Business leaders are continuously striving toward organizational ambidexterity, or the optimal balance between exploiting current sources of revenue and exploring ways to generate new ones. One way to achieve this is to tap into not only core capabilities, but also dynamic capabilities—the structures, processes, and routines that enable an organization to recognize new opportunities and build new core capabilities. In this blog series, we explore the importance of organizational ambidexterity. From there, we show you how you can build dynamic capabilities and cultivate them within your business.
In 1999, as newspaper readership declined steadily, USA Today president and publisher Tom Curley decided that USA Today would share news content across three platforms—the newspaper, its website, and parent company Gannett’s 21 local television stations. In moving from the newspaper business to what he called the “news information space,” Curley knew he had to create an ambidextrous organization, one that could sustain the print business while simultaneously innovating its website and broadcast news operations. By combining a focus on the present (incremental innovations) and the future (radical ones), the company was able to realize a $60 million profit while other newspapers' profits plunged.
Organizational ambidexterity, or the balance between exploiting current opportunities and resources and exploring new ones, hinges on the development of dynamic capabilities. Dynamic capabilities are high-level competencies that enable your company to identify and develop new opportunities and integrate them into your core business.
The graphic below illustrates the three phases—Search, Develop, and Integrate—of a framework that can be used to develop dynamic capabilities. Each must be supported with a set of structures, resources, investments, and processes. Together, they can enable your organization to take a new opportunity through the development lifecycle and embed a new core capability to exploit.
Search: The process of identifying new opportunities and developing a new capability. When your organization identifies a new opportunity—for example, new knowledge, skills, process, or technology—you may often build a proof of concept to test its viability as an organizational capability.
The guiding policy for the Search phase is defined by a clearly articulated dynamic capability strategy, which is a subset of your corporate strategy. The strategy also helps define the resource (e.g., people and technologies), structure, and investment needed to explore and build your capability effectively. As your organization matures through the Search phase, you are likely to become more sophisticated at identifying opportunities, which then begin to influence your strategy, creating a feedback loop.
Develop: The process of maturing a new capability.
Once your organization develops a new capability, you should then refine it and establish its viability in relation to the market; for example, by developing a new business model.
The target maturity and viability of a new capability must be in line with your defined strategy, and your organization should use repeatable frameworks to refine, test and iterate on a new capability to the point that it is ready to be integrated into the business. As the frameworks mature, your organization will be able to develop new capabilities more efficiently, and the lessons learned will enable smoother integration.
Integrate: The process of transferring and embedding a new capability into your core business.
Once your organization has matured the new capability, you can then establish it as a new core capability. For example, you might incorporate it as a new product line under an existing vertical, create the necessary enabling organizational structures, and upskill your employees to support it.
The Integrate phase demands support from strong leadership and an organizational culture that is open and adaptive to change. Establish governance and processes that enable the transfer of a new capability into your core business. As these processes mature, your organization will be better equipped to embed new capabilities and exploit new opportunities.
While the framework is shown as a linear process, the Search and Develop phases are iterative and cyclical in practice. Through these phases, your organization will surface and test ideas; if they’re deemed viable, they are matured to the point that they can be integrated into your core business as a new core capability.
Consider the case of Fujifilm, depicted below. Through the Search, Develop, and Integrate phases, the company added a new skincare line that used its advanced technology as a selling point.
USA Today’s path to organizational ambidexterity looked markedly different from that of Fujifilm; as the framework reflects, there’s no one-size-fits-all approach to developing the dynamic capabilities that enable the balance between exploitation and exploration. Your corporate strategy, operating model, level of investment, and firm culture—among other things—all have an essential bearing on the development and success of dynamic capabilities. In our final blog, we’ll explore the enablers of dynamic capabilities in greater depth, along with the key steps and considerations you can apply to develop them.
This blog was authored in partnership with Robert Langan, Ph.D.
Robert Langan, Ph.D. is a postdoctoral researcher at the University of Geneva. He researches strategic management, focusing on CEOs, board chairs, and other leaders. His work is published in the Harvard Business Review and academic outlets such as Long Range Planning. He received his Ph.D. from IE Business School and his MBA from EDHEC Business School.