by Theodore Kinni
Insights by Stanford Business, June 9, 2016
It’s been nearly 20 years since Clayton Christensen explained why so many industry-leading companies miss the potential of new technologies and are supplanted by competitors that seemingly emerge from nowhere. Since then, corporate strategists have realized that avoiding what Christensen called the innovator’s dilemma requires that companies simultaneously compete in their mature businesses and pursue the opportunities that arise from new technologies and business models. Of course, that’s easier said than done.
“The main obstacle is something we call the success syndrome,” explains Charles O’Reilly, the Frank E. Buck Professor of Management at Stanford Graduate School of Business and author, with Michael Tushman of Harvard Business School, of a new book titled Lead and Disrupt. “There’s lots of high-quality research that shows once companies have the right strategy, the more they can align their organization with it; that is, the more they’ve got the right people, structure, metrics, and culture in place, the better they can exploit that strategy.” The problem is that the alignment supporting exploitation is very different from the alignment that supports the exploration of new technologies and business models. “Exploitation, which is where companies typically make money, tends to drive out exploration,” he says.
To find out how companies navigate this conundrum, O’Reilly and Tushman searched out corporations that, over many decades, had been able to transform themselves even as their markets and technologies were fundamentally disrupted. The authors list 27 of these companies in the book; their average age is 130 years.
They all had one thing in common. “What is true of all of these companies is that they’re in different businesses today, even when they are in the same industry,” O’Reilly says. “They’re all alive today only because they’ve been able to take their assets and capabilities and move into new businesses.”
Goodrich, for example, started out making rubber conveyor belts and fire hoses in 1870. When the automobile and airplane appeared, it used its expertise to make tires. Then, during World War II, when the supply of natural rubber dried up, it developed synthetic rubber, which allowed it to make products for the defense and aerospace industries.
How did Goodrich, which was acquired by United Technologies Corp. in 2012, do it? “Part of what we were arguing in the book is that it is a leadership issue, not a technology issue. There have to be senior leaders who are willing to fund exploratory projects, to scale them if they’re successful and to kill them if they’re not,” says O’Reilly. “If you look at companies that have failed, most of the time you find that they didn’t miss the technology. They had it. Smith Corona was the world’s biggest typewriter company for 50 years. They had one of the first word processors. But its leaders made decisions not to fund it.”
By way of contrast, O’Reilly points to Fujifilm. “In 2000, just as global film sales hit their peak, CEO Shigetaka Komori says, ‘What assets and capabilities do we have that would allow us to move into new areas?’ And over the next five to 10 years, as film sales fall off a cliff, he helps leverage those assets and capabilities into things like regenerative medicine, cosmetics, pharmaceuticals, and liquid crystal display films,” he says. Juxtapose that with Kodak, which had the same technologies but continued to focus on film. “Today, Fujifilm is a $23 billion company with an annual growth rate of more than 10% over the past 15 years. Kodak goes bankrupt in 2012.”
O’Reilly describes Komori as ambidextrous. Ambidextrous leaders are great at running big, mature, exploitative businesses, while simultaneously leveraging corporate assets and capabilities to explore new areas.
There have to be senior leaders who are willing to fund exploratory projects, to scale them if they’re successful and to kill them if they’re not.
Charles O’Reilly
It’s not easy to be an ambidextrous leader. “First of all, these leaders have to be able to sanction ‘explore’ and ‘exploit’ operations. That typically requires that there is some compelling strategic intent,” says O’Reilly. Beyond that, he notes, the leaders need to run very different businesses in a way that makes them feel united, with a common identity, yet still recognize that these different organizations require different metrics, incentives, and cultures. They also have to make sure their senior team is aligned. Resistance from the senior team slows things down and leads to failure, O’Reilly says.
As if this isn’t challenging enough, there is also the question of how to handle the process of exploration and exploitation when the ambidextrous leader moves on. “We spent a number of years working with IBM,” O’Reilly says. “For reasons I don’t fully understand, the company was ambidextrous under Lou Gerstner and Sam Palmisano. But it’s much less ambidextrous today. I think it really does have to do with a leader — that’s who makes the ultimate decision about allocation of resources and people.”
Should every company leader seek to exploit and explore? “That depends largely on the extent to which a firm is likely to be disrupted,” says O’Reilly. “If I’m leading Exxon, yeah, I probably should be investing in alternative technologies. But fundamentally, at least up until now, that industry has not moved very rapidly. How worried should I be? How much effort should I be putting into exploratory ventures? Probably not a lot.
“If I’m running General Motors, well, cars have been cars for a long time. But 10 years from today? Car buying habits are clearly shifting with the millennials, and there’s likely to be some form of self-driving cars.” Adds O’Reilly, “In fact, GM seems to have bought into this idea of ambidexterity. And they’ve got [President] Dan Ammann and [Vice President of Strategy] Mike Abelson, who are running all their experiments.”
The lesson for leaders: Be aware of the potential disruptive threats to your company. The more immediate they are, the more likely it is that you should be leading with both hands.
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