How To Understand Organizational Ambidexterity

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2 TABLE OF CONTENTS CHAPTER ONE: INTRODUCTION 1.1 Research Background Problem Statement and Research Objectives Research Significance 8 CHAPTER TWO: LITERATURE REVIEW AND THEORY DEVELOPMENT 2.1 Pressures to be Ambidextrous Organizational Ambidexterity Types of Innovation and Organizational Ambidexterity Fit between Firms Task Environment and the Adoption of Innovation Strategy Facilitators to Organizational Ambidexterity From Intended to Realized Organizational Ambidexterity Combinative Capabilities Absorptive Capacity Research Framework 46 CHAPTER THREE: RESEARCH METHODS ii

3 3.1 Research Design Sample and Procedures Measures 50 CHAPTER FOUR: DATA ANALYSIS 4.1 Descriptive Statistics Sample Description Mean, Standard Deviations, and Correlation among Variables Confirmatory Factor Analysis Reliability Hypotheses Testing Linear Regression Cluster Analysis Testing the Moderating Effect of Combinative Capabilities Testing of the Moderating Effect of Absorptive Capabilities 82 CHAPTER FIVE: DISCUSSION AND CONCLUSIONS iii

4 5.1 Conclusions Theoretical Contributions and Managerial Implication Theoretical Contributions Managerial Implications Limitations and Future Research 94 REFERENCES 96 iv

5 LIST OF TABLES Table 2-1 Definitions of Exploitation and Exploration 22 Table 4-1 Means, Standard Deviations, and Correlations 61 Table 4-2 Factor Loadings of Environmental Factors 63 Table 4-3 Factor Loadings of Ambidextrous Strategy 65 Table 4-4 Factor Loadings of System Capabilities 66 Table 4-5 Factor Loadings of Coordination Capabilities 67 Table 4-6 Factor Loadings of Socialization Capabilities 68 Table 4-7 Factor Loadings of Absorptive Capacity 69 Table 4-8 Factor Loadings of Performance 70 Table 4-9 Coefficient αof all the measure in this study 71 Table 4-10 Summary of the Regression Model 73 Table 4-11 Coefficient of the Regression 73 Table 4-12 Cluster Analysis of the Perception of Environmental Factors 75 Table 4-13 ANOVA for Groups with Different Environmental Pressure 76 v

6 Table 4-14 The Impact of the Fitness between Environmental Factors and Innovation Strategy on New Product Performance and Financial Performance 77 Table 4-15 The Impact of the Fitness between Environmental Factors and innovation Strategy on New Product Performance and Financial Performance 78 Table 4-16 Regression Models Regarding the Moderating Effect of Combinative Capabilities on New Product Development Performance 80 Table 4-17 Regression Models Regarding the Moderating Effect of Combinative Capabilities on Financial Performance 81 Table 4-18 Regression Models Regarding the Moderating Effect of Absorptive Capabilities on New Product Development Performance 82 Table 4-19 Regression Models Regarding the Moderating Effect of Absorptive Capabilities on Financial Performance 83 vi

7 LIST OF FIGURES Figure 4-1 Distribution of industries 59 Figure 4-2 Distribution of Firm s Capital 60 Appendix A Appendix B vii

8 謝 誌 終 於 畢 業 了! 七 年 多 前 踏 進 義 守 的 博 士 班 時, 只 知 道 畢 業 不 會 是 短 時 間 的 事, 但 也 沒 想 到 會 從 三 十 幾 歲 念 到 四 十 幾 歲, 從 一 個 孩 子 的 媽 念 到 三 個 孩 子 的 媽 七 年 不 算 短, 尤 其 在 對 一 個 正 值 中 年 的 我 而 言, 許 多 人 生 的 重 要 轉 折 都 發 生 在 這 七 年 之 間 在 這 期 間, 有 悲 有 喜, 有 苦 也 有 樂, 而 如 今 能 修 成 正 果, 首 先 要 感 謝 義 守 管 研 所 修 課 期 間 任 課 教 師 的 認 真 教 導, 過 程 非 常 的 扎 實, 我 非 常 享 受 上 課 期 間 與 老 師 及 各 位 同 修 的 互 動, 常 常 上 課 期 間 的 討 論, 不 會 僅 止 於 上 課 期 間, 有 時 課 後 的 的 討 論, 也 是 非 常 熱 烈, 而 同 學 們 也 都 無 私 地 分 享 每 個 人 的 資 訊, 這 是 義 守 博 班 最 迷 人 最 可 愛 的 地 方 在 前 後 兩 任 所 長 林 所 長 與 彭 所 長 的 帶 領 之 下, 我 們 也 征 戰 了 大 大 小 小 的 國 際 學 術 會 議, 在 參 與 會 議 期 間, 也 往 往 聽 到 其 他 學 校 博 班 學 生 的 羨 慕 之 詞, 因 為 義 守 往 往 是 一 整 團 參 加 重 要 的 國 際 學 術 會 議, 舉 凡 AOM AIB IACMR 等, 我 們 往 往 是 那 最 多 人 參 加 的 台 灣 博 班 學 生 而 在 博 班 期 間, 我 也 非 常 感 謝 彭 副 院 長 總 是 積 極 地 替 我 們 安 排 國 際 級 的 學 者 來 演 講, 介 紹 重 量 級 的 學 者 與 我 們 認 識, 如 陳 明 哲 老 師 羅 勝 強 老 師 黃 熾 森 老 師 樊 景 立 老 師 等 國 際 級 的 學 者, 讓 我 們 不 僅 能 見 識 到 大 師 級 的 風 範, 更 能 在 學 術 上 以 及 人 生 哲 學 上 都 受 益 許 多 而 在 最 後 論 文 的 完 成 方 面, 兩 位 指 導 教 授 方 世 杰 老 師 與 林 麗 娟 老 師 總 是 積 極 地 鼓 勵 我 們, 希 望 我 們 及 早 畢 業, 沒 有 兩 位 老 師 定 期 地 與 我 們 開 會, 細 心 又 耐 心 地 指 導, 很 難 想 像 我 可 以 獨 立 完 成 博 士 論 文 而 在 最 後 問 卷 的 收 集, 當 初 也 是 傷 透 腦 筋, 因 為 問 卷 需 要 公 司 的 一 位 高 階 管 理 人 員 以 及 一 位 研 發 人 員 來 填 答, 剛 開 始 時 往 往 無 法 同 時 找 到, 幸 好 在 父 親 友 人 雷 輝 叔 叔 張 紋 祥 叔 叔 李 威 顯 叔 叔 以 及 湯 俊 彥 伯 伯, 兩 位 在 科 技 產 業 的 弟 弟 士 才 與 崇 修, 以 及 我 的 朋 友 與 大 學 同 學 的 幫 忙 之 下, 終 於 將 足 夠 的 問 卷 回 收, 否 則 遲 遲 無 法 將 我 的 論 文 做 實 證 的 分 析, 因 此 特 別 感 謝 他 們 的 幫 忙, 沒 有 他 們 的 引 介 與 幫 忙 收 問 卷, 我 相 信 我 沒 有 辦 法 在 這 學 期 完 成 論 文, 在 此 一 併 感 謝 viii

