There’s a common thread among companies that succeed long term.
A Stanford University professor calls the reason “organizational ambidexterity.
That’s the ability needed to manage business lines while simultaneously strategizing and implementing change as the world and marketplace evolves.
“You often see successful organizations failing, and it’s not obvious why they should fail,” says Stanford Graduate School of Business Professor Charles O’Reilly.
The professor says strategy that was once successful at a particular time may suddenly be all wrong once the world changes.
A Stanford news release, “Secret to Successful Companies” points out successful companies evolve into a form entirely different than how they began.
Examples of success
For example, Nokia was launched in 1865 as a paper mill in Finland. Toyota began in Japan as an automatic loom in 1924.
Stanford Professor James March first articulated the approach in 1991.
“Both exploration and exploitation are essential for organizations,” Professor March wrote in a paper, “but they compete for scarce resources.”
But there are often tradeoffs – going for one approach at the expense of the other.
In “The Innovator’s Dilemma” in 2011, Harvard Professor Clayton Christensen added that successful approaches actually hurt the organization as the marketplace evolves. Companies make the mistake of standing pat because they see change as a danger.
Professor O’Reilly says Wal-Mart is an exception. When the Internet swept the world, Wal-Mart stayed with what it knew best. It kept its strategy of focusing on its brick-and-mortar stores. But long ago – in 2000 – the retailer structured Walmart.com as a separate entity.
Meantime, Professor O’Reilly asserts the strategy won’t work in the long run.
“A better way, his research suggests, is to run the mature business alongside the newer business under the same organization — but, crucially, to do it in a way that makes smart use of the organization’s resources,” according to the news release.
He concedes, however, Wal-Mart’s smaller Express stores are a good strategy to compete with CVS and Walgreen. The company’s management are staying in the same line of business by “leveraging ‘the strengths of the mother ship.”
He adds Wal-Mart’s strengths are in information technology, logistics, purchasing and real estate.
There isn’t universal acceptance of Professor O’Reilly’s ambidexterity theory. Dissenters support the idea of “organizational ecology.” In essence, they believe businesses succeed by good luck. But in an evolving marketplace, they contend companies can’t change.
Professor O’Reilly believes that’s irrational theory, and overlooks the potential of management to learn and change.
For example, if an old company like Sears falters while Wal-Mart succeeds, it simply means Wal-Mart’s senior management is enlightened.
The professor and his collaborator, Harvard Business School’s Michael Tushman, reason why:
An ambidextrous company has leadership with “overarching vision.”
But when there’s internal dissension with such a company, Professor O’Reilly says the boss has to “make sure that everybody is singing off the same hymnal.”
Large vs. small companies
He says large companies are better suited in ambidexterity than their smaller counterparts.
“If you’re a small company, you place all your chips on this one thing, whereas a large organization can do lots of experiments,” he explains.
“A culture that says, ‘We don’t have all the answers; we’ve got to try these experiments’ – that’s the type of culture that promotes ambidexterity,” he contends.
But here’s a caveat: A company with the most-productive experimentation depends on the level of change in its industry.
“If the industry isn’t changing rapidly, doing 100 experiments is unproductive and expensive,” says the professor. “But if you don’t do experiments, you’re likely to be in trouble if the industry is changing.”
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