How to survive in today's VUCA world and be a game-changer in the future: Ambidexterity
Abstract
Overcoming the challenges of today and being a game-changer, major player in the future is only possible with maximizing the «Organisational Performance».
Organization’s long-term success depends on its ability to embrace two sets of capabilities that are often seen as complete opposites:
- exploiting its current capabilities (running the business)
- exploring fundamentally new competencies (changing the business)
The two, when successfully brought together, create a unique competitive position. The paradox that results, however, is that these require different mindsets, skills, structures, processes and performance management.
Ambidextrous organisation is an organization that is efficient in its management of today's business (exploitation) and also adaptable for coping with tomorrow's changing demand. (exploration)
VUCA World
The acronym VUCA was first introduced in 1991 by the U.S. Army as a result of the extreme conditions in Afghanistan and Iraq. These conditions were totally new and totally changed the nature of warfare. Unsurprisingly, today’s business environment has changed in a very similar way. Like warfare, business in the 21st century will never be the same again. 20st century rules, economics and dynamics have become obsolete and will continue to change.
Volatility — The nature, speed, volume, magnitude, and dynamics of change
Uncertainty — The lack of predictability of issues and events
Complexity — The confounding of issues and the chaos that surrounds any organization
Ambiguity — The haziness of reality and the mixed meanings of conditions
In a world where volatility, uncertainty, complexity, and ambiguity (VUCA) has become the “new normal,” the faith for a definite strategic plan is fading away, and adapting to changes constitutes a major strategic challenge faced by organizations.
Volatile
Things change continuously. What is true today isn’t true tomorrow. Even the nature and dynamics of change change. Products that are an absolute success today can be worthless in less than a years’ time. 10 years ago, Blackberry knew an exponential growth with it smartphone. Competing touchscreen smartphones couldn’t spoil the party, until the launch of the iPhone. Or take the world of banking when suddenly faced with negative interest rates. This previously unthinkable situation completely changes some of the fundamental banking business models. What other things are going to happen next?
Uncertain
More than ever, we live with a lack of predictability and a prospect for surprise. It is impossible to predict how markets will evolve. Vinyl records, believed to have died a long time ago, can have a sudden revival. Fixed values in the economy and stock exchange can collapse overnight. And because of globalization a relatively small cause can have huge worldwide consequences. (butterfly effect) Think of how one bank shook the world economy to its foundations in 2008. While it’s relatively easy to explain all these events after the facts, few experts predicted them.
Complex
Simple cause-and-effect chains have been replaced by complex interconnected forces and events. Interconnectedness makes all things increasingly complex. Your phone or tv were simply connected with a wire to an antenna or the phone network. Today it has become far more complex with setup-boxes, routers, wifi connections, etc. Or take the advertising world: in the past the advertiser bought advertising space in printed media, on radio or tv and reached his targeted audience. Today’s programmatic advertising is a labyrinth of complex bidding systems to get the right advertisement on the right screen of the right person. The possibilities are endless, but the realization is highly complex.
Ambiguous
Is milk good or bad for you? What’s the cost of nuclear versus wind energy? Are internal social media such as Yammer a success or not? You can easily find convincing but totally contradictory information for any assertion. Old certainties have disappeared in a mist of haziness and misunderstanding. And because of complexity and unpredictability, many leaders avoid taking positions. Is Donald Trump in favor or against raising minimum wages? He might be a champion in ambiguity, but I see similar vagueness in many organizations. The ubiquitous availability of information has created a mist in which it becomes increasingly difficult to find clarity.
Logistics Industry Challanges in Today’s VUCA World
In the present structure of global economics, logistics play a key role in facilitating trade and, by extension, ensuring the success of business operations.
However, “changing consumer demands”, “complex business models” and “growing client demands” are just some of the top factors that pose a challenge in streamlining logistics management.
Therefore, logistics organisations today must
- adapt more quickly
- to more changes
- in more complex environments
than ever before.
Organisational Performance through “Being Ambidextrous”
Overcoming the challenges of today and being a game-changer, major player in the future is only possible with maximizing the «Organisational Performance».
Organization’s long-term success depends on its ability to embrace two sets of capabilities that are often seen as complete opposites:
- exploiting its current capabilities (running the business - productive & scale driven)
- exploring fundamentally new competencies (changing the business - fast & creative)
The two, when successfully brought together, create a unique competitive position. The paradox that results, however, is that these require different mindsets, skills, structures, processes and performance management.
Ambidexterity
The state of being equally adapted in the use of both the left and the right hand.
