & Volberda, 2006; March, 1991; Sidhu, Commandeur, & Volberda, 2007; Sidhu, Volberda, & Commandeur, 2004; Tushman & O’Reilly, 1996). Following this assertion entails that business organizations cospecialize their structures, technological orientation, and market strategies, and as suggested by Miles and Snow (1978), and organizations that fail to align these elements properly will show poor performance due to the inconsistencies among the elements characterizing their strategy, structures, and technological orientation. The traditional perspective therefore seems to hold that business organizations need to strike a balance between exploration and exploitation, suggesting that the underlying structures and processes are constraining in terms of the strategies that firms are able to implement. Other, more recent perspectives acknowledge this trade-off but emphasize that some business organizations are able to implement dual strategies, attempting both to increase efficiency in the short run while simultaneously improving long-run adaptability (Duncan, 1976; Gibson & Birkin-shaw, 2004; Jansen, van den Bosch, & Volberda, 2006; Sidhu, Commandeur, & Volberda, 2007; Sidhu, Volberda, & Commandeur, 2004; Tushman & O’Reilly, 1996). This ability to maintain a dual strategic focus was referred to as “ambidexterity” by Duncan. While the managerial appeal of ambidexterity has been high, conceptual development of the concept and empirical evidence has been modest (Lubatkin, Simsek, Ling, & Veiga, 2006), although some studies show that ambidexterity may be associated with higher performance (e.g., Gibson & Birkinshaw, 2004; He & Wong, 2004; Lubatkin et al., 2006).
Organizational Structure And Its Impact
Organizational structures regulate the information flow in the organization and thereby influence the ability to adapt to changes in the environment and anticipate the consequences of policy changes (Scott, 1992). The design of the organization is therefore important, since it influences the organization’s ability to act and react effectively, and thus, ultimately influences its performance. The commonly held view is that the organization’s structure must fit its strategic intent and its realized strategy (with reference to Mintzberg, 1978; Mintzberg & Waters, 1982) to be effective—that is, to result in adequate organizational performance. The early contingency view held that organizational structures should fit different aspects characterizing its situation, such as environmental turbulence (Donaldson, 2001). The configuration perspective on organizations (Meyer, Tsui, & Hinings, 1993) represents a further development where a limited number of configurations of organizational properties such as structure, strategy, and environment are believed to be effective. Miles and Snow’s (1978) strategic types are perhaps the most well-known example of this line of research. The fundamental insight of the configuration perspective appears to be that business organizations cospecialize their strategies and structures to achieve fit, and that inconsistent strategies are less likely to perform well (Ketchen, Thomas, & Snow, 1993; Miles & Snow, 1978). For example, the prospector strategy is associated with different administrative arrangements, market positioning, and technological choices compared to the analyzer and defender strategies (cf. Miles & Snow, 1978). In Porter’s (1980) book on competitive strategy, this theme is echoed, and he suggests that the organizational requirements for implementing cost oriented strategies differ substantially from the ones that characterize differentiation oriented strategies (pp. 4041). Thus, if the conventional view is accepted, business organizations that face adaptive pressures to be both efficient in the short run and effective in the long run may find it difficult to develop an appropriate posture due to severe design constraints (see also the analysis of Gresov & Drazin, 1997).
A number of examples support the constraining role of organizational structures. Chandler’s (1962) historical studies of the second industrialization of American firms provided management researchers with one of the fundamental assertions relating strategy to structure—namely, that an organizational structure follows strategy. More precisely, Chandler found that strategic adaptation to new market and technological opportunities were followed by a period where the (old) organizational structure did not fit the (new) strategy, leading to poor performance. This lack of fit created pressures for changing the organizational structure, hence, the phrase structure follows strategy. Chandler’s study of General Motors is particularly instructive in this respect. General Motors reacted to the competitive pressure from Ford Motor Company by reorganizing their different brands of vehicles so that they targeted distinct segments of the general population. However, the changes in the market strategy without changes in the organizational structure created coordination and decision-making loads that were too much for the firm, and a period of disappointing performance resulted, leading General Motors managers to adopt the organizational structure to minimize coordination and decision-making load.