9 在 家 人 方 面, 首 先 要 感 謝 我 的 媽 媽 與 婆 婆, 在 我 必 須 為 課 業 忙 碌 的 時 候, 幫 我 照 顧 小 孩 ; 我 的 老 公 也 因 為 我 讀 書 的 關 係, 長 期 被 我 忽 略, 而 我 往 往 只 能 把 兩 個 小 孩 照 顧 好, 而 他 還 常 常 得 在 假 日 期 間 擔 任 單 親 爸 爸 的 角 色, 我 非 常 感 謝 他, 幸 好 兩 個 小 朋 友 愈 長 大 也 愈 能 體 諒 我 的 課 業 與 教 學 的 壓 力, 是 兩 個 很 貼 心 的 小 孩 ; 而 爸 爸 與 公 公 則 常 必 須 在 我 無 法 接 送 小 孩 時 伸 出 援 手 沒 有 這 些 家 人 的 支 持, 我 是 完 全 不 可 能 撐 過 整 個 博 士 班 的 訓 練 過 程 的 終 於 可 以 拿 到 學 位 了, 雖 然 內 心 非 常 高 興, 可 是 我 最 親 愛 的 母 親 卻 臥 病 在 床, 母 親 一 向 是 家 裡 的 精 神 支 柱, 現 在 她 倒 下 了, 家 人 都 非 常 不 捨, 而 父 親 也 很 辛 苦 地 隨 伺 在 側, 我 們 都 希 望 母 親 能 夠 趕 快 康 復, 期 待 她 能 參 加 我 的 畢 業 典 禮 以 及 看 到 即 將 出 生 的 寶 寶 佩 文 謹 誌 於 義 守 管 研 所 民 國 99 年 1 月 ix

10 摘 要 組 織 的 雙 邊 靈 活 性 (Organizational ambidexterity) 近 幾 年 已 在 組 織 管 理 與 知 識 管 理 領 域 成 為 一 個 新 的 研 究 趨 勢 (Gibson & Birkinshaw, 2004; He & Wong, 2004). 組 織 雙 邊 靈 活 性 的 中 心 議 題 是 在 探 討 組 織 如 何 利 用 能 力 來 完 成 組 織 中 看 似 兩 個 矛 盾 與 衝 突 的 活 動, 例 如 組 織 中 的 微 調 與 調 適 進 化 性 改 變 與 變 革 性 的 改 變 ; 效 率 與 彈 性 等 (Adler, Goldoftas, & Levine, 1999; Crossan, Lane, & White, 1999; Gibson & Birkinshaw, 2004; Lin, Haibin, & Demirkan, 2007; Tushman & O'Reilly, 1996). 而 利 用 (exploitation) 與 探 索 (exploration) 則 是 在 組 織 的 雙 邊 靈 活 性 的 議 題 中, 一 直 不 斷 出 現 的 兩 個 構 面 本 篇 研 究 嘗 試 對 此 議 題 在 理 論 上 與 實 證 上 做 一 深 入 的 探 討 更 精 確 地 說, 此 篇 論 文 的 研 究 問 題 是, 組 織 何 時 會 選 擇 所 謂 的 雙 邊 策 略 (ambidextrous strategy)? 其 次, 組 織 中 的 高 階 管 理 團 隊 成 員 所 認 知 的 環 境 壓 力 會 如 何 影 響 組 織 的 創 新 策 略 的 選 擇? 是 堅 持 利 用 型 的 創 新 策 略? 探 索 性 的 創 新 策 略? 還 是 兩 者 兼 顧 的 雙 邊 策 略 (ambidextrous strategy)? 環 境 的 豐 富 性 變 動 性 以 及 複 雜 性 為 本 篇 所 研 究 的 環 境 因 素 本 研 究 認 為, 當 組 織 意 識 到 三 者 的 程 度 都 高 時, 最 有 可 能 選 擇 一 個 雙 邊 的 創 新 策 略 然 而, 即 使 組 織 認 知 到 其 必 須 採 用 雙 邊 的 創 新 策 略 時, 還 需 要 兩 種 能 力 來 達 成 此 組 織 的 雙 邊 靈 活 性 : 一 是 結 合 能 力 另 一 是 吸 收 能 力 藉 由 這 兩 種 能 力, 組 織 的 雙 邊 靈 活 性 才 有 可 能 達 成 在 實 證 上 我 們 採 用 既 有 的 量 表 來 對 台 灣 的 產 業 界 做 問 卷 調 查, 調 查 的 產 業 主 要 有 電 子 產 業 機 械 與 重 金 屬 產 業 醫 療 產 業 製 造 業 等 問 卷 採 取 便 利 抽 樣 的 方 式 收 集, 共 收 集 到 一 百 份 結 果 發 現 環 境 因 素 對 組 織 的 創 新 策 略 的 選 擇 確 實 有 其 影 響 而 當 組 織 知 覺 到 較 大 的 環 境 壓 力 時, 並 採 用 雙 邊 的 創 新 策 略, 會 造 成 較 好 的 績 效 表 現 另 外, 組 織 的 結 合 能 力 與 吸 收 能 力 也 能 夠 加 強 組 織 的 雙 邊 策 略 對 x