The word “ambi” is derived from Latin and means ‘both’. “Dexter” means good or favourable, which makes ambidexterity ‘both favourable’
Ambidextrous Organization
An organization that is efficient in its management of today's business (exploitation) and also adaptable for coping with tomorrow's changing demand. (exploration)
Organizational ambidexterity requires the organizations to use both Exploitation and Exploration
Exploitation (Blue):
- Scale & Productivity
- Often within the context of lean models
- Follow the rules and drive out the variance and slack.
- Focus on serving existing customers and their needs.
- Manage and refine existing competences.
- Optimize the organisation for existing rules.
- Make money now.
Exploration (Red):
- Speed & Creativity
- Commonly referred to as the agile model
- Break the rules and promote variance and slack.
- Serve new customers with new needs.
- Develop and lead new competences.
- Develop new organisation system with new rules.
- Make money later.
Two distinct organizational systems: scale & productivity (in blue) and speed & creativity (in red).
The blue scale & productivity system is characterized by factors such as
- transactional & formalized leadership
- professional skills as core competences,
- internal collaboration guided by hierarchy & cross-functional teams
- standardized process management.
In contrast, the red speed & creativity system demonstrates
- empowered & transformational leadership,
- self-management, and self-development skills as central competences,
- market- and customer-centric.
Within the organization, certain units and processes are predominantly focused on the blue system, with others mainly tailored to the red. It is important to understand that both systems co-exist under one organizational roof and reinforce each other.
The key to success of this ambidextrous model is a balanced Steering & Transformation layer. The organization’s leadership is therefore able to steer and guide both types of systems – certain units are directed with performance management centered around people and group/team performance, while others are driven in a loose manner with guidelines & values.
DNA of Ambidextrous Organisation
High-level model of an ambidextrous organization, highlighting key capabilities developed within the organization for each of the six design dimensions;
Some Examples for Ambidextrous Organisation
Very few companies can excel at innovation and efficiency at the same time. Of the 2,500 public companies analyzed, just 2% companies take varied approaches to exploration and exploitation and thus manifest themselves in different ways. Some examples:
The fashion retailer Zara has developed “fast fashion” DNA that combines adaptive innovation and speed-to-store. Zara consistently taps into unpredictable changes in taste through excellence in design agility and fosters continuous improvements in efficiency through a very tight supply chain.
Amazon has been visionary since its founding, rolling out a global marketplace for its expanding customer base. From the top, CEO Jeff Bezos constantly pushes for a culture of innovative thinking through his “day one” mantra, stressing how the company should never stop being a startup. In parallel, the global retailer is able to drive efficiency by building an ever-tighter customer insight, logistics, and delivery operation.
Toyota here manifested through a long-term quest to develop new products (such as hybrid engines) and new ways of using materials and by continuously improving its lean manufacturing system. By playing the long game, Toyota has shown that gradual improvements in quality and manufacturing can be combined with breakthrough innovation and industry shaping.
Huawei Mobile managed to transform its products from low-end cellphones to high-end smartphones in the three-year period during 2011 to 2013. The evolutionary path of Huawei Mobile’s cross- functional ambidexterity, and found that the company had retained, adjusted, and constructed different types of complementary assets to facilitate the transformation.
Later than 2001, 3M recognized its need for a more ambidextrous set-up and changed its approach in two ways: First, its six sigma initiatives were reduced to a selected set of core components. Second, some discretion about which tools to use was delegated to the units and teams themselves. This led, for example, to a globally standardized format for review meetings to assess new developments, which where historically defined locally and not standardized. With this kind of ambidextrous organization, 3M managed to preserve its creative capabilities while improving its productivity
How to Build an Ambidextrous Organisation
Ambidexterity can be applied by organizations into a typology of three groups: sequential, simultaneous or structural, and contextual ambidexterity;
- Sequential ambidexterity implies that an organization focuses on one of the competing objectives after another;
- Structural or simultaneous ambidexterity implies that an organization allocates different tasks to different sub-units of the organization;
- Contextual type of ambidexterity is defined as a situation where each member of the organization can switch between the competing tasks of exploitation and exploration as the demand or opportunity arises
There is consensus that ambidexterity is not easy to achieve due to the requirements of different organizational architectures and processes, and different organizational learning models, which leads to tensions and trade-offs in organizations. Hence, there is a need by the top management to balance the resource allocation between exploitation and exploration.
In today’s world, very few organisations can afford to have independent structures to focus solely on exploration. This was the case for many companies which invested heavily in R&D (such as Ericsson). These companies usually had a fairly independent organisation, with its own management and own budgets, isolated from the core day-today business. But after the crisis and the resulting extreme focus on efficiency and cost control, most of these independent structures have been drastically reduced or dismantled.