Chandler’s (1962) work inspired many researchers in the field of business policy and strategy and led to empirical research that largely supported the main assertions regarding the relationship between strategy and structure. At the Harvard Business School, Bruce Scott directed a number of PhD students who explored the relationships between strategy and structure (Rumelt, Schendel, & Teece, 1991). Of these, the doctoral work of Rumelt (1974) is probably the best known. Rumelt’s empirical classification scheme has spawned numerous empirical studies that relate different corporate strategies to performance (see, e.g., Christensen & Montgomery, 1982; Lubatkin & Rogers, 1989; Montgomery, 1982, 1994; Montgomery & Wernerfelt, 1988). Based on empirical research such as the aforementioned, it is now widely recognized that strategic adaptation without adaptation of the organizational structure is likely to result in performance below aspirations. With reference to the allegory of the chicken and the egg, the assertion that structure follows strategy is but one lens that can be applied to the problem. The performance deterioration that Chandler identified followed from misalignment of strategy and structure, and thus, can be interpreted as a structural constraint on strategy implementation. The remainder of the research-paper will be devoted to the analysis of how structures constrain strategies.
In the ensuing pages, the research-paper will elaborate on the relationship between strategic changes and organizational structure in the following three ways. First, organizational structure influences the strategy formulation process or strategic intent. I see this as a cognitive constraint on strategy. Second, organizational structure influences the capabilities the firm has for realizing different growth strategies. Third, organizational structures influence the firm’s adaptation to external changes. But before the research-paper turns to the detailed analysis of the relationship between organizational structure and strategy, the purpose and function of organizational structures will be reviewed.
The Purpose And Function Of Organizational Structures
Organizations can be described as information systems that are composed of human, structural, and technological elements. The information system enables organizations to reduce uncertainty about their task environment and external environment, and therefore, to make better decisions if the design of the information system’s information-processing capacity reflects the underlying need for information processing (Galbraith, 1973; Tushman & Nadler, 1978).
The structure of the organization regulates the flow of information in the organization, and therefore, information processing can be viewed as an antecedent to the realized strategy of the organization (Cyert & March, 1963; Scott, 1992, chap. 4). For example, organizations develop procedures and mechanisms for obtaining, interpreting, and communicating information; they delegate responsibility for interpreting and communicating information and for making decisions. As organizations develop such structural properties, these may come to influence how issues are framed, what events decision makers judge to be important, and how problems are solved. Since the organizational structure is responsible for both channeling information within the organization and for filtering information into relevant and nonrelevant categories, the structure is an important determinant for what the organization happens to perceive and for how the organization acts upon its perception (Leifer & Huber, 1977; Miles, Snow, & Pfeffer, 1974; Normann, 1977).
Arrow (1974) argued that the organizational structure represents an investment in information-processing capability, and remarked, “Once the investment has been made and an information channel acquired, it will be cheaper to keep using it than to invest in new channels . . . Thus it will be difficult to reverse an initial commitment in the direction in which information is gathered” (p. 41).
If information-processing capability in the form of the organizational structure constitutes a specific and irreversible investment, changes to the organizational structure are likely to be difficult and costly. The organizational structure in place will therefore impact on the firm’s ability to adapt its activities.
The extent of the structural constraints that firms face may vary. Gresov and Drazin (1997) argued that the design constraints organizations face may vary from few to many. But even if there are many ways of designing organizational structures, specific and irreversible investments in organization design changes the situation to one where the firm moves from many options to few options, as it is very costly to implement structural changes. Once the commitment to a specific structure is made, the choice becomes constraining even if, a priori, multiple design options existed. Following Arrow (1974), organizational structures are not general purpose instruments but specific instruments that fit a narrow context, and they need to be internally consistent even if there are competing designs available a priori. This view is consistent with the conventional view held in configuration approaches to organizational structure (Miles & Snow, 1978; Miller & Friesen, 1984; Meyer & Tsui, 1993; Ketchen, Thomas, & Snow, 1993; Miller, 1993, 1996) where inconsistencies in the configuration, ceteris paribus, are viewed as detrimental for performance.