11 組 織 績 效 的 影 響 xi

12 ABSTRACT Organizational ambidexterity has become an emerging research trend in both the organizational management and knowledge management field (Gibson & Birkinshaw, 2004; He & Wong, 2004). The central theme on organizational ambidexterity is about organizational capability to simultaneously deal with paradoxical or conflicting activities such as organizational alignment and adaptation; evolutionary and revolutionary change; manufacturing efficiency and flexibility; strategic alliance formation; and even strategic renewal(adler, Goldoftas, & Levine, 1999; Crossan, Lane, & White, 1999; Gibson & Birkinshaw, 2004; Lin, Haibin, & Demirkan, 2007; Tushman & O'Reilly, 1996). Exploitation and exploration are the most recurrent underlying dimensions regarding organizational ambidexterity. This paper tries to gain more insight on organizational ambidexterity both theoretically and empirically. In particular, our research interest is to investigate why organizations need to be ambidextrous in the first place? What is the impact of environmental pressures perceived by organizations top management team on their strategic choices in terms of innovation? What are the internal factors that may enhance organizations ambidextrous strategy (adoption of both exploitative and explorative strategies)? Three main environmental factors have been identified: environmental munificence, dynamism and complexity. Firms choose to be ambidextrous when they confront the environment characterized as munificent, dynamic and complex. It is not easy for firms to simultaneously execute both exploitation and exploration. Two capabilities are essential for accomplish such ambidexterity: combinative capabilities and absorptive capabilities. We posit that both capabilities facilitate firms ambidextrous strategy. xii

13 To test the theoretical hypotheses, we conduct a survey using established measures. The sampling frame is the firms in high-tech industry or the related industries in Taiwan. At the end of the survey, 100 valid sample is analyzed to examine the hypothesized relationship. Our conclusion is that, environmental pressures did have significant impact on firms choice of innovation strategy. The fitness between higher degree of environmental pressures perceived by the top management teams and ambidextrous innovation strategy (engaging in exploration and exploitation simultaneously) would result in better performance. Firms combinative capabilities and absorptive capacities are two facilitators to enhance the relationship between ambidextrous strategy and firms performance in terms of new product development and financial conditions. Keywords: Ambidexterity; Ambidextrous Organizations; Exploitation; Exploration; Combinative Capabilities; Absorptive Capacities. xiii

14 CHAPTER ONE INTRODUCTION 1.1 Research Background Organizational ambidexterity has become an emerging research trend in both the organizational management and knowledge management field (Gibson & Birkinshaw, 2004; He & Wong, 2004). The central theme on organizational ambidexterity is about organizational capability to simultaneously deal with paradoxical or conflicting activities such as organizational alignment and adaptation; evolutionary and revolutionary change; manufacturing efficiency and flexibility; strategic alliance formation; and even strategic renewal (Adler, Goldoftas, & Levine, 1999; Crossan, Lane, & White, 1999; Gibson & Birkinshaw, 2004; Lin, Haibin, & Demirkan, 2007; Tushman & O'Reilly, 1996). This emerging issue has increasingly gained its weight in research since organizations have to cope with or balance the seemingly contradictory tension within organizations under more and more dynamic environment and severe competition (Nonaka, Toyama, & Byosiere, 2001). Due to the dynamism and complexity of the environment, organizations short-term success does not necessarily guarantee their long term survival. Therefore, research on organizational ambidexterity tries to find out how organizations manage to maintain today s success while preparing to adapt to tomorrow s changing environment (Gibson & Birkinshaw, 2004; Jansen, Bosch, & Volberda, 2005a; Tushman & O'Reilly, 1996). Therefore, research on organizational ambidexterity tends to investigate its relationship with firm performance (Raisch & Birkinshaw, 2008)

15 More specifically, the ambidextrous hypothesis means that organizations that both engage in exploitation and, at the same time, pay their attention to exploration have more opportunities to survive in the short term and grow in the future (He & Wong, 2004; Lin et al., 2007; Tushman & O'Reilly, 1996). Exploitation and exploration are the most recurrent underlying dimensions regarding organizational ambidexterity. In general terms, March (1991) described exploitation related to things like refinement, choice, production, efficiency, selection, implementation and execution and exploration being relevant to search, variation, risk taking, experimentation, play, flexibility, discovery, innovation. March stressed that both exploitation and exploration are learning activities. In his words, the essence of exploitation is the refinement and extensions of existing competencies, technologies, and paradigms; and the essence of exploration is experimentation with new alternatives (1991:85). According to the definitions, exploitative and exploratory activities would require different and sometimes conflicting resources, mindsets and organizational procedures (Gupta, Smith, & Shalley, 2006; March, 1991). Therefore, should or could organizations pursue both activities to be ambidextrous also receives challenges. The research trend on organizational ambidexterity did not come out without reasons. Firstly, knowledge asset has been recognized as essential to organizational competitiveness by many leading organizational scholars (Prahalad & Hamel, 1990; von Krogh, 1998). Among all, Nonaka and colleagues (2000) define knowledge assets as firm-specific resources that are indispensable to create values for the firm. Based on the assumption that organization serves as a knowledge repository (Kogut & Zander, 1992), the key issue for organizations to build their competitive advantages is to create knowledge to enhance and expand their knowledge repositories. Therefore, - 2 -