Understanding an ambidextrous organisation is one thing, making it a reality is another.
Managerial Contradictions
- in strategic management : alignment versus adaptability
- in operations management : flexibility versus efficiency
- in innovation management : radical versus incremental
- in business management : changing-the-business versus running-the-business
Building organisational ambidexterity requires a radical change in every single element that composes a company (the organisational context). I have developed and road-tested a framework that addresses these six critical pillars
1. Leadership and culture
2. People and skills
3. Structure and governance
4. Processes and methods
5. Systems and tools
6. Enterprise performance management
1. Leadership and culture
Leadership is where everything starts and ends in a company. Although the company’s culture and values are defined over time and can remain unchanged for decades, the CEO and top management can alter these elements at any point with their messages and actions. In an ambidextrous organisation, the CEO is the main driver of change; thus, he or she needs to be the first one to adopt the culture and values and to gain top management’s support in transmitting these principles to the rest of the organisation. Top management needs to be aware of how run-the-business and change-the-business activities operate independently as well as being aware of how they interact (Jack Welch at his time as General Electric’s CEO is the perfect example).
2. People and skills
The biggest challenge to the People and Skills pillar of an ambidextrous organisation is often to seamlessly align two different sets of HR models. The organisation must first define the change-the-business aspect and then integrate it fully with the run-the-business model. Highly motivated employees will gain experience in both dimensions alternately, for example, spending two years in a marketing position and then moving on to manage a CRM implementation project. Employees cannot become managers if they have not previously managed a large project (which is the case in the Dutch company, Philips). It is important that HR management is aware of these different models and that it takes them into account when defining the organisation’s HR policies.
3. Structure and governance
This pillar is one of the most difficult business elements for which to find the right balance, because both the organisation and the external environment are constantly evolving and changing. (Microsoft has recently announced a large reorganisation to adjust its imbalance and become more agile) Implementing the right connections between the change-the-business and the run-the-business activities is fundamental for the execution of the strategy.
If this optimal balance is achieved, the organisation will become extremely responsive to the changed environment and able to quickly react to the competition. Eventually, the organisation can become a trendsetter in its industry.
4. Processes and methods
Most organisations have mature run-the-business processes. This is not so with the change-the- business dimension, whose processes are not fully developed and which are also much less embedded in the organisation, or for the link between the two dimensions.
Project and programme management are the central change-the-business processes. This methodology comprises a set of standards, templates, roles, responsibilities, and governing bodies whose objectives are to always ensure consistency in management and execution of projects.
The layer that rests on top of all project and programme management activities is project portfolio management. And this is the cockpit of the change-the-business dimension. It should be a structured approach for collecting all of the new project ideas; a procedure to prioritise and select the new project ideas.
5. Systems and tools
None of the improvements above can be achieved without a set of critical systems and tools that support the execution and management of both the run- and change-the-business components. Organisations today are composed of an amalgam of applications. Each dimension has specific applications that are needed to efficiently perform its role in the business. If we consider that strategy execution is the combination and integration of the run and the change, then we can conclude that companies today don’t have any software to plan and to execute their strategies.
6. Enterprise performance management
The one that is most widely used is the Balanced Scorecard, developed in 1992 by Kaplan and Norton. The main drawback of the Balanced Scorecard, and the other enterprise performance management methodologies, is that they address only the run-the- business dimension, thus failing to account for a large and key element of strategy execution. Enterprise performance management should always be a top-down framework that focuses on managing the execution of the firm’s strategic goals. It should cover both run-the business and change-the-business dimensions and monitor the execution of commercial and operational goals with the company’s strategic roadmap.
New Approach to Build Ambidextrous Organisation: Enterprise Ecosystem
As fundamentals, today’s organisation must be capable of two things:
- integration (efficiently bringing together products, services, people, knowledge, materials, and operational activities)
- and flexible adaptation (responding to varied and fast-changing customer needs, ideas, technologies, and business conditions)
There are 2 different approaches for organisations to reach these two capabilities;
1.Bureaucracy and the Search for Efficiency
Rationally conceived, planned and executed hierarchies put managers in control of work activity to maximise productivity and minimise waste, thereby creating maximum surplus value.
These qualities have helped many product-centric firms to thrive throughout the 20th century. McDonalds is an exemplary bureaucracy, in the sense that it excels at efficiently executing its strategy through standardisation, formalisation, and routinisation of operations on a global scale.