An organizational structure can be characterized in terms of different underlying design variables such as formalization, centralization, differentiation, and choice of configuration. These design variables are likely to be highly cospecialized, and if so, greater adaptation costs are likely to result, since the organizations cannot implement piecemeal changes but need to change whole bundles of design variables. This argument is well known in configuration approaches to organization where organizations are seen as a configuration of different interacting elements that determine performance (Dess, Lumpkin, & Covin, 1997; Ketchen et al,. 1993; Miles & Snow, 1978; Miles, Snow, Meyer, & Coleman, 1978; Miller, 1996). A similar argument is put forward in the recent evolutionary NK-models (see, e.g., Gavetti & Levinthal, 2000; Levinthal, 1997; Rivkin, 2001; Rivkin & Siggelkow, 2003; Siggelkow, 2001, 2002; Siggelkow & Levinthal, 2003).
Designers of the structure have limited cognitive ability and limited information (Simon, 1955), and therefore, their expectations concerning the organization design requirements are likely to be incomplete. It is therefore likely that the configuration of structural elements will develop incrementally as design variables are cospecialized and the firm will face internal design constraints as well as external constraints (Burton & Obel, 2004; Meyer et al., 1993). As the organization develops over time and converges on a distinct model for design, organization designs are likely to become increasingly cospecialized (Miller, 1993; March, 1991). Organizations learn by doing, and the feedback provided through observation of performance outcome will lead organizations to select practices that are seen as successful and will drop practices that appear to be unsuccessful (Cyert & March, 1963; March, 1994; Nelson & Winter, 1982).
When organizational structures galvanize as a consequence of performance feedback, the flow of information also becomes more uniform. It becomes more predictable whether information is ignored, how information is now considered and weighed, and how it is transmitted within the organization. This suggests that both the strategic intent and the realized strategy of the firm may be influenced.
The notion of realized strategy differs from strategic intent. Realized strategy can be defined as a consistent pattern of behavior in the organization, while strategic intent is associated with a priori strategic choice (Mintzberg, 1978; Mintzberg & Waters, 1982: Venkatraman, 1989). Strategic intent can be regarded as strategy formulation that results in a realized strategy if the intent is carried through. In contrast to realized strategy, strategic intent may be possible to change at relatively low cost. However, the structure of the organization will most likely influence whether the organization will actually change its strategic intent.
Adaptation of the firm’s realized strategy would be trivial if there were no adjustment costs, and it seems appropriate to assume that the firm’s organization design is costly and hard to change, as stated above (cf. Arrow, 1974).
Consequently, organizational structure constrains the realized strategy (Ghemawat & I Costa, 1993; Leifer & Huber, 1977; Miles, Snow, & Pfeffer, 1974; Normann, 1977).
Strategy Formulation Constraints
Essentially, strategy formulation constraints can occur in two related forms. One deals with the psychological and sociological mechanisms that underlie how organizational decision makers form their expectations about the situation and how to deal with it. In other words, this constraint is cognitive in its character. The second deals with how formal decision processes are influenced by organizational structure.
