TheAmbijdextrous

Organizationby Charles A. O'Reilly III and Michael LTushman

T HE ROMAN GOD JANUS had two

sets of eyes - one pair focusingon what lay behind, the other on

what lay ahead. General managers andcorporate executives should be able torelate. They, too, must constantly lookbackward, attending to the products andprocesses of the past, while also gazingforward, preparing for the innovationsthat will define the future.

This mental balancing act can be oneof the toughest of all managerial chal-lenges-it requires executives to explorenew opportunities even as they workdiligently to exploit existing capabili-ties-and it's no surprise that few com-panies do it well. Most successful enter-prises are adept at refining their currentofferings, but they falter when it comesto pioneering radically new productsand services. Kodak and Boeing are justtwo of the more recent examples ofonce dominant companies that failedto adapt to market changes. Kodak ex-celled at analog photography but hasn'tbeen able to make the leap to digitalcameras. Boeing, a longtime leader incommercial aircraft, has experienceddifficulties in its defense-contractingbusinesses and has recently stumbled in the face of com-petition from Airbus.

The failure to achieve breakthrough innovations whilealso making steady improvements to an existing busi-ness is so commonplace - and so fascinating-that it hasbecome a battleground of management thought. For de-cades, scholars have spun theories to explain the puzzle

74 HARVARD BUSINESS REVIEW

Established companies can developradical innovations-Wprotecttheir traditional businesses.

The secret? Create "organizationally distinctunits that are tightlyintegrated at the seniorexecutive level. «

and offered advice on how to solve it.Some have argued that there's no wayout of the conundrum - that estab-lished companies simply lack the flex-ibility to explore new territory. Somehave suggested that big companiesadopt a venture capital model, fund-ing exploratory expeditions but other-wise staying out of their way. Othershave pointed to cross-functional teamsas the key to creating breakthroughinnovations. Still others have claimedthat a company may be able to shiftback and forth between different orga-nizational models, focusing on exploi-tation for a period and then movinginto exploration mode.

We recently decided to test theseand other theories by taking a closelook at the real world, examining howactual, contemporary businesses farewhen they attempt to pursue inno-vations that lie beyond their currentproducts or markets. Do they succeedin achieving breakthroughs? Do theirexisting businesses suffer? What orga-nizational and managerial structuresdo they use? What works, and whatdoesn't?

We discovered that some companies have actually beenquite successful at both exploiting the present and ex-ploring the future, and as we looked more deeply at themwe found that they share important characteristics. In par-ticular, they separate their new, exploratory units fromtheir traditional, exploitative ones, allowing for differ-ent processes, structures, and cultures; at the same time,

APRIL 2004 75

The Ambidextrous Organization

they maintain tight links across units at the senior execu-tive level. In other words, they manage organizational sep-aration through a tightly integrated senior team. We callthese kinds of companies "ambidextrous organizations,"and we believe they provide a practical and proven modelfor forward-looking executives seeking to pioneer radicalor disruptive innovations while pursuing incrementalgains. A business does not have to escape its past, thesecases show, to renew itself for the future.

Exploiting and ExploringTo flourish over the long run, most companies need tomaintain a variety of innovation efforts. They must con-stantly pursue incremental hmovations, small improve-ments in their existing products and operations that letthem operate more efficiently and deliver ever greatervalue to customers. An automaker, for example, may fre-quently tweak a basic engine design to increase horse-power, enhance fuel efficiency, or improve reliability.Companies also have to make architectural innovations,applying technological or pro-cess advances to fundamen-tally change some componentor element of their business.Capitalizing on the data com-munication capabilities of theInternet, for instance, a bankcan perhaps shift its customer-service call center to a low-Iabor-costcountry like India. Finally, businessesneed to come up with discontinuous in-novations-rad\ca\ advances like digital photography thatprofoundly alter the basis for competition in an industry,often rendering old products or ways of working obsolete.