16 organization s abilities to reuse existing knowledge and explore new knowledge are critical to organizations innovation especially in the era of knowledge economy. Secondly, due to the accelerating dynamic environment, shortening product life cycles and intensified industrial competition, organizations short-term success by utilizing existing competitive advantages do not guarantee their long-run survival. New knowledge has to be created continuously within organizations since knowledge is the most important strategic resource nowadays (He & Wong, 2004). Traditionally, scholars regard exploitative and explorative innovation demanding different attention and resources (Duncan, 1976; Gibson & Birkinshaw, 2004). Due to limited resources, they are confronted with the tension between exploiting what they know and exploring what they do not know since both exploitation and exploration are essential capabilities to their long term survival (Lewin, Long, & Carroll, 1999; March, 1991). Therefore, organizations find themselves under more and more pressures to cope with the tension between exploitation and exploration (Jansen, Van Den Bosch, & Volberda, 2006; Tushman & O'Reilly, 1996). Thirdly, the paradigm shift regarding exploitation and exploration also attracts researchers interest in investigating the possibility of achieving organizational ambidexterity. Since March s (1991) seminal work on exploitation and exploration, these two underlying dimensions of organizational ambidexterity have been treated as two incompatible or competing concepts (McGill, Slocum, & Lei, 1992; Miller & Friesen, 1986; Tushman & O'Reilly, 1996). They argued that exploitation and exploration are two ends of the continuum. Owing to limited organizational resources, organizations have to make a choice between either one. In other words, the strategic choice between exploitation and exploration is a trade-off (Liu, 2006). Recently, the trade-off view of exploitation and exploration has been challenged by many scholars (Gupta, Smith, & Shalley, 2006). They pointed out that organizational resources may - 3 -

17 not necessarily be limited. For example, organizational knowledge has the characteristics of being accumulated more and more by just utilizing it (Huber, 1991). In addition, there are also other means of acquiring resources external to organizations such as strategic alliance or merger and acquisition (Gupta et al., 2006). Therefore, regarding exploitation and exploration, some researchers have moved from a trade-off (either/or) thinking to a paradoxical (both/and) one (e.g. Duncan, 1976; Gibson & Birkinshaw, 2004). In the same vein, recent research starts to be interested in the possibility of the positive interaction between these two dimensions. Once the organizational resources are not so limited, organizations seem to be able to manage both activities simultaneously. In conclusion, both the practical phenomenon and the paradigm shift on exploitation and exploration contribute to the burgeoning research trend on organizational ambidexterity. However, though the significance of organizational ambidexterity receives scholars attention, much room remains to be filled up in terms of theoretical depth and empirical evidence (Gibson & Birkinshaw, 2004; Raisch & Birkinshaw, 2008). Therefore, this paper tries to gain more insight on organizational ambidexterity both theoretically and empirically. In particular, our research interest is to investigate why organizations need to be ambidextrous in the first place? What is the impact of task environmental factors perceived by organizations top management team on their strategic choices in terms of innovation? What are the internal factors that may help to implement organizations ambidextrous strategy (adoption of both exploitative and explorative strategies)? To emphasize the notion that organizations do not possess ambidexterity simply because they adopt an ambidextrous innovation strategy, we further differentiate intended ambidexterity from realized ambidexterity

18 We presume that why organizations need to be ambidextrous is the most fundamental question that we should ask if we are to contribute to the concerning literature. This research question is particularly addressed to the factors that affect the formulation of organizations innovation strategy. Furthermore, when top management teams perceive the external pressures to be ambidextrous, they might be eager to explore the internal factors facilitating such strategy. This issue is particularly addressed to the implementation stage of organizations innovation strategy. Drawing on contingency perspective of strategy and knowledge-based view (or literature on dynamic capabilities), we argue that when organizations perceive the need to adopt ambidextrous strategy, and they do so, the fitness between external environment and strategic choice and the required capabilities that should be in place may positively impact their performance. In the following section, specific research questions and objectives are further explicated. 1.2 Problem Statement and Research Objectives Specifically, we address two specific research questions. Firstly, we would like to investigate why organizations need to be ambidextrous in terms of innovation. Should all organizations pursue ambidexterity? Does ambidexterity mean better performance? - 5 -

19 Past research mostly tried to identify the antecedents of organizational ambidexterity within organizations. In terms of organizational arrangement, structural ambidexterity and contextual ambidexterity have been categorized as two main research streams on the regarding issue (Duncan, 1976; Gibson & Birkinshaw, 2004). Drawn on organizational design theories and social structure, these studies investigated the structural and contextual antecedents of organizational ambidexterity. However, little research has specifically asked why organizations need to be ambidextrous in the first place. Some research has recognized that ambidextrous choice would entail more coordination costs among organizational units. Therefore, simultaneously pursuing both exploitative and explorative strategies does not guarantee better performance than those adopt focused strategies (either exploitative-focused or explorative-focused). Now that ambidextrous strategy does not parallel to better performance, the reasons that organizations adopt such strategy may deserve investigation. In this paper, we would like to address the issue of being ambidextrous as organizations strategic choice when confronting with external environmental needs. We argue that only when organizations top management teams feel the need to engage in both exploitation and exploration, will they choose to simultaneously doing so. Not all organizations need to be ambidextrous, only when they need to be since simultaneously engaging in exploitation and exploration usually require more resources and organizations are inclined to utilize exploitative innovation strategy to harvest short term profit, let alone explorative strategy (Rosenkopf & Nerkar, 2001). In this paper, we particularly address that top management team s perception of task environment is the driving force of being ambidextrous for organizations. Though there are scholars regard environmental dynamism, complexity and competitiveness as the antecedents of - 6 -