In an often-cited study, Dearborn and Simon (1958) stated, “An important proposition in organization theory asserts that each executive will perceive those aspects of the situation that relate specifically to the activities and goals of his department” (p. 140). Key to their explanation was that functional learning may lead managers to selectively perceive a limited range of issues. More recent research by Beyer et al. (1997) suggests that managers’ functional backgrounds may also lead to selective imperception—that is, failure to perceive stimuli related to areas other than the one managers have expertise within (p. 718). While selective perception and imperception are cognitive concepts that are related to individual learning, the individuals that compose the business organization are influenced in what they learn by the context they operate within. As stated earlier, organizational structures regulate the flow of information within the organization, and therefore influence from which stimuli managers ultimately learn. A few examples may illustrate this point. The division of labor in the organization—that is, the extent to which activities are specialized—will tend to influence the type of information about organizational activities that are produced. Each department in the organization will have its own performance metrics, and departmental managers will tend to focus on improving business processes that relate to their department based on such performance metrics. Therefore, managers may learn to ignore other sources and types of information they receive, and they may learn to search for only information that is relevant for their specific department. Departmental managers will therefore tend to communicate less information to their peers, as well as to superiors, than may be relevant. The extent of formalization in the organization will tend to reduce the information that managers consider. As formalized processes tend to be precisely defined, associated performance metrics will also be precisely defined, leading to a potential information loss both at the subunit level and at higher organizational levels. In addition, centralized organizations that concentrate decision-making authority at the top level of the organization are forced to rely on less detailed and fine-grained sources of information, as the span of control of top managers is limited.
Counter to these structural characteristics are coordination mechanisms that are implemented with the purpose of handling interdependencies between functions. These are often referred to as either “liaison structures” or “liaison processes” (Miller & Droge, 1986). Such processes attempt to reduce the negative consequences of information loss associated with specialization, formalization, and centralization. Their implementation often results in richer interpersonal forms of communication within the business organization (Daft & Lengel, 1986). Consequently, the use of liaison structures and processes may improve the chances of generating new insights. Contrary to specialization and formalization, the use of liaison structures and processes are costly. Therefore, the extensive use of such forms of coordination is likely to be more appropriate in highly dynamic environments.
Constraints on Formal Planning
So far, the argument in this section has concerned the cognitive biases and limitations that emerge from different structural arrangements where the effect resulting from formal structure is that information is filtered and its flow is regulated. The consequence will appear in the way that managers of business organizations tend to frame issues. But business organizations can also chose to implement processes that counter the negative impact of structurally caused biases, and a key process in this respect is formal strategic planning.
Strategic planning can be viewed as a process whereby the firm obtains and evaluates information about its competitive environment, its resources and capabilities, and other factors that are relevant to its strategic decisions (Armstrong, 1982). The consequence of strategic planning is to improve knowledge about these factors, and thereby reduce decision-making uncertainty in the firm. The benefits that can be obtained from strategic planning relate to the process for determining long-term goals, generating and evaluating alternative strategies, and monitoring the level of goal achievement (Armstrong, 1982). Strategic planning will therefore enable to firm to align its resources and capabilities with the environmental challenges it faces (Ansoff, 1991), which is believed to lead to better organizational performance (Boyd & Reuning-Elliott, 1998; Miller & Cardinal, 1994; Pearce et al., 1987).
Strategic planning processes are embedded in the organizational structure and will be affected by these. Strategic planning is a rational/analytical activity, and mechanistic aspects of structure are likely to influence how strategic planning processes unfold. Formalized and specialized organizations can produce extensive volumes of information that can be used in strategic planning processes. For example, information that is useful for benchmarking exercises, for analysis of customer information, and so on. If formalization and specialization is high in the organization, monitoring activities and performance will be easier, and it is easier for the organization to produce highly reliable and standardized information for decision making. But if the problems that decision makers confront are highly complex, as they will tend to be in uncertain environments, the benefits of mechanistic properties of organizational structure are likely to be lower. Relevant information will be filtered by departmental managers, as discussed above, leading to lower quality decision processes. Therefore, organic elements of structure such as the liaison structures and processes just discussed will improve the quality of strategic planning processes in uncertain environments. Liaison processes and structures provide integration of organizational activities (Miller & Dröge, 1986; Lawrence & Lorsch, 1967). They are implemented to improve the interpretation of complex issues by bringing together different sources of experience, expertise, and information. These structural elements are therefore likely to support problem-solving efforts where the organization confronts highly complex problems with substantial degrees of uncertainty about means and ends.