But hierarchies also have downsides. Even at their best, bureaucracies constrain companies to product leadership. They lack the typical agility to respond quickly to changing customer needs, nor can they easily customise what they are able to offer
2. Flexible Internal Market
Typically comprises highly independent, separated, and autonomous teams and individuals. An internal market emphasises flexibility above all else – the flexibility to configure and reconfigure rapidly around changing customer preferences. Authority is delegated and knowledge is widely dispersed. Decision-making is no longer the domain of the ‘wise’ few at the top. Decisions are usually made collectively, openly, and transparently.
But the internal market model is not easily scalable nor it is efficient or easy to replicate. Companies that plump for lightly structured networks in the face of an increasing turbulent and uncertain operating environment often find themselves directionless and floundering. Equally, it is all too easy to find oneself beset by energy-sapping turf wars in the unstructured and often highly individualised environment.
Pursuing the Best of Both: Clearly, there is no one-size-fits-all prescription on how to design a winning organisation. The hierarchy and the internal market have two very different ways of organising work, each with advantages and disadvantages. It is helpful to think of them occupying the opposite ends of a spectrum, with a range of options in between which are more or less appropriate according to the circumstances of individual firms. Product-centric firms that win by exploiting economies of scale will always conform more to the organising principles of the bureaucratic, hierarchical model. Service-oriented firms that need the flexibility to respond to fast-changing customer needs or maximise creativity may veer more towards the internal market end of the spectrum.
The new and now famous mantra is “Move fast with stable infrastructure”, which speaks to the challenge of managing a large organisation globally.
The design of an Enterprise Ecosystem starts from the perspective that 21st century work organisations are – must be – complex adaptive systems. The complex adaptive system comprises multiple different, but complementary species, each pursuing their own specialist roles but which are interconnected in ways that allow them to generate mutual benefit and achieve a common purpose.
Acting together, they can achieve more than the sum of the parts. And they are more resilient because they can respond systemically to overcome environmental disruption.
Different pools of talent (or technologies) that, when connected, provide the Enterprise Ecosystem with a variety of valuable knowledge, skill, and capability to address the multifarious demands of customers and markets.
Enterprise Ecosystem as a whole can adjust to the changing environment guided by its common purpose.
An interesting reflection of this ecosystem is that when you receive a business card from a Huawei employee, it lists their expertise under their name (such as digital signal engineer or chip designer), but nowhere is there any reference to their department or business unit. Why? Because what counts is that they are a resource with specialist capabilities and experiences that can be flexibly deployed according to the emerging needs of the business.
When a problem needs to be solved, the project team (often under intense pressure from above) gathers together anyone from the company that can help them in the mode of “huddle and act” until a solution is arrived at. The company is, therefore, strong on vertical hierarchy, but extremely flexible at all levels horizontally, reconfiguring itself continually to serve the next customer demand, back new initiatives, solve problems as they arise, and maximise knowledge exchange and joint learning.
Unlike project-based organisations, Enterprise Ecosystems endure; they are not time limited nor are they a discrete component of a wider organisation or alliance. Unlike matrix organisations, which are designed principally to manage the interactions and potential trade-offs between different product lines and geographies, the Enterprise Ecosystem manages an even broader range of connections, including different domains of capability.
Rather viewing the organisation with a set of activities, ecosystem thinking starts with pools of different capabilities as the fundamental building blocks of effective organisation. Rather than hard-wiring the organisation, an ecosystem approach focuses on creating structures and incentives that encourage the formation of flexible connections between these capability pools that can be constantly reconfigured. Finally, rather than being driven by traditional reporting lines, the Enterprise Ecosystem is propelled forward by the energy that comes from grasping opportunities and solving problems within the context of a clear and compelling common purpose – the unifying raison d’etre of the network.
How to Design Enterprise Ecosystem
Designing an Enterprise Ecosystem begins with putting into practice three key principles.
- First, an ecosystem must bring together different species. In an external ecosystem, the species are different kinds of partners such as customers, end users, institutions, influencers, and so on. The species in an internal ecosystem are capability and knowledge pools made up of different kinds of people and technologies.
- Second, the connections between species in the ecosystem must be designed to flexibly integrate knowledge, and not as traditional reporting lines. The purpose of these connections is to bring together complementary capabilities and knowledge and to promote joint learning and creation.
- Third, the energy that powers the ecosystem forward must come from shared purpose and values, not from pure command and control.
Leading the Enterprise Ecosystem
Enterprise Ecosystems need to be led differently from traditional structures.
The ways successful leaders at different levels within an Enterprise Ecosystem need to think and act.
- First, they need to think in terms of the capabilities they require in order to win in the unfolding competitive environment, and how those capabilities are best built and sustained, rather than in terms of boxes and wires.
- Second, they have to accept less control and predictability about the way their organisations respond to opportunities and tackles problems. They promote behaviour in their people that generally asks for forgiveness rather than permission.