20 organizational ambidexterity, they did not examine from top management teams perception and the result is limited to unit s level (e.g. Jansen et al., 2005a; Jansen et al., 2006). Since we focus on organizational ambidexterity, analyzing from an organizational level would reveal the nature of this construct and contribute more theoretical insight. Our second research question is: when organizations feel the need to adopt ambidextrous strategy, what are the required conditions for them to do so? Regarding how to achieve organizational ambidexterity, past research usually identified from three main approaches (Raisch & Birkinshaw, 2008): organizational formal structure (organizational design), informal structure (organizational social context)(de Visser, Faems, Van Looy, Visscher, & De Weerd-Nederhof, 2009) and top management leadership (Carmeli & Halevi, 2009; Duncan, 1976; He & Wong, 2004; Jansen, Bosch, & Volberda, 2006; Nemanich & Vera, 2009). Little research has examined the internal capabilities of organizations that enable them to be so (Rothaermel & Alexandre, 2009). Therefore, drawing on knowledge-based view, we investigate the required capabilities that enhance organizational ambidexterity. In addition to organizational arrangement such as formal or informal structures, we posit that certain organizational capabilities might act as facilitators for achieving organizational ambidexterity. In conclusion, drawn on strategy literature and knowledge-based view, this study would like to fill the literature gap as above-mentioned

21 1.3 Research Significance This research aims to explore the organizational ambidexterity from strategic management perspective and knowledge-based view. Previous issue did not explicitly link the strategic choice of innovation strategy with organizational ambidexterity. We tried to fill this literature gap and emphasize the fitness concept between strategic choices and environmental factors for ambidextrous organizations. Based on knowledge-based view, we argue that when organizations perceive the need to engage in both exploitative and explorative activities, certain organizational capabilities are essential to the achievement of organizational ambidexterity. Previous research seems to put less emphasis on organizational capabilities. In an era of knowledge economy, we have reasons to believe that knowledge-based view would provide more insight on the concerning issue. Another objective of this paper is to systematically conduct an empirical inquiry which is still in void (He & Wong, 2004; Raisch & Birkinshaw, 2008; Sidhu, Commandeur, & Volberda, 2007). Since research on organizational ambidexterity is burgeoning, systematically empirical studies would certainly broaden our knowledge on it. In conclusion, our research aims to provide more insight from different and more related perspectives to the concept of ambidexterity. The inference of the impact of environmental factors on top management team is drawn on the resource dependence theory. Organizations strategy is often determined and influenced by their environment, - 8 -

22 especially when this environment is highly dynamic and competitive. To consider the fitness of the innovation strategy adopted by organizations, we posit that environmental factors, especially in terms of task accomplishment, should be examined in the first place. Strategic management literature has put lots of emphasis on the concept of fit, stating that the adoption of fit strategy would support organizations growth. Previous research on organizational ambidexterity did not emphasize the concept of fit between environment and strategy. We aim to fill the literature gap in this research. Another expected contribution of this research is that we not only examine organizations external environment, we argue that certain capabilities in terms of knowledge-based view should be taken into account as well. Since the nature of organizational ambidexterity is the tension between exploitation and exploration, such capabilities should be able to combine and integrate different knowledge activities within organizations. We propose that combinative capabilities and absorptive capabilities positively enhance the relationship between ambidextrous strategy and its performance on new product development. Although literature has empirically tested the ambidextrous hypothesis, the unit of analysis and results reveal mixed findings. For example, Jansen, Van den Bosch and Volberda (2005a) tested the hypothesis at a unit s level, though they did address how the units respond to dynamically competitive environments. In this paper, we aim to test the ambidextrous hypothesis at the organizational level since this is the level where we positioned our research

23 CHAPTER TWO LITERATURE REVIEW AND THEORY DEVELOPMENT 2.1 What is Organizational Ambidexterity? Organizational ambidexterity has become an emerging research trend in both the organizational management and knowledge management field (Gibson & Birkinshaw, 2004). Organizational scholars have been trying to define what organizational ambidexterity is. Broadly speaking, organizational ambidexterity could refer to organizations ability to simultaneously deal with two paradoxical demand such as alignment and adaptation (Birkinshaw & Gibson, 2004), evolutionary and revolutionary change (Tushman & O'Reilly, 1996), efficiency and flexibility (Adler, Goldoftas, & Levine, 1999), differentiation and low-cost strategy (Porter, 1996), global integration and local responsiveness (Doz, Bartlett, & Prahalad, 1981), zero-level capabilities and higher-order capabilities (Winter, 2003), and incremental and radical innovation (Benner & Tushman, 2003). More specifically, Jansen, Van den Bosch and Volberda (2005a) treated organizational ambidexterity as the ability to pursue exploratory and exploitative innovation simultaneously. Tushman and O Reilly (1996) described ambidexterity as the ability to simultaneously pursue both incremental and discontinuous innovation and change. Duncan (1976) paid attention to the structural