All these types of innovation can have different targets.Some may be aimed at a firm's current customers. Othersmay be delivered to an existing market that lies beyonda company's current customer base - a car insurer maycreate a new kind of policy for boat owners, for instance.Still others may be focused on serving an entirely newmarket that has yet to be clearly defined - people whodownload online music, for example. As shown in the ex-hibit "A Map of Innovation," the types of innovation andthe targeted markets can be plotted in a matrix.

In our research with colleagues Wendy Smith, RobertWood, and George Westerman, we studied how compa-nies pursued innovations throughout this matrix. In par-ticular, we looked for companies that attempted to si-multaneously pursue modest, incremental innovations(toward the lower-left area of the matrix) and more dra-

In our study, more than 90%of the ambidextrous

organizations achievedtheir goals.

matic, breakthrough innovations (toward the upper-rightarea). We ended up focusing on 35 attempts to launchbreakthrough innovations undertaken by 15 businessunits in nine different industries. We studied the structureand results of the breakthrough projects as well as theirimpact on the operations and performance of the tradi-tional businesses.

Companies tended to structure their breakthroughprojects in one of four basic ways. Seven were carried outwithin exist'mgfiinctionat designs, completely integratedinto the regular organizational and management struc-ture. Nine were set up as cross-functional teams, groupsoperating within the established organization but out-side the existing management hierarchy. Four took theform of unsupported teams, independent units set up out-side the established organization and management hier-archy. And 15 were pursued within ambidextrous organi-zations, where the breakthrough efforts were organizedas structurally independent units, each having its ownprocesses, structures, and cultures but integrated into theexisting senior management hierarchy. The exhibit "Or-

ganizing to Innovate" provides anoverview of these four structures.

We tracked the results of the 35 ini-tiatives along two dimensions. First,

we determined their success increating the desired innovations,as measured by either the actualcommercial results of a new prod-uct or the application of practicalmarket or technical learning. Sec-ond, we looked at the performance

of the existing business. Did results hold steady, improve,or decline as the firm worked on its breakthroughs? Wefound that the organizational design and managementpractices employed had a direct and significant impact onthe performance of both the breakthrough initiative andthe traditional business.

When it came to launching breakthrough products orservices, ambidextrous organizations were significantlymore successful than the other three structures. Whilenone of the cross-functional or unsupported teams andonly a quarter of the functional designs produced realinnovations, more than 90% of the ambidextrous organi-zations achieved their goals. (An exception was break-through innovations intended to directly substitute forexisting products; in these instances, functional designsperformed as well as ambidextrous designs.)

The superiority of ambidextrous designs became evenmore apparent when we examined eight cases in whicha company originally organized its breakthrough initia-

Charles A. O'Reilly HI is the Frank E. Buck Professor of Human Resource Management and Organizational Behavior at theGraduate School of Business at Stanford University in California. Michael L Tushman is the Paul R. Lawrence Class of} 942Professor of Management at Harvard Business School in Boston.

76 HARVARD BUSINESS REVIEW

The Ambidextrous Organization

tive around functional designs, cross-functional teams, orunsupported teams and then shifted to an ambidextrousdesign. In seven of the eight cases, the initiative's perfor-mance increased substantially after the change. In con-trast, three companies started from an ambidextrous de-sign and then moved to one of the others; performancedecreased substantially in two of these cases.

When we measured the effects of all 35 initiatives ontheir existing businesses, we found that ambidextrousI * i , , organizations were again clearly superior.^ ^ ^ kf In almost every instance in which an ambi-mfg dextrous structure was used, the competi-I ' tive performance of the existing productL - . either increased or held steady. By contrast,

the results of the traditional operationsfrequently declined where functionaldesigns, cross-fi.mctiona! teams, or un-supported teams were employed. At a

theoretical level, it's easy to explain why ambidextrousorganizations would outperform other organizationaltypes. The structure of ambidextrous organizations allowscross-fertilization among units while preventing cross-contamination. The tight coordination at the manageriallevel enables the fledgling units to share important re-sources from the traditional units-cash, talent, expertise,customers, and so on-but the organizational separationensures that the new units' distinctive processes, struc-tures, and cultures are not overwhelmed by the forces of"business as usual." At the same time, the established unitsare shielded from the distractions of launching new busi-nesses; they can continue to focus all their attention andenergy on refining their operations, improving their prod-ucts, and serving their customers.

