Innovation Streams and Ambidextrous Designs: On Building Dynamic Capabilities

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Innovation Streams and Ambidextrous Designs On
Building Dynamic Capabilities
Michael Tushman Wendy Smith George
Westerman Robert Wood Charles OReilly

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Research Question What are the Strategic,
Organizational, and Senior Team Roots of Dynamic
Capabilities?

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Building Dynamic Capabilities is Difficult?
(Wiggins and Ruefli, 2002)
IBM(1993-2004) Firestone NCR Kodak Kuhn
Loeb Boeing SSIH/Asaug Bausch Lomb Philips
Sears U.S.Steel Levi Strauss Kidder Peabody
Oxford Health Polaroid Ciba-Geigy Intertype/Varit
yper DEC
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Worldwide Watch Production
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Percentage of Tires Shipped by Construction Type
1961-1989
Sources Rubber Manufacturers Association, Tire
Shipments by Construction, Tire Industry
Facts (Akron, Ohio, 1990) Firestone Tire
Rubber Company, Sales Forecasts, Corporate
Archives (Akron, Ohio, 1980).
Citation Sull, Donald. The Dynamics of
Standing Still Firestone Tire Rubber and the
Radial Revolution, Business History Review,
1999, pp. 430-464.
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Henderson and Clark, ASQ, 1990.
Photolithography Industry Contact aligners
(Cobuilt, Kasper) Proximity aligners (Canon)
Scanners (Perkin-Elmer) Steppers 2nd
generation steppers (Nikon) Subsystems and
linkage mechanisms light lens alignment
system mechanical system
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Dynamic Capabilities and Innovation Streams

• Innovation Streams
• Incremental change with existing product
• Non-incremental defined by change in
• technology
• markets

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The Challenge March (1991), Levinthal (1997)
Explore and Exploit Weick (1979) Learn and
unlearn, hypocritical Thompson (1967)
efficiency and flexibility Abernathy (1978)
productivity dilemma
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The Response Ecology/Selection Spin-outs
(Christensen, 1997 Baghai et al, 1999) ICV,
New Business Groups, Skunkworks (Van de Ven,
1999 Burgelman, 2002) Contingency and
Punctuated Change Romanelli and Tushman
(1994) Siggelkow (2001) Miller (1990) Switch
Between Modes Louis and Sutton (1989) Duncan
(1976)- initiation vs implementation Brown and
Eisenhardt (1998)-loose and tight semistructure
s linked in time, incremental change,
choreographed transitions, edge of chaos
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Plural, Dual, or Ambidextrous Designs Explore
and Exploit Tushman and OReilly (1997), Nonaka
(1988), Bradach (1998), Adler et al (1999),
Sutcliffe et al (2000) High Structural
Differentiation Intra Unit Contradictions Limited
/Tactical Structural Integration Strong Senior
Team Integration Not switch back and forth, but
simultaneous exploit and explore Not spin out,
ICV, but internally contradictory
architectures Not semi structures, but
ambidextrous designs Not induced and autonomous,
but strategic innovation Not incremental or
punctuated, but both
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On Innovation Streams and Dynamic Capabilities
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Products/Services As Systems Subsystems and
Linking Mechanisms
1860 1950s 1970
1980
Subsystems
Spring Battery Battery Battery Battery Escapement
Escapement Tuning Fork Quartz Quartz Gears Gears G
ears Gears Electronics Analog Analog Analog Analo
g Digital Gold Gold Gold/Plastic Gold Plastic
Energy Oscillation Linkage Face Case
Subsystems Core and Peripheral
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Henderson and Clark, ASQ, 1990.
Photolithography Industry Contact aligners
(Cobuilt, Kasper) Proximity aligners (Canon)
Scanners (Perkin-Elmer) Steppers 2nd
generation steppers (Nikon) Subsystems and
linage mechanisms light lens alignment
system mechanical system
Fan Small Copiers Small Radio
Proximity Aligners
Contact Aligners