24 arrangement to cope with innovation. March (1991), Levinthal and March (1993) maintained that balance between exploitation and exploration is advantageous for firm s long term success. The nature of ambidexterity is also implicitly recognized in the dynamic capabilities literature which urges the need to blend two different strategic logic - exploitation and exploration- within organizations (Ancona, Goodman, Lawrence, & Tushman, 2001; Eisenhardt & Martin, 2000). In this study, we specifically regard organizational ambidexterity embodied on organizations strategic choice. That is, the achievement of organizational ambidexterity should be firstly led by ambidextrous innovation strategy. What we meant by ambidextrous innovation strategy is that organizations simultaneously adopt exploitative and explorative innovation strategies. To be more specific, when organizations engage in both exploitative and explorative innovations at the same time period, we reckon that they adopt ambidextrous innovation strategy. We distinguish this from ambidexterity since we deem that the adoption of ambidextrous strategy does not necessarily lead to organizational ambidexterity. Therefore, in this study, we particularly address the difference between strategy formulation and strategy implementation. For strategy formulation, we focus on what factors influencing the decision of strategic choice in terms of innovation. As for strategy implementation, we enquire the requisite capabilities organizations should possess to facilitate and achieve organizational ambidexterity. Scholars that maintain organizational ambidexterity should be pursued by organizations have two basic assumptions. Firstly, the relationship between exploitation and exploration is orthogonal rather than two ends of a continuum. Since March (1991) made a distinction between exploitation and exploration based on organizational learning theory, most research treated exploitation and exploration as a trade-off under

25 the constraint of limited organizational resources. However, recent research explored the possibility of the interactive relationship between these two dimensions, arguing that not all organizational resources are limited and constrained. Organizational resources such as knowledge and information may have the characteristics of being accumulated more and more by using it (Shapiro & Varian, 1998). Secondly, even though exploitation and exploration generally require quite different mindset and organizational routines, both activities could still be executed under different domains in terms of different knowledge or separate units (Gupta et al., 2006). Exploitation and exploration would be mutually exclusive when they are considered within single individual or subsystem. However, across different domains, it is possible that organizations arrange two different activities at different units or individuals to be executed. This argument implies that the more resources or individuals that organizations possess, the more possible that organizations present ambidexterity. Therefore, in this paper, we generally consider that not all organizations could pursue both exploitation and exploration and benefit from the interaction between these two. The issue of organizational ambidexterity is very contingent on different organizational conditions both internally and externally. But the decision of being ambidextrous is first impacted by task environment perceived by top management teams. Two kinds of organizational ambidexterity were mostly studied in the literature, namely structural ambidexterity (Adler et al., 1999; Duncan, 1976; Tushman & O'Reilly, 1996) and contextual ambidexterity (Gibson & Birkinshaw, 2004). According to Duncan, the most important factor to influence organizational ambidexterity is its formal structure. By deliberately separating different units to execute different tasks, organizations manage to solve the conflicting demands from exploitation and

26 exploration. The main argument in structural ambidexterity follows the logic of organizational design theories since organizational structure supports knowledge-related activities within organizations (Ettlie, Bridges, & O'Keefe, 1984). In a meta analysis of organizational factors influencing innovation, Damanpour (1991) concluded formalization, centralization, horizontal differentiation, and vertical differentiation as four most important structural constructs. Some other research argued that configuration, complexity, formalization and centralization as critical (Blackburn & Cummings, 1982). In the organizational ambidexterity literature, decentralization and formalization are two most studied constructs (e.g. Jansen et al., 2005a, 2006). This research trend also implied that the nature of organizational ambidexterity is very closely linked to innovation literature. As for a more precise picture of ambidextrous organizations, Benner & Tushman (2003) described as follows: Ambidextrous organization designs are composed of highly differentiated but weakly integrated subunits. While the exploratory units are small and decentralized, with loose cultures and processes, the exploitation units are larger and more centralized, with tight cultures and processes. Exploratory units succeed by experimenting- by frequently creating small wins and losses (Sitkin, 1992). Because process management tends to drive out experimentation, it must be prevented from migrating into exploratory units and processes. In contrast, exploitation units that succeed by reducing variability and maximizing efficiency and control are an ideal location for the tight coordination associated with process management efforts (2003: 252). Benner & Tushman described the ambidextrous organization from the perspective of organizational design. The nature of studying organizational design or structure is to find out how conflicting organizational activities could be reconciled through organizational arrangement. Broadly speaking, this research stream recognized the fact that organizational ambidexterity could be achieved as long as conflicting activities are

27 reconciled within organizational structure. Organizational structure reflects how exploitation and exploration are coordinated and arrayed within organizations. In this research stream, it seems that conflicting activities must be executed separately since exploitation and exploration requires different kinds of control and coordination. Most importantly, when these two activities are separated to different units, they maintained that these highly differentiated units must be loosely coupled to integrate organizational activities. However, this research stream remains silent on the social structure of ambidextrous organizations. In contrast to structural ambidexterity, another research stream treats organizational ambidexterity as a trait of organizational behavior. By studying the requisite contextual conditions, they claimed the significance of the organizational systems and process for enhancing organizational ambidexterity. Gibson and Birkinshaw (2004) termed contextual ambidexterity as the behavioral capacity to simultaneously demonstrate alignment and adaptability across an entire business unit. Therefore, to achieve ambidexterity, organizations task is to arrange a set of process and system that could enable as well as encourage organization members to perform ambidextrous behavior by their own judgment. The concept of a set of process and system is in consistent with what Ghoshal and Bartlett (1994) called context. This research stream generally considers the contextual factors that shape supportive organizational context. These contextual factors studied in the literature include meta-routines, job enrichment schemes (Adler et al., 1999) and a combination of connectedness, trust, stretch, discipline and support (Gibson & Birkinshaw, 2004). The findings showed that supportive context would positively link organizational ambidexterity with firm performance