But how exactly do ambidextrous organizations work?By looking more deeply into the experiences of two such

organizations-t/5^ Today and Ciba Vision-we can beginto identify the key managerial and organizational char-acteristics that underpin their ability to both exploit andexplore.

A Newspaper Reinvents ItselfIn the late 1990s, USA Today was a thriving business, butit faced an uncertain future. The national newspaper, a di-vision of the Garmett Corporation, had come a long waysince its founding in 1982, when its colorful brand of jour-nalism was widely ridiculed by critics. After losing morethan half a billion dollars during its first decade, the paperturned its first profit in 1992 and continued to expandrapidly, becoming the most widely read daily newspaperin tbe United States. With well-heeled business travelersmaking up the bulk of its subscriber base, it also becamean attractive platform for national advertisers, bringing ina steady flow of revenue.

But as the 1990s progressed, storm clouds appeared onthe horizon. Newspaper readership was falling steadily,particularly among young people. Competition was heat-ing up, as customers increasingly looked to television andInternet media outlets for news. And newsprint costswere rising rapidly. Tom Curley, USA Today's president andpublisher, recognized that the company would have toexpand beyond its traditional print business to maintainstrong growth and profits; such expansion, be realized,would require dramatic innovations.Tbe company wouldneed to find ways to apply its existing news-gathering andediting capabilities to entirely new media.

Acting on his beliefs, Curley In 1995 chose LorraineCichowski, USA Today's general manager of media proj-ects and former editor of tbe paper's Money section, tolaunch an online news service called USAToday.com. He

A Map of InnovationTo compete, companies must continually pursue manytypes of innovation-incremental, architectural,

and discontinuous-aimed at existing and new customers. Plotting your companies'innovation efforts

in the matrix below will immediately reveal any areas you may have overlooked.

Newcustomers

Existingcustomers

Incremental innovationssmall improvements in existingproducts and operations

Architectural innovationstechnological or process advances tofundamentally change a componentor element of the business

Discontinuous innovationsradical advances that mayprofoundly alter the basis forcompetition in an industry

APRIL 2004 77

The Ambidextrous Organization

gave her free rein to operate independently from the printbusiness, and she set up a kind of skunk-works operation,bringing in people from outside USA Today and housingthem on a different floor from the newspaper. She builta fundamentally different kind of organization, with rolesand incentives suited to the instantaneous delivery ofnews and to an entrepreneurial, highly collaborative cul-

ture. With Internet use exploding, the ventureseemed primed for success.

But results were disappointing. AlthoughUSAToday.com was making a small profit bythe end of the decade, its growth was sluggishand had little impact on the broader business'sresults. The problem, Curley saw, was that thenew tinit was so isolated from the print oper-

ation that it was failing to capitalize on the newspaper'svast resources. Aithough Cichowski was a member of Cur-ley's executive team, she had little support from othermembers. Viewing her unit as a competitor with the printbusiness, they had little incentive to help her succeed andmade few efforts to share their considerable resourceswith her. Soon, USAToday.com found itself starved ofcash, as the newspaper continued to consume most of theavailable capital, and the online unit began losing tal-ented staff.

Cichowski pushed to have her business spun out en-tirely from the newspaper, as other companies were doing

with their Internet ventures, but Curley had a very dif-ferent view. He had come to believe that the new unit re-quired not greater separation but greater integration. In1999, he decided that USA Today should adopt a"networkstrategy," in which it would share news content acrossthree platforms: the newspaper, USAToday.com, and Gan-nett's 21 local television stations. Curley described his vi-sion: "We're no longer in the newspaper business-we'rein the news information space, and we'd better learn todeliver content regardless of form."