Thus, formal strategic planning may be oriented toward achieving better integration of activities in a complex and changing world, but it may also be used to achieve better alignment of resources in the organization. Whether strategic planning processes converge toward either of these points is likely to depend on the organizational structure. Emphasis on mechanistic elements of structure in the organization will probably drive strategic planning processes toward exploitation, while emphasis on organic elements of structure is likely to drive strategic planning processes toward exploration. In other words, organizational structure can be a constraint on strategy formulation, with mechanistic structures being likely to converge on exploitation strategies and organic structures being likely to converge on exploration strategies.
Penrose (1959) was probably the first to suggest that business organizations can create value by the way resources are managed. In her view, when firms deploy resources, they will learn from their experiences about which deployments work and which do not work. As firms learn, this generates opportunities for growth and innovation as the managers’ experiences affect their perception of which opportunities are available for their firms. In strategy research, Wernerfelt (1984), drawing on Penrose’s argument, suggested that resources can be used as stepping stones or leverage for new markets and strategies, and Teece et al. (1997) coined the phrase dynamic capabilities to describe “the firm’s ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments. Dynamic capabilities thus reflect an organization’s ability to achieve new and innovative forms of competitive advantage given path dependencies and market positions” (p. 516). Clearly, the business organization’s ability to integrate, build, and reconfigure depends on some underlying organizational structure, and organizational structure is consequently likely to play a pivotal role in realizing growth opportunities. This ability appears critical when the firm operates internationally, and when the firm is active in terms of developing new markets and products.
Integration is a complex strategy that essentially requires effective integration of different resources and capabilities that the firm deploys. On one hand, formalized approaches to structuring, relying on formalization or standardization, can reduce the coordination load on the organization, but complex strategies are more likely to rely on coordination by mutual adjustment of behavior—for example, extensive use of liaison structures and processes.
Innovative strategies focus on building or renewing the business organization’s resources and capabilities. It is a strategy where the firm has to absorb new resources and capabilities, and this involves developing some “absorptive capacity” (Cohen & Levinthal, 1990; Zahra & George, 2002)—in this context, the business organization needs a capability to adapt its basic processes and resource base. Therefore, the business organization must establish organizational structures that are capable of handling novel, very rich, and very varied information flows. Cross-functional coordination and team decision processes are likely to be the most effective structuring of strategies that rely on renewal of resources and capabilities.
A growth-oriented strategy is one that attempts to leverage the firm’s existing portfolio of resources and capabilities to the greatest extent. Therefore, the focus is on resource and capability replication. This type of approach is well known in franchising, where companies in the food industry such as McDonald’s, Starbuck’s, and KFC have developed an effective replication model relying on formalization and standardization. Since the strategy is concerned with exploitation of the known, the key organizational problem is to achieve control of this expansion of the firm’s resource base, and this places the focus on organizational design parameters such as formalization, control, and motivation.
A special case is that of international growth. It is well known that international market opportunities arising from factors relating to trade liberalization, globalization of markets, and an increased global division of labor have lead an increasing number of firms to compete internationally (Craig & Douglas, 1996). However, national cultures, business practices, and other important contextual factors often differ between the home market and international markets, leaving decision makers challenged in terms of understanding such basic problems as whether or how to adapt products, services, and operations to the international context (Johanson & Vahlne, 1977).
Three issues appear to be particularly important for international growth. At the most general level, acquisition and interpretation of information will be an important facilitator for international growth (Knight & Liesch, 2002; Liesch & Knight, 2002). Secondly, the ability to effectively coordinate between organizational subunits that are separated by national boundaries is important (Egelhof, 1991).