Architectural innovation
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Rosenbloom and Christensen. Industrial and
Corporate Change, 1994. Disk drives industry
14, 83.5 (Winchester, Seagate,
Conner) Issue in disk drives may be relative
abilities of incumbents to change strategies
(value networks), not technologies.
Disk Drives (8 3.5)
New
Markets
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Existing
Discontinuous
Incremental
Architectural
Technology
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Innovation Streams and Dynamic Capabilities
Quartz Watch Vysodyne HP/Zorro
8 Disk Drives IBM Micro Network, Imaging
New
HP/Wanda Fashion Lens
Markets
USAT.com
Flat Bed Scanner Conventional lens USAToday Bias
Ply Tires Contact Aligner Mechanical Watch IBM
Micro ASIC
Existing
Radial Tires Disposable Lens Extended Wear Lens
Proximity Aligner
Architectural
Incremental
Discontinuous CD/Core NCA/Core
Types of Innovation

• Dynamic Capabilities Rooted in Innovation Streams.

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Organizational Architectures Innovation
Streams Multiple Selection Environments
Exploration Variation
Exploitation Retention
General Managers and Senior Team
loose processes
tight processes
mfg./sales competencies
tight culture
loose culture
RD/entrepr. competencies
loose organization arrangements
tight/formal organization arrangements
Selection
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Executive Team Multiple strategies Single
vision Few Core Values
Tasks
Mgmt. Team
Individuals
Ciba Vision / Vysodyne, Daily Disposables Seiko/Qu
artz USAToday.com IBM Network Tech/Transport HP
Scanner/Zorro
Informal
Organization Arrangements
Mgmt. Team
Ciba Vision/Conv. Lens, Seiko/Mechanical, USAToday
IBM Network/ ASIC HP Flat Bed Scanner Exploitati
on Consistency, incremental change, and
continuous improvements
Tasks
Mgmt. Team
Individuals
Informal
Organization Arrangements
Strategic Re-orientations, Discontinuous Change
Exploration Multiple failures, experiments,
variants
Ambidextrous Designs, Innovation Streams and
Dynamic Capabilities
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Ambidextrous Design
J. Kelley(Meta Manager)Group Executive
Mfg.
Chris King (Ambidextrous Manger)Network
Technologies
Wireless
Tactical Integration
Senior Team
ASIC(Exploitation)
Network(Innovation Manger)
Transport(Innovation Manger)
Exploration
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Methods

• Research Design
• Multi Case Design (Van de Ven, 1999 Brown and
  Eisenhardt, 1997)
• Chose Sites Based on Innovation Streams
• Business Unit as Level of Analysis
• Longitudinal Data (Lewin et al, 1999)
• Sample
• 15 Business Units (9 Industries)
• 24 non-incremental innovations
• 36 Innovation Episodes
• 7 Business Units with multiple non-incremental
  innovations
• 11 innovations with multiple innovation-
  episodes
• 5 out of 6 types of non-incremental innovation
• Data Collection
• 6-12 Interviews per firm (106 in all) open
  ended and targeted
• Mini-cases
• 5 coders independently coding

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Results Innovation Streams
Target Market
Software Co E-Learning Regional News City
Search.com HP Scanner Handheld Scanner B,
C Regional News News.com A, B USA Today
USAT.com A Ciba Vision Visudyne A, B
HP Scanner Handheld Scanner A Turner
TechnologyImaging Chip A, BMicro Display Chip
A, B IBM Network TechnologyNetwork Chip A,
BTransport Chip A, B
Emerging Market

• RESULTS
• Innovation Streams exist
• No performance difference by
• technology (t.87, ns)
• markets (F2.14, ns)

USA Today Direct A, B USA Today USAT.com B
Software Co Knowledge Management Software Co
Advanced Collaboration Polaroid Helios A,
B Polaroid Digital Camera A, B
New Customers
Polaroid Analog Camera Software Co ICE IBM
Software COBOL Med. Imaging BW
Ultrasound UtilityCo Power Plants Ciba Vision
Conventional Lens IBM Network Tech ASIC Turner
Technology ASIC Goodyear Bias Ply Tires
Firestone Bias Ply Tires BF Goodrich Bias Ply
Tires Regional News Newspaper HP Scanners
Flatbed Scanners USA Today Newspaper Med.
Product Medical Devices
Firestone Radial Tires Goodyear Radial Tires BF
Goodrich Radial Tires UtilityCo On Site Power
Plants Ciba Vision Extended Wear Ciba Vision
Daily Disposable
Current Customers
IBM Middleware Websphere Medical Imaging Color
Ultrasound Medical Products Integrated
Healthcare System
Incremental
Architectural
Discontinuous
Non-Incremental Technological Change
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Innovation performance by number of
non-incremental innovations