28 Still there is another research trend on how organizations manage to conquer tensions within organizations by investigating the top management teams leadership characteristics (Smith & Tushman, 2005). They tried to identify possible conditions for top management teams to facilitate resolving contradictions within organizations. Literature termed it as leadership-based antecedents to ambidexterity (Raisch & Birkinshaw, 2008). To synthesize, the above literature on the antecedents of organizational ambidexterity generally believe that organizational ambidexterity should be and could be achieved. Since ambidextrous organizations outperform general organizations, scholars are trying to identify the antecedents of organizational ambidexterity. Most of the research has examined the antecedents based on organizational design, social context and leadership. The research trend on organizational ambidexterity did not come out without reasons. Firstly, knowledge asset has been asserted as essential to organizational competitiveness by many leading organizational scholars (Prahalad & Hamel, 1990; von Krogh, 1998). Among all, Nonaka and colleagues (2000) defined knowledge assets as firm-specific resources that are indispensable to create values for the firm. Based on the assumption that organization serves as a knowledge repository (Kogut & Zander, 1992), the key issue for organizations to build their competitive advantages is to create knowledge to enhance and expand their knowledge repositories. Therefore, organization s abilities to reuse existing knowledge and explore new knowledge are critical to organizations innovation especially in the era of knowledge economy. Secondly, due to the accelerating dynamic environment, shortening product life cycles and intensified industrial competition, organizations short-term success by utilizing

29 existing competitive advantages do not guarantee their long-run survival. New knowledge has to be created continuously within organizations to maintain competitiveness. Traditionally, organizations regard exploitative and explorative innovation would require different attention and resources (Duncan, 1976; Gibson & Birkinshaw, 2004; March, 1991). Due to limited resources, they are confronted with the tension between exploiting what they know and exploring what they do not know since both exploitation and exploration are essential capabilities to their long term survival (Levinthal & March, 1993; March, 1991). Therefore, organizations find themselves under more and more pressures to cope with the tension between exploitation and exploration (Jansen et al., 2006; Michael L. Tushman & O'Reilly, 1996). Thirdly, the paradigm shift regarding exploitation and exploration also attracts researchers interest in investigating the possibility of achieving organizational ambidexterity. Since March s (1991) seminal work on exploitation and exploration, these two underlying dimensions of organizational ambidexterity have been treated as two incompatible or competing concepts (Tushman & O'Reilly, 1996). They argued that exploitation and exploration are two ends of a continuum. Owing to limited organizational resources, organizations have to make a choice between one of them. In other words, the strategic choice between exploitation and exploration is a trade-off (Liu, 2006). Recently, the trade-off view of exploitation and exploration has been challenged by many scholars (Gupta et al., 2006). They pointed out that organizational resources may not necessarily be limited. For example, organizational knowledge has the characteristics of being accumulated more and more by just utilizing it (Huber, 1991). In addition, there are also other means of acquiring resources external to organizations such as strategic alliance or merger and acquisition (Gupta et al., 2006). Therefore, regarding exploitation and exploration, some researchers have moved from a trade-off (either/or) thinking to a paradoxical (both/and)

30 one (e.g. Duncan, 1976; Gibson & Birkinshaw, 2004). In conclusion, both the practical phenomenon and the paradigm shift on exploitation and exploration contributed to the burgeoning research trend on organizational ambidexterity. However, though the significance of organizational ambidexterity receives scholars attention, much remains to be discussed in terms of theoretical depth and empirical evidence (Gibson & Birkinshaw, 2004). Although scholars are eager to examine the antecedents of organizational ambidexterity, empirical findings did not completely support the ambidexterity hypothesis in the strategy literature. Some studies found that firms pursuing different strategies at the same time may not result in better performance than those focusing on either one strategy (Ebben & Johnson, 2005; Ghemawat & Costa, 1993; Porter, 1980). In this paper, we argue that to achieve organizational ambidexterity, some contingent conditions must be met. To be more specific, both external and internal conditions must fit to make the organizations perform better. In the following sections, we first explicate the dimensions of organizational ambidexterity. Then we try to find out the factors affecting organizations to be ambidextrous. Though organizational ambidexterity embodied on many organizational aspects, such as alignment and adaptation (Gibson & Birkinshaw, 2004), evolutionary and revolutionary change (Tushman, O'Reilly, & Anderson, 2004), efficiency and flexibility (Adler et al., 1999; Ebben & Johnson, 2005), we frame this research on organizational innovation. We are interested in organizational innovation in that capabilities of innovation have been regarded as main sources of competitive advantages (Grant, 1996a; Marsh & Stock, 2006). In addition, through innovation, organizations evolve and adapt to the changing environment (Nelson & Winter, 1982). Organizations adapt to the

31 changing environment by utilizing their existing technology or knowledge and also by creating new ones (Teece, Pisano, & Shuen, 1997). In the following section, we discuss different types of innovation and the relationship between organizational ambidexterity Innovation and Organizational Ambidexterity Innovation has been considered one of the most important sources of competitive advantages in the literature. However, the field of innovation is very broad. Therefore, before investigating any further the relationship between innovation and organizational ambidexterity, we would like to clarify the concept of innovation first. Technological and Managerial Innovation. Innovation has been generally distinguished between technological and administrative innovation. Technological innovation is more task-oriented and knowledge or technology focused. On the other hand, administrative innovation pertains to the improvement of organizational structure, administrative processes and human resources management (Damanpour, 1996). In this paper, we focus our research on technological innovation as most of the literature on organizational ambidexterity studying its relationship with technological innovation (Raisch & Birkinshaw, 2008). In other words, we are more concerned about the knowledge or technology that organizations utilize or create to produce new products to satisfy different market demand. To further classify its concept, technological innovation is distinguished between component knowledge (knowledge of core concepts of components) and architectural knowledge (knowledge of how the components and competence can be combined and linked) (Henderson & Clark, 1990)