To execute that strategy, Curley knew he had to createan ambidextrous organization that could sustain theprint business yet also pursue innovations in broadcast-ing and online news. So in 2000, he replaced the leaderof USAToday.com with another internal executive whowas a strong supporter of the network strategy, and hebrought in an outsider to create a television operation,USAToday Direct. Both the online and television organi-zations remained separate from the newspaper, main-taining distinctive processes, structures, and cultures, butCurley demanded that the senior leadership of all threebusinesses be tightly integrated. Together with Karen Jur-genson, the editor of USA Today, the heads of the onlineand television units instituted daily editorial meetingsto review stories and assignments, share ideas, and iden-tify other potential synergies. The unit heads quickly saw,for example, that gaining the cooperation of USA Today's

Organizing to InnovateIn our examination of 35 different attempts at breakthrough innovation, we discovered

that businesses tend to apply one of four organizational designs to develop and deliver

their innovations. More than 90% of those using the ambidextrous structure succeeded

in their attempts, while none of the cross-functional or unsupported teams, and only

25% of those using functional designs, reached their goals.

Functional designsintegrate project teams into the existing

organizational and management structure.

Cross-functional teamsoperate within the established organization

but outside the existing management hierarchy.

General Manager

Mfg Sales

Emerging Business

78 HARVARD BUSINESS REVIEW

The Ambidextrous Organization

reporters would be crucial to the success of the strategy(print journalists are notorious for hoarding stories), andthey jointly decided to train the print reporters in tele-vision and Web broadcasting and outfit them with videocameras so they could file storiessimultaneously in the differentmedia. The moves quickly paidoff, as the reporters realized thattheir stories would reach a muchbroader audience - and that theywould have the opportunity toappear on TV. A new position of"network editor" was also cre-ated in the newsroom to help reportersshape their stories for broadcast media.

At the same time, Curley made largerchanges to the organization and its man-agement. He let go of a number of senior executives whodid not share his commitment to the network strategy, en-suring that his team would present a united front and de-liver consistent messages to the staff. He also changed theincentive program for executives, replacing unit-specificgoals with a common bonus program tied to growth tar-gets across all three media. Human resource policies werechanged to promote transfers between the differentmedia units, and promotion and compensation decisionsbegan to take into account people's willingness to sharestories and other content. As part of that effort, a'Triendsof the Network" recognition program was established toexplicitly reward cross-unit accomplishments.

Yet even as sharing and synergy were being promoted,the organizational integrity of the three units was care-fully maintained. The units remained physically separate,and they each pursued very different staffing models. Thestaff members of USAToday.com were, on average, signif-icantly younger than the newspaper's reporters and re-

Even as sharing and synergywere being promoted, the

I

organizational integrity ofthe three units was carefullymaintained.

mained far more collaborative and faster paced. Report-ers continued to be fiercely independent and to focus onmore in-depth coverage of stories than the television staff.

Because of its ambidextrous organization, USA Todayhas continued to compete aggres-sively in the mature business ofdaily print news while also devel-oping a strong internet franchise

and providing Gannett tele-vision stations with cover-age of breaking news. Dur-ing the Internet collapse,when other papers' profitsplunged, USA Today made$60 million, fueled in largepart by the company's abil-ity to continue to attract

national advertisers and by revenues from its profitableUSAToday.com operation.

A New Lens on GrowthAnother company that has used an ambidextrous orga-nization to spur growth through radical innovation isCiba Vision. Established in the early 1980s as a unit of theSwiss pharmaceutical giant Ciba-Geigy (now Novartis),the Atlanta-based Ciba Vision sells contact lenses and re-lated eye-care products to optometrists and consumers.Although the company produced some innovative newproducts in its early years, such as the first FDA-approvedbifocal contacts, by the mid-1980s it remained a distant sec-ond to market leader Johnson & Johnson. Making mattersworse, in 1987 j&J brought out a new, disposable contactlens that threatened Ciba Vision's sales of conventionalcontacts. By the early 1990s, it was clear to Glenn Bradley,Ciba Vision's president, that j&J's dominance provided

Unsupported teamsare set up outside the established organization

and management hierarchy.