RESULTS No difference in performance by number
of innovations in innovation stream One vs.
Multiple (t .21, n.s.)
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Results Does Ambidexterity Exist?
Structural Differentiation
LOW
HIGH
Cross-Functional Teams
Unsupported Teams
HP Scanners Handheld Scanner A Regional News
News.com B Turner Technology Micro Display
A Turner Technology Imaging A Firestone Radial
Tires BF Goodrich Radial Tires Software Co
E-Learning Software Co Knowledge
Management Software Co Advanced Collaboration
USA Today USAT.com A Polaroid Digital Cameras
B USA Today Direct A HP Scanners Handheld
Scanner C
LOW
N4
N9
Senior TeamIntegration
Functional Design
Ambidextrous Design
HP Scanners Handheld Scanner B USA Today
USAT.com B USA Today Direct B Regional News
City Search.com Regional News News.com A Turner
Technology Micro Display A Turner Technology
Imaging B IBM Middleware Websphere UtilityCo
Power Plants IBM Network Tech Network Chip B IBM
Network Tech Transport Chip B CIBA
Vision Extended Wear CIBA Vision Daily
Disposable CIBA Vision Visudyne A Polaroid
Helios B
Medical Imaging Color Ultrasound Goodyear
Radial Tires IBM Network Tech Network Chip A IBM
Network Tech Transport Chip A Medical Products
Integrated Health Care System Polaroid Helios
A Polaroid Digital Cameras A
HIGH
N7
N15
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Characteristics of Ambidexterity

• Characteristics of
• Ambidextrous Forms
• Structural differentiation of explore/exploit
  units
• Integration at senior team level
• Investment by Meta Manager
• Targeted integration of functional resources
• Common fate rewards system
• Overarching vision of senior team including both
  explore and exploit
• IM internal/external, staff external

VISION 1 Supplier of Network Technology chips
by 2000
J. Kelley(Meta Manager)Group Executive
Mfg.
Chris King (Ambidextrous Manger)Network
Technologies
Wireless
Tactical Integration
Senior Team
ASIC(Exploitation)
Network(Innovation Manger)
Transport(Innovation Manger)
Exploration
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Design Choices and Innovation Outcomes

• RESULTS
• Ambidextrous designs more effective than other
  designs
• Main Effect of Senior Team Integration
• (F 14.11, p lt .01)
• Main Effect of Differentiation
• (F 18.67 p lt .01)
• No interaction Effect
• Other forms not employed
• No skunkworks, VC firms, spin outs

Structural Differentiation
LOW
HIGH
Cross-Functional Teams
Unsupported Teams
HP Scanners Handheld Scanner A Regional News
News.com B Turner Technology Micro Display
A Turner Technology Imaging A Firestone Radial
Tires BF Goodrich Radial Tires Software Co
E-Learning Software Co Knowledge
Management Software Co Advanced Collaboration
USA Today USAT.com A Polaroid Digital Cameras
B USA Today Direct A HP Scanners Handheld
Scanner C
LOW
N9 Innovation Performance 2.27
N4 Innovation Performance 2.52
Senior TeamIntegration
Functional Design
Ambidextrous Design
HP Scanners Handheld Scanner B USA Today
USAT.com B USA Today Direct B Regional News
City Search.com Regional News News.com A Turner
Technology Micro Display A Turner Technology
Imaging B IBM Middleware Websphere UtilityCo
Power Plants IBM Network Tech Network Chip B IBM
Network Tech Transport Chip B CIBA
Vision Extended Wear CIBA Vision Daily
Disposable CIBA Vision Visudyne A Polaroid
Helios B
Medical Imaging Color Ultrasound Goodyear
Radial Tires IBM Network Tech Network Chip A IBM
Network Tech Transport Chip A Medical Products
Integrated Health Care System Polaroid Helios
A Polaroid Digital Cameras A
HIGH
N15 Innovation Performance 4.27
N7 Innovation Performance 3.12
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Designs Shift Over Time
Structural Differentiation
LOW
HIGH

• RESULTS
• Net migration of designs over time to
  ambidextrous designs
• 6 move to ambidextrous form
• 3 move out of ambidextrous form
• Net performance improvement for designs migrating
  to ambidextrous form
• (t 5.67, plt.03)
• IBM Network Technology.
• Note Small sample size