32 The distinction between component knowledge and architectural knowledge is useful for us to examine how innovations affect different kinds of organizational knowledge (Benner, 2002). We posit that both component knowledge and architectural knowledge are sources of organizational ambidexterity, Incremental and Radical Innovation Since Schumpeter s (1942) notion of creative destruction, literature on technological innovation has differentiated different kinds of innovations in terms of their impact on organizations established capabilities, the degree of radicalness or novelty compared with their existing knowledge or technology (Damanpour, 1991; Henderson & Clark, 1990). Incremental innovation refines and improves existing components or products while radical innovation represents departure from existing organizational knowledge. They are mostly conceptualized as two ends of a continuum. In addition to radical and incremental innovations, Henderson and Clark (1990) further identified two more categories: modular and architectural innovations. Modular innovations depict the innovation that change the core concept of the core components and leave the products architecture intact. To the contrary, architectural innovations reconfigure the existing components and create new relationships among them. To simplify our analysis of technological innovation, we regard architectural innovation as one kind of incremental innovation and modular innovation as radical one. In the same vein with Henderson and Clark (1990), we regard these different types of innovation are just matters of degree and there are no definite boundaries between these different categories. Moreover, the degree of radicalness or novelty should be defined in terms of organizations existing knowledge. For example, radical innovation adopted by small firms may be treated as incremental innovation in larger organizations

33 Distinction between different types of innovation is helpful for us to understand possible outcomes of innovations. It is clear that if organizations wish to serve both existing product market and emerging one, they have to engage in both incremental and radical innovation activities. Definition of Exploitation and Exploration Exploitation and exploration are not only two important concepts to innovation literature; they also recurrently appear in other organization management literature such as organizational design, organizational alignment and adaptation, organizational learning, knowledge creation and even strategic alliance. Their relationship with incremental and radical innovation is very close. Scholars have almost equated incremental innovations as exploitative and radical innovations as explorative (Tushman & Smith, 2002). However, they also recognized the difficulties that organizations may face to pursue both types of innovation simultaneously (Leonard-Barton, 1992). The key issue on organizational ambidexterity is the balance between exploitation and exploration. We would like to discuss two aspects regarding exploitation and exploration. First is the issue of the definition, and the second one is the relationship between these two dimensions. The definitions of exploitation and exploration receive a lot of debate. Gupta and his colleagues (2006) argued that the ambiguity lies in whether these two concepts represent different types of learning or they can be simply distinguished by the presence or absence of learning. To be more specific, most researchers agree that only exploration involves learning activities. As for exploitation, whether it also represents a kind of organizational learning to certain degree has not reached a consensus. Those who agree that both exploitation and exploration are learning activities

34 assert that both activities move along with the learning curve even when they are just reusing past knowledge. March (1991) described exploitation related to things like refinement, choice, production, efficiency, selection, implementation and execution and exploration is relevant to search, variation, risk taking, experimentation, play, flexibility, discovery, innovation. March stressed that either exploitation or exploration includes at least some learning. In his words, the essence of exploitation is the refinement and extensions of existing competencies, technologies, and paradigms and the essence of exploration is experimentation with new alternatives (1991:85). According to Baum and his colleagues, exploitation refers to learning gained via local search, experiential refinement, and selection of existing routines and exploration refers to learning gained through processes of concerted variation, planned experimentation, and play (2000:768). Drawing on learning literature, Benner and Tushman (2002) also defined exploitation and exploration by the location of search. They claimed that exploitation involving local search for firm s existing technological capabilities while exploration is a distant search for new opportunities. Though both exploitation and exploration are learning activities, they follow entirely different learning trajectories. He and Wong (2004) distinguished exploitation from exploration by whether organizational innovation aiming at improving existing product-market domains or entering new product-market position. In contrast, some scholars assert that there is no learning at all when organizations are engaged in exploitation since they just reuse their existing knowledge. That is, exploration is the only activity that accounts for learning and leads to innovation. Rosenkopft and Nerkar (2001) explicitly treated all activities as a kind of exploration. In this study, we follow Yell s (1979) assertion that even when an organization is attempting to do nothing more than replicate past actions, it accumulates experience and goes down the learning curve, albeit in an incremental

35 manner. Drawing on organizational learning theory, we regard both exploitation and exploration as important organizational approaches of utilizing, searching, and creating organizational knowledge. Therefore, though exploitation and exploration may involve with different processes of learning (search) activities, most of the scholars assert that a combination of both two activities is critical to firms long term success (Gupta et al., 2006; Levinthal & March, 1993; March, 1991). A summary of the definitions of exploitation and exploration is provided in Table 2-1. Table 2-1. Definitions of Exploitation and Exploration Definition Exploitation Scholars Baum, Li, and Usher Exploitation refers to learning (2000) gained via local search, experiential refinement, and selection and reuse of existing routines Exploration Exploration refers to learning gained through processes of concerted variation, planned experimentation, and play (2000: 768) Benner and Tushman (2002) He and Wong (2004) Rosenkopf and Nerkar (2001) Vermeulen and Barkema (2001) Exploitative innovations involve improvements in existing components and build on the existing technological trajectory Technological innovation activities aimed at improving existing product-market domains First-order competence: By indulging in local search, the firm focuses on similar technology, creates incremental innovations, and becomes more expert in its current domain. This focus enables firms, over time, to build what we can call first-order competence Ongoing use of a firm s knowledge base Exploratory innovation involves a shift to a different technological trajectory (2002: 483) Technological innovation aimed at entering new product-market domains Second-order competence: the ability of a firm to create new knowledge through recombination of knowledge across boundaries The search for new knowledge