Acquiring and interpreting information is viewed as important for internationalization, since it is necessary to have knowledge about the conditions that influence outcomes in international markets (Knight & Liesch, 2002; Liesch & Knight, 2002). Although some argue that experiential knowledge is an important constraint on internationalization (Johanson & Vahlne, 1978, 1990), others maintain that the acquisition and use of information is essential for realizing goals regarding internationalization (e.g., Cavusgil, 1980; Souchon & Diamantopolos, 1997; Walters & Samiee, 1990; Yeoh, 2000).
The international context, it appears, poses special problems for organizations. Formal structures tend to lead to more efficient coordination among subsidiaries in different countries but at the cost of less successful adaptation to local demands and business practices in particular nations. The solution to the peculiar challenges of international business may be to accept that there is no optimal solution while aiming for what is feasible. However, as will be discussed later, ambidextrous organizational structures may be critical for meeting conflicting adaptive challenges (cf. Duncan, 1976).
Maladapted business organizations are not here to stay. This pretty much lies in the terminology, and it is trivial to list the many examples of organizations that have gone bankrupt or have diminished their prominence as a consequence of being poorly adapted. Hamel and Prahalad (1994) and Tushman and O’Reilly (1996) have documented several cases where large, resource-rich industry leaders have failed to adapt to the emergence of new markets and technologies. But why do even large organizations fail to adapt? Clearly, most organizations are led by very smart and well educated people. Large organizations usually have access to significant human, technological, and financial resources—and resource scarcity alone does not seem to explain why organizations fail to adapt to new circumstances.
At the most general level, evolutionary explanations such as the ones given in population ecology (e.g., Hannan & Freeman, 1984, 1989) suggest that organizational inertia constrains adaptation, and that early learning during the period of founding is a cause for inertia. Using the ecological explanation as a backdrop, organizational structures may galvanize at some point in the organizational life cycle as a consequence of learning. Burgelman (2002), Miller (1993), and March and Levitt (1988) have suggested that firms go through a development process where they converge on a simple repertoire of skills and unlearn other, potentially relevant skills. Burgelman (1991) has provided an instructive example of how extant structures, beliefs, and power constellations in Intel Corporation resisted change, and how middle managers tried to circumvent formal structures and processes in championing new technologies. As business organizations evolve, their structures will increasingly tend to confirm existing beliefs about the state of the world as information flows become increasingly homogenous and predictable, making adaptation more difficult.
While this particular feature of organizations has been attributed to firms that follow exploitation-oriented strategies, it may also be relevant for firms pursuing exploration-oriented strategies. There are examples of companies that pursue increasingly marginal innovations, but fail to adapt fundamentally (Christensen & Bower, 1996), but there are also examples of companies that manage to adapt despite resistant organizational structures (Rosenbloom, 2002).
Previously in this research-paper, theoretical examples have been provided that suggest how organizational structures tend to contribute to a narrowing of a firm’s repertoire of skills. The most critical is Arrow’s (1974) assertion that organizational structures tend to be investments in highly specialized information channels. The consequence of this specialization is that organizational structures therefore will tend to result in ignorance of information that is not captured by their specialized structures.
Earlier in the paper, it has been suggested that a key cause for maladaptation may be that organizational structures are not geared toward managing both exploration and exploitation, and that the absence of either may cause adaptive problems. Earlier in this research-paper, this was attributed to cospecialized structures, strategies, and technologies (cf. Miles & Snow, 1978) that would eventually lead to a limited repertoire of skills (Miller, 1993). Consequently, organizational structures will tend to become self-confirming, and therefore, become a constraint when there are external contextual changes. This raises the issue of whether business organizations can develop dual structures that can facilitate both exploitation and exploration—that is, ambidextrous organizational structures (Duncan, 1976). Recent research suggests that ambidexterity may be possible to attain, and the next section will develop this argument in greater detail.