Ambidextrous organizationsestablish project teams that are structurally independent units,

each having its own processes, structures, and cultures, but are

integrated into the existing management hierarchy

General Manager

Mfg Saies R&D EmergingBusiness

1—

Mfg

ExistingBusiness

Sales

General Manager

1

1

R&D I

1

Mfg

EmergingBusiness

- • ' -

Sales

~ i

R&O

APRIL 2004 79

The Ambidextrous Organization

economies of scale that would doom his company to ever-shrinking profits. Without radically new products, CibaVision would slowly decline and ultimately fail. To sur-vive and grow, Bradley saw, his organization would haveto continue making money in the mature conventional-contacts business while simultaneously producing astream of breakthroughs.

In 1991, Bradley launched six formal developmentprojects, each focused on a revolutionary change. Fourentailed new products, including daily disposables andextended-wear lenses, and twoinvolved new manufacturingprocesses. In a controversialbut necessary move, he can-celed dozens of small R&Dinitiatives for conventionallenses to free up cash for thebreakthrough efforts. Whilethe traditional units wouldcontinue to pursue incremental inno-vations on their own, the entire corpo-rate R&D budget would now be dedi-cated to producing breakthroughs.

Bradley knew that attempting to manage these projectsunder the constraints of the old organization would notwork. Inevitably, conflicts over the allocation of humanand financial resources would slow down and disrupt thefocus needed for breakthrough innovations. Further, thenew manufacturing process required different technicalskills, which would make communication across old andnew units difficult. He therefore decided to create auton-omous units for the new projects, each with its own R&D,finance, and marketing functions, and he chose the proj-

A clear and compelling vision,relentlessly communicated

by a company's senior team,is crucialin buildingambidextrous designs.

ect leaders for their willingness to challenge the statusquo and their ability to operate independently.

Given the freedom to shape their own organizations,the new units created very different structures, processes,and cultures. The extended-wear team remained in At-ianta, though in a facility separate from the conventional-lens business, while the daily-disposables team was lo-cated in Germany. Each team hired its own staff, decidedon its own reward system, and chose its own process formoving from development to manufacturing.

But even as Bradley understoodthe importance of protecting thenew units from the processes andcultural norms of the old business,

he realized they also had toshare expertise and resources,both with the traditional busi-ness and with one another.He therefore took a numberof steps to integrate manage-ment across the company.

First and perhaps most im-portant, he had the leaders of

all the breakthrough projects report to a single executive,Adrian Hunter, the vice president of R&D, who had adeep knowledge of the existing business and tight rela-tionships with executives throughout the firm. Workingclosely with Bradley, Hunter carefully managed the trade-offs and conflicts between the old business and the newunits. Ail the leaders of the innovation projects, moreover,were asked to sit in on Bradley's executive team meetings.

Bradley and his team also enunciated a new visionstatement for Ciba Vision-"Healthy Eyes for Life"-that

The Scopeof the AmbidextrousOrganization

Ambidextrous organizations

encompass two profoundly

different types of businesses-

those focused on exploiting

existing capabilities for profit

and those focused on explor-

ing new opportunities for

growth. As this table indicates,

the two require very different

strategies, structures,

processes, and cultures.

Alignment of:

Strategic intent

Exploitative Business Exploratory Business

cost, profit innovation, growth

Critical tasks

Competencies

Structure

Controls, rewards

Culture

Leadership role

operations, efficiency,incremental innovation

operational

formal, mechanistic

margins, productivity

efficiency, low risk,quality, customers

authoritative, top down

adaptability, new products,breakthrough innovation

entrepreneurial

adaptive, loose

milestones, growth

risk taking, speed, flexibility,experimentation

visionary, involved

Ambidextrous LeadershipDifferent alignments held together through senior-team integration,

common vision and values, and common senior-team rewards.

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The Ambidextrous Organization

was meaningful to all parts of the business. While thismove was largely rhetorical, it had an important effect. Itunderscored the connections between the breakthroughinitiatives and the conventional operation, bringing to-gether all employees in a common cause and preventingorganizational separation from turning into organiza-tional fragmentation. As Bradley noted, the slogan gavepeople a social value as well as an economic reason forworking together. Like USA Today, Ciba Vision also re-vamped its incentive system, rewarding managers pri-marily for overall company performance rather than forthe results of their particular units.

