Ambidextrous companies gain upper hand at innovation

Ambidexterity is defined as the ability to use both left and right hands equally well. In relation to the workplace, it is frequently used to refer to innovation – that is, the ability to exploit a firm's existing knowledge and simultaneously to explore new knowledge.

This is seen as paving the way for introducing both radical and incremental innovation in the marketplace. Incremental innovation typically refers to small improvements or extensions to existing products or services; radical innovation refers to completely new products or services.

For many firms, both are needed. It is not an either/or choice. Exploration of new knowledge is needed to generate radical new ideas, and those ideas then need to be exploited to produce short-term profits through incremental variations on the original idea.

For example, the original Apple iPhone was a radical innovation which was then exploited through subsequent iPhone generations. Some of the subsequent iPhones are more innovative than others but they can still be classified as extensions to existing products rather than completely new products.

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However, not all firms that try to be ambidextrous are successful. And engaging simultaneously in both forms of innovation is not easily achieved. Indeed, it is considered one of the toughest managerial challenges.

Blue-sky thinking

The two forms of innovation compete for scarce resources and managers are naturally inclined to make decisions that favour less risky, shorter-term incremental innovation over radical innovation. The result is that blue sky-type thinking frequently gets crowded out.

So what can organisations do to become ambidextrous?

A research study I carried out – in collaboration with Prof Josep Bisbe of Esade Business School and Dr David Bedford of the University of Technology, Sydney – points to the importance of task conflict among senior managers in achieving ambidexterity. Conflict in general refers to a clash between opposing ideas; task conflict refers to differences of opinion about work-related issues.

Task conflict can occur among the senior management team when members argue over interpretation of facts, distribution of scarce resources, implementation of policies and strategies, etc.

But how can managers be encouraged to express differences of opinion? Based on survey responses of 90 senior managers in innovative industries in Ireland, we found that the use of key performance indicators (KPIs) is likely to be important in generating conflict.

Many KPIs commonly used to manage innovation (for example, return on investment, number of new products launched, time-to-market, patent filings) tend to favour an emphasis on incremental innovation at the expense of radical innovation efforts. For example, emphasising the number of new products launched is likely to incentivise many small product improvements.

Radical innovation projects can fail because of the emphasis of KPIs on efficiency, outputs and near-term gains, whereas KPIs suitable for radical innovation should be oriented towards inputs devoted to radical initiatives and long-term prospects (for example, headcount/financial resources devoted to radical innovation projects; number of patents for radical innovation projects; portfolio analysis by (a) risk, (b) breakeven time, (c) stage of development, and (d) project type).

Balanced indicators

Findings from the study point to the importance of a balanced set of KPIs, which combine metrics oriented towards inputs and long-term prospects, with the typical innovation metrics oriented towards outputs and near-term gains. Combining these KPIs serves to counterbalance the natural tendency for managers to prioritise less risky incremental innovations.

In other words, a balanced set of KPIs forces managers to recognise the contradictory demands between short- and long-term innovation and makes the tension between these demands salient. This is beneficial as managers are prevented from making those either/or decisions. The combination of a balanced set of KPIs can frame the contradictions as both/and possibilities instead.

However, we found that a more balanced set of KPIs on its own was insufficient to generate task conflict. Opening the conflict to discussion and debate is also required. In this way the conflict is “used” rather than “resolved”.

Face-to-face debate provides the richest medium of communication for working with differences of opinions. It was only when a balanced set of KPIs was combined with face-to-face opportunities to debate the KPIs that task conflict was generated among senior managers. For firms striving for ambidexterity, the findings suggest that task conflict is likely, in turn, to lead to the achievement of ambidexterity.

Prof Breda Sweeney is head of accountancy and finance at the JE Cairnes school of business and economics at NUI Galway

The study Performance Measurement Systems as Generators of Cognitive Conflict in Ambidextrous Firms by David Bedford Josep Bisbe and Breda Sweeneyis published in Accounting, Organisations and Society