- Third, they need to embrace the idea that integrating different capabilities and winning commitment from within an Enterprise Ecosystem will be an entrepreneurial, iterative process.
Organising for the 21st Century
Today’s organisational solutions, whether they are traditional bureaucracies, matrix structures, “organic” organisations, or the customer-focussed company, don’t seem to be delivering on the demands of the 21st century business environment: efficient integration and flexible adaptation. Maybe it is time for a fundamental re-think inspired by ecosystem thinking. This means viewing your organisation not as a machine or a market, but as an Enterprise Ecosystem consisting of species with different capabilities and knowledge and the structures and incentives that encourage connections between them; connections that can be constantly and rapidly reconfigured to keep pace efficiently with the external environment.
Companies such as Facebook, Rolls Royce, and Huawei have already moved decisively in this direction from either end of a spectrum that incorporates the dominant organising logics of the 20th hierarchy and internal market. But to make it happen, leaders need to reassess their roles and styles to succeed in a post-bureaucratic world. And these new Enterprise Ecosystems will not get off the starting blocks without the energy that comes from common purpose and compelling vision of the future to propel them forward.
Ambidextrous Leadership
Ambidextrous leaders have the ability and skills to compete with their organisation in a highly changing market where emphasises lies on incremental innovations, efficiency and cost saving. On the other hand, they must also have the ability to thrive in an environment that focuses on flexibility, speed and radical innovations.
It is the ideal managerial leadership style” displays both transformational and transactional approaches, though at differing magnitudes.
Ambidextrous leaders are able to foster exploration by opening behaviors and exploitation by closing behaviors and flexibly switching between these behaviors according to situational task demands
In certain circumstances when the organization is in a stable position and the learning goals are related to refinement and restoring balance, transactional leadership behaviors are required. In contrast to that, in times of dynamic changes and desired progressive organizational learning, transformational behaviors by the leaders are needed.
However, as firms in competitive environments do not have the luxury of choosing among different personalities, leaders must be able to oscillate between or be both simultaneously. For that reason, transactional and transformational behaviors are used in a complementary fashion by ambidextrous leadership and therefore both can be found to some extent in opening as well as in closing leadership behaviors
Leadership Principles in VUCA World
Dealing with a volatile, uncertain, complex, and ambiguous environment leads to an important consideration for leaders and managers: guiding a team through this new norm. But how do you manage and lead a team through the unknown when there is no solution or perfect outcome?
Adaptive leadership tactics for operating in a VUCA world as follows:
For Volatile Situations
- Communicate clearly
- Ensure your intent is understood
For Uncertain Situations…
- Get a fresh perspective
- Be flexible
For Complex Situations…
- Develop collaborative leaders
- Stop seeking permanent solutions
For Ambiguous Situations…
- Listen well
- Think divergently
- Set up incremental dividends
"Whereas the heroic manager of the past knew all, could do all, and could solve every problem, the postheroic manager asks how every problem can be solved in a way that develops other people´s capacity to handle it." Charles Handy - Irish economic and social philosopher
VUCA 2.0
Bill George, senior fellow at Harvard Business School defines a type of leadership. He calls it VUCA 2.0 giving a complete new meaning to the acronym: Vision – Understanding – Courage – Adaptability.
Vision
Today’s business leaders need the ability to see through the chaos to have a clear vision for their organizations. They must define the direction of their organization: its mission, values, and strategy. They should create clarity about this, so that all stakeholders can find the right direction when events pull them off course. George calls it the ‘True North’ (See his bestselling book : Discover your true north.
Understanding
Leaders need in-depth understanding of their organization’s capabilities and strategies to take advantage of rapidly changing circumstances. Leaders need to keep their ears open to all voices. Listening only to information sources and opinions that reinforce their own views carries great risk of missing alternate points of view. They need to engage directly with their customers and employees, rather than relying only to the hierarchy of communication. Leaders must spend time in the marketplace, retail stores, factories, innovation centers, and research labs, or just wander around offices talking to people.
Courage
Leaders need the courage to make audacious decisions. They must dare to take risks and often go against the grain. They cannot afford to keep using traditional management techniques while avoiding criticism and risk. The greatest risk is to avoid risk. This era belongs to the bold, not the meek and timid.
Adaptability
Leaders need to be more flexible than ever. Long-range plans are often obsolete by the time implementation has started. Flexible tactics are required for rapid adaptation to changing external circumstances, without altering strategic course. This is not a time for continuing the financial engineering so prevalent in the past decade. Rather, leaders need multiple contingency plans while preserving strong balance sheets to cope with unforeseen events.
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