Growth and success through efficiency and scale as common denominator of established organizations
If you try to decode the source and foundation of economic success of established enterprises, most often you can find cost controls, efficiency and economies of scale as drivers of revenue growth and higher profit margins. This becomes obvious especially when you look at the great and well-known German industrial firms. For decades Siemens, Bosch, BMW and Co. worked themselves to the top of their industries through inimitable efficiency gains in their production and processes. In that way powerful international market leaders emerged. Less through ground-breaking changes and disruptive innovation, but more due to constant incremental improvement, savings and process optimization.
Digital transformation: The sudden death of success and competitive edge through efficiency and size
But in the course of the digital transformation in recent years also those giants started to sway. Continuing to drive economic success solely through efficiency and incremental improvements of existing products is becoming more and more difficult. On the one hand that has to do with the technological progress bringing about disruptive and thereby market-changing innovations and making efficiency gains easier and more affordable for broad masses of companies. On the other hand it also has to do with the increased dynamism and speed of markets that are characterized by global competition and in which the biggest competitors of next year in some cases do not even exist today. Young, agile and decentralized organizations with fast process and high innovativeness increasingly surpass the established and inert giants.
Two forms of learning drive economic growth
If you take a closer look at economic success and growth it is in essence always based in one of two forms of learning.
The first version describes that organizations grow because they learn more about how to best make use of current business opportunities. If organizations act in this way you can also speak of “Execution” or in a more scientific context of “Exploitation”. Companies in this mode try to make today’s business (production, processes, etc.) more and more efficient. This efficiency gain is the foundation of improvements and thereby growth. Stability, routines, security and repetition are the basis of growth for organizations in this learning mode. However, as mentioned above this form of efficiency-driven growth alone is not enough anymore for today’s economy and to prevail against the tough competition. Scientist also talk of the “Execution Trap” here, in which many established organizations are caught in their pursuit of short-term profit maximization and efficiency.
Alternatively organizations can also grow through learning more about new technologies, market and business opportunities. The focus of this approach to learning is lies more on creativity, innovation, experimentation, change and flexibility. Instead of being efficient today, organization in this mode pursue adaptability and agility towards opportunities and challenges of the future. This form of learning as counterpart to “Execution” is called “Search” or “Exploration in academia.”
In conclusion those to forms of learning, Execution and search or Exploitation and Exploration are the most important underlying drivers of economic success. In today’s economy characterized by the digital transformation the combination of the two forms is indispensable to create sustainable growth.
The key to success today and in the future is ambidexterity
The solution to the growth problem thus in most cases does not mean to only work in “Search mode” and forget about Execution. Working efficiently will of course stay important, although it will not be the sole key to success. The balance of efficiency today (Execution) and adaptability for the future (Search) is what will be most important. This ability to pursue seemingly disparate things is also called ambidexterity. And it allows organizations to secure short-term performance as well as long-term success at the same time (Tandemploy, 2018).
How does ambidexterity look like in practice?
If organizations understood the relevance of ambidexterity for themselves, they should put it into practice. But how does that look like? In general, you can live and execute ambidexterity on three levels:
Ambidexterity in practice – Level 1: The organization
Realizing ambidexterity as an organization in most cases means to develop a dual operating system. Hierarchies will stay important for certain forms of stability and control that play a major role especially in Execution mode. The existing hierarchies with which the business of today was organized efficiently, does not fully satisfy the demands of global, dynamic and complex markets anymore though. However, making hierarchies flat is not the answer to the problem. Since in flat hierarchies management still goes from top to bottom with little or no horizontal transparency and coordination. It is only in the mode of “decentralized“ that value creation can happen according to new market principles. This means to customer-centralized, self-organized and adaptive as well as cross-functional with clear purpose and radical focus on value creation and customer value (Birkinshaw, 2004, Engelhardt 2017).
More on this in “Flat hierarchies: Just another step in the wrong direction”
This means that organizations have to transform themselves into network organizations. In such network organizations employees cooperate mostly in an autonomous (self-organized) manner and based on common goals. This new arrangement of companies in network organizations is specially important for the success of the Search mode. But it also supports important aspects of the Execution focused value creation. A goal system that enables and helps organizations to transform themselves in such network organizations is Objectives and Key Results (OKRs).
Ambidexterity in practice – Level 2: The teams
At team level it is important that leaders exhibit the ability to pursue alignment and adaptability at the same time. At the level of managers and employees you have to create roles that support and accompany both forms of learning and working. Execution and Search. Another important aspect is to increase communication frequency and quality in teams. More communication fosters a better recognition of redundancies and can thereby lead to more efficiency. Next to this more communication and interaction with team member promotes the identification of new business opportunities, heightened idea creation and the discovery of creative solutions. Within dynamic and complex environments frequent and good communication becomes the key to success.
An increase in frequency and quality of communication in teams can e.g. be generated with the help of so called Check-ins. The Check-in is a short meeting where you discuss progress, new learnings and challenges. Embedding such meetings in existing processes secures a defined communication frequency and through that continuous feedback and learning. Furthermore, it helps to create more transparency and understanding among team members. As well as a higher level of engagement and sense of responsibility.
Ambidexterity in practice – Level 3: The individuals
At the level of individuals in an organization ambidexterity has first and foremost to do with a lot of attitude. If ambidexterity should be lived throughout the whole organization, every employee has to become an active driver. This means that everyone has to look out for new opportunities and challenge the well-established. The role of the employee in the context of ambidexterity has to change from a simple resource, merely executing worker and passive member of the organization to an proactive intrapreneur demonstrating entrepreneurial thinking in all potential situations. Power plays and conflicts because of organizational structures have to disappear and make room for customer centricity and value orientation (Birkinshaw, 2004, Engelhardt 2017).
The activated employees have to be enabled in their new roles through the newly established network organization. Learning, feedback and the creation of adequate communication and information structures play an important role here. Next to the introduction of new software tools or processes like OKR cycles also trainings can help to activate and enable employees.
Organizations, teams and their employees have variety of opportunities to position themselves successfully for sustainable growth in the future. Independently of the public debate on the trend topic ambidexterity this shows that a development of organisational models and operating systems not only is an opportunity but necessity. More dynamic and complex market environments require organizations to enable speed and adaptability as dominating success drivers. Without giving up stability and efficiency. Thus, the future belongs to agile network organizations composed of self-organized and customer centered teams that steer themselves through clear processes, principles and organizational purpose.