Cross-Functional Teams
Unsupported Teams
USA Today USAT.com A Polaroid Digital Cameras
B USA Today Direct A HP Scanners Handheld
Scanner C
LOW
Senior TeamIntegration
Functional Design
AMBIDEXTROUS Design
Medical Imaging Color Ultrasound Goodyear
Radial Tires IBM Network Tech Network Chip A IBM
Network Tech Transport Chip A Medical Products
Integrated Health Care System Polaroid Helios
A Polaroid Digital Cameras A
HP Scanners Handheld Scanner B USA Today
USAT.com B USA Today Direct B Regional News
City Search.com Regional News News.com A Turner
Technology Micro Display A Turner Technology
Imaging B IBM Middleware Websphere UtilityCo
Power Plants IBM Network Tech Network Chip B IBM
Network Tech Transport Chip B CIBA
Vision Extended Wear CIBA Vision Daily
Disposable CIBA Vision Visudyne A Polaroid
Helios B
HIGH
SPIN OUT Novartis Pharma Div Visudyne B
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Organization Designs Over Time HP Greeley, HP
Microelectronics Toronto Star IBM Network
Technology Meta Manager (eg Kelly at IBM
Microelectronics, Bradley at Ciba
Vision) Boundary Conditions Product
Substitution (Goodyear, HP Medical) Spin Outs
HP Handheld Scanner C Ciba Vision,
Vysodyne (B)
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Ambidextrous Organizations

• Multiple Inconsistent Alignments
• Structure Culture Process
• Competencies Physical Location
• Tactical Integration (eg USAT editorial meetings)
  
• Strategic Integration
• Integration at General Manager level
• Ambidextrous Senior Teams and common fate
• Consequences of strategic integration being too
  high or too low.
• GM Too High Too Low
• Ciba Vision/Disp HP/Handheld(C) HP/Handheld(A)
• USAT.com USAT/Live(A) Ancona/Polaroid
• HP/Handheld (B) Software Co./e Learn
• Toronto Star (A) Regional News (B)

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Executive Teams, Innovation Streams and
Strategic Reorientations
Conventional Lens Size, shape, packaging

• Executive Team
• Challenging, emotionally engaging (yet equivocal)
  vision
• Stretch objectives
• Continuity in CEO, heterogeneous, young senior
  team
• Create variation, selection, project book, even
  with continuous improvement
• Autonomous teams report to general manager
• Proactive reorientations

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Organizational Evolution
How do organizations evolve?

• Through incremental change in exploitative unit
  coupled with proactive discontinuous change in
  exploratory unit (eg. Ciba Vision, IBM
  Middleware, USAToday)
• Or, periods of convergence with increasing
  congruence
• punctuated by re-orientations, often
  requiring
• new top management teams (eg. HP Handheld
  Scanners, IBM Network Technology, Goodyear)

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Patterns in Organizational Evolution
Magnitude of Change
Discontinuous Change
Incremental Change
Time
Organization Evolution Incremental and
punctuated change or
Periods of incremental change punctuated by
discontinuous change Executive team succession
often associated with discontinuous
organizational change.
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In Sum Innovation Streams Exist Business
Units Explore and Exploit Simultaneously Ambidext
rous Designs Stable Organizational Form Can Be
Learned Over Time Set of Interrelated
DimensionsHigh Differentiation
Tactical Structural Integration
Senior Team Integration Role of
General Manager Meta Manager Ambidextro
us Designs Permit Exploitation and
Exploration More Effective Than Other Designs
and seems to facilitate performance of existing
product
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Dynamic Capabilities not through semi
structures tight/loose coupling choreographed
transitions spin outs, ICV, skunk works Dynamic
Capabilities through embracing contradictions
through High Differentiation-contradictory
architectures Targeted Integration Senior Team
Integration roles, processes, incentives,
vision General Manager Meta Manager On
Organizational Evolution Targeted incremental
and punctuated change Or, Organization-wide
punctuated change
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Next Steps
Boundary conditions Product
Substitution Process innovation? Service
innovation (IGS/Canada)? Senior Team
Characteristics, Processes and Behaviors Corporat
e Ambidexterity (EBOs)