The ambidexterity paid off. Over the next five years,Ciba Vision successfully launched a series of contact-lensproducts, introduced a drug for treating age-related mac-uiar degeneration, pioneered a new lens-manufacturingprocess that dramatically reduced production costs, andovertook J&J in some market segiTients.The conventional-lens business, moreover, remained profitable enough togenerate the cash needed to fund the daily dispos-ables and extended-wear lenses.

At the time the new strategy was adopted, CibaVision's annual revenues were stuck at about$300 million. Ten years later, its sales had morethan tripled, to over $i billion, and the new drug,transferred to Novartis's pharmaceutical unit, wason its way to becoming a billion-dollar business.More recently, Ciba Vision has continued to reap the ben-efits of ambidexterity by pioneering so-called fashionlenses that allow people to change the color of their eyes.

Becoming AmbidextrousThe stories of USA Today and Ciba Vision reveal what ittakes to become ambidextrous. (Also see the table "TheScope of the Ambidextrous Organization" for more onwhat's required.) One of the most important lessons isthat ambidextrous organizations need ambidextrous se-nior teams and managers-executives who have the abil-ity to understand and be sensitive to the needs of very dif-ferent kinds of businesses. Combining the attributes ofrigorous cost cutters and free-thinking entrepreneurswhile maintaining the objectivity required to make diffi-cult trade-offs, such managers are a rare but essentialbreed. Without people like Tom Curley, Karen Jurgenson,Glenn Bradley, and Adrian Hunter - managers who canbe, as one of them put it,"consistently inconsistent"-[/S,4Today and Ciba Vision would have had little chance ofsuccess.

Another important lesson from the USA Today andCiba Vision stories is that a company's senior team mustbe committed to operating ambidextrously even if itsmembers aren't ambidextrous themselves. Resistance atthe top levels of an organization can't be tolerated, whichmeans that a shift to an ambidextrous organization can

be a wrenching experience. USA Today's Curley dismissed40% of his executive team. Ciba Vision's Bradley askedsome of the executives overseeing the traditional busi-ness to leave when they fought the decision to reallocateR&D investments to the new units. And both leadersbacked up their actions with new incentive programs thatinstitutionalized the new management approach.

We have also found that a clear and compelling vision,relentlessly communicated by a company's senior team,is crucial in building ambidextrous designs. These aspi-rations provide an overarching goal that permits ex-ploitation and exploration to coexist. Curley's "networkstrategy" and Bradley's "Healthy Eyes for Life" were com-pelling visions that underscored the strategic necessity ofambidexterity and the benefits for all employees, boththose in the traditional units and those in the break-through initiatives.

USA Today, well aware of the natural skepticism ofnewspaper reporters, took a particularly aggressive ap-

proach to communicating its new vision, strategy,and organization. Curley launched the effort by ap-pearing at a company meeting dressed as a cyber-punk, complete with blue hair. The message, herecalled, was: "It's a new world, and we need to beready to move into it." Jurgenson began sendingdaily e-mails to the entire news staff in which shehighlighted the concrete accomplishments of the

new approach -for example, explaining exactly how onereporter was able to take a story originally intended forthe newspaper and get it onto the Web site and the tele-vision stations. In addition, all members of the company'smanagement committee were expected to hold weeklycommunications meetings within their units as well asworkshops focused on the changes employees had tomake in their own jobs. As Curley now puts it, "Whenchange is at a revolutionary level, you can't be aggressiveenough in confronting the issues."

The forces of inertia in companies are strong. The legionsof once successful firms that have fallen on hard times orgone out of business underscore how hard it is to breakout of a rut, especially a comfortable, profitable rut. Thefindings of our research should therefore be hearteningto executives. Not only can an established company re-new itself through the creation of breakthrough productsand processes, but it can do so without destroying or evenhampering its traditional business. Building an ambidex-trous organization is by no means easy, but the structureitself, combining organizational separation with seniorteam integration, is not difficult to understand. Given theexecutive will to make it happen, any company can be-come ambidextrous. ^

Reprint R0404D; HBR OnPoint 6581To order, see page 143-

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