Reconciling Adaptive Conflicts
The ability to deal with the dual pressures of short-run efficiency and long-run effectiveness increasingly occupies the minds of the managers who run companies around the world. Globalization leads to competition from countries such as China and India, with vast numbers of highly skilled and motivated workers who invest in education and research and who increasingly enter high-technology sectors such as electronics, biotechnology, and information technology. This only makes the challenge bigger, since developing countries in the future will be able to meet the demanding standards of consumers and societies in the developed world.
The conventional view in mainstream strategic management, in contingency theory and its intellectual heirs such as the configuration approach, and in other theoretical approaches holds that the key task is to obtain fit between the strategies and structures of business organizations in order to attain and maintain satisfactory performance. This logically implies that dual pressures will lead to unsatisfactory performance, since the business organization loses internal consistency between the organizational structure and the strategy (Burton & Obel, 2004; Miles & Snow, 1978; Porter, 1980). The conventional view furthermore seriously questions whether it will ever be possible to achieve simultaneous excellence in both exploitative and explorative activities (J. D. Ford & L. W. Ford, 1994; Lewis, 2000; Porter, 1996). According to conventional theory, implementing an organizational structure that allows the firm to pursue a strategy of simultaneous exploitation and exploration will not be recommended.
Duncan (1976) suggested that organizations should implement dual structures to deal with these pressures, and that business organizations that pursued these would be able to become ambidextrous. Recent empirical research shows that ambidextrous organizations appear to achieve better performance than organizations that specialize in either exploration or exploitation achieve (Gibson & Birkinshaw, 2004; He & Wong, 2004; Jansen et al., 2006; Lubatkin et al., 2006; Sidhu et al., 2004; Sidhu et al., 2007). While the managerial appeal of ambidexterity has been high, conceptual development of the concept and empirical evidence has been modest (Lubatkin et al., 2006).
The literature on ambidexterity suggests three means for obtaining ambidexterity: (a) structural ambidexterity (Duncan, 1976; Tushman & O’Reilly, 1996), (b) contextual ambidexterity (Gibson & Birkinshaw, 2004), and (c) behavioral ambidexterity.
Structural ambidexterity covers the use of organizational structure to achieve ambidexterity. The most common suggestion is to assign different strategic tasks to different business units that are then loosely coupled to each other (Tushman & O’Reilly, 1996). In this conceptualization, the task of exploiting the business organization’s existing skills and markets is isolated from the task of developing new skills and markets. Thus, the business organization contains different units that have remarkably different agendas.
Clearly, within such structural arrangements, political conflicts among business unit managers are likely to emerge over issues such as performance measurement and allocation of resources—in particular, allocation of resources for R&D. The task of the top managers at the corporate level may quickly become difficult if they cannot appropriately balance these issues. History provides numerous examples—for example, in the semiconductor industry—of established firms that find it difficult to adapt to new techno-logical opportunities; when new revolutionary technologies appear, the established firms lose their market dominance to new entrants (Tushman & O’Reilly, 1996).
At a different level—namely, the single business firm or within a business unit—we know less about structural ambidexterity. It is likely, however, that certain structural features of business organization tend to support exploration activities and other exploitation activities. Thus, the use of special task forces, project groups, individuals who span different functions in the business organization, and various liaison structures are likely to be associated with effective exploration, while things like task specialization and formalization of activities are likely to be supportive of exploitation. Likewise, investments in certain types of information technology (such as Enterprise Resource Planning [ERP] systems) will support exploitation activities by providing better, more timely, and more precise metering of activities. Thus, the use of special task forces and projects are likely to help a business organization to achieve more exploration, even if the main activities revolve around improving short-run efficiency.
The use of structural mechanisms to stimulate ambidexterity may not be sufficient. Contextual ambidexterity refers to the behavioral patterns in an organization that arise from the key elements of the organizational context embedded in the structure, culture, and climate of the organization. According to Gibson and Birkinshaw (2004), “Contextual ambidexterity is the behavioral capacity to simultaneously demonstrate alignment and adaptability across an entire business unit. Alignment refers to coherence among all the patterns of activities in the business unit; they are working together toward the same goals. Adaptability refers to the capacity to reconfigure activities in the business unit quickly to meet changing demands in the task environment” (p. 209). Thus, contextual ambidexterity is a behavioral strategy in the firm that may be influenced by careful selection and rewards of key managers and experts who serve as the change agents in the organization.
The top management of a business organization is endowed with formal responsibilities and power that give them a pivotal role in achieving ambidexterity. Consequently, Lubatkin et al. (2006) have suggested that top management teams are key facilitators of ambidexterity in the business organization. Drawing on Hambrick’s (1994, 1995) research and theory of top management teams, Lubatkin et al. (2006) have suggested that the extent of behavioral integration in a top management team will affect its ability to facilitate ambidextrous processes in the business organization. Behavioral integration is composed of a social dimension (that characterizes the level of cooperation within the team) and two task dimensions (that characterize the team’s quantity and quality of information exchange, as well as the emphasis on making joint decisions; cf. Hambrick, 1994, 1995). When the top management team does not perform well in terms of behavioral integration, its ability to facilitate ambidextrous strategies in the organization is limited—the top management team will not be effective as simultaneous facilitators of exploration and exploitation.
In summary, the literature on ambidextrous organizations suggests that business organizations may be able to both achieve efficient alignment of existing activities and meet challenges for adaptation of their strategies to new market and technological opportunities. Unfortunately, the conceptual development of the notion of ambidexterity is limited as is the empirical knowledge of its consequences. Even though recent research results are promising, much remains to be explored about organizational ambidexterity and its consequences. First, more research is needed in order to more convincingly show that achieving ambidexterity is possible, and that once achieved, it is then possible to generate superior performance. Second, mainstream theory would suggest that ambidexterity is a form of slack that is costly to maintain, but will also lead to less innovative breakthroughs because the commitment to innovation may not be sufficient.
Discussion And Conclusion
This research-paper has focused on the impact of organizational structures on the strategies of business organizations, and on how companies may resolve the inherent dilemma associated with balancing the conflicting adaptive pressures associated with short-run efficiency and long-run effectiveness.
The research-paper has shown that organizational structures regulate the flow of information within the organization, which leads to effects on both the strategic intent and the realized strategy of business organizations. The research-paper has in particular emphasized the basic adaptive challenge of exploration versus exploitation, first emphasizing the conventional view that pose these as opposites, and then contrasting the conventional view with the notion that organizations can achieve ambidexterity by implementing dual structures.
The potentially conflicting tasks of efficiently exploiting current assets and knowledge while simultaneously ensuring future competitiveness arising from the development of new assets and knowledge remains a key challenge for managers (Eisenhardt & Martin, 2000; March, 1991; Teece et al., 1997). As discussed above, exploitation and exploration are viewed as mutually conflicting activities. The key reason for this appears to be that they pose substantially different requirements for the organization in terms of the underlying organizational processes and structures (Gibson & Birkinshaw, 2004; Jansen, van den Bosch, & Volberda, 2006; March, 1991; Sidhu, Commandeur, & Volberda, 2007; Sidhu, Volberda, & Commandeur, 2004; Tushman & O’Reilly, 1996). Conventional approaches to organization theory seem to support the view that organizational structures require a tradeoff between exploration and exploitation (cf. Miles & Snow, 1978; Burton & Obel, 2004). While acknowledging this trade-off, other more recent perspectives argue that some business organizations are able to implement dual strategies, attempting both to increase efficiency in the short run while simultaneously improving long-run adaptability (Duncan, 1976; Gibson & Birkinshaw, 2004; Jansen et al., 2006; Sidhu et al., 2007; Sidhu et al., 2004; Tushman & O’Reilly, 1996).
While a few studies have shown that ambidexterity may be associated with higher performance (e.g., Gibson & Birkinshaw, 2004; He & Wong, 2004; Lubatkin et al., 2006), the evidence is not overwhelming. Therefore, much more research on the subject is needed.
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