This book represents our attempt to solve a mystery that has fascinated us for more than two decades—“Why do successful firms find it so difficult to adapt in the face of change—to innovate?” As researchers, as case writers, and sometimes as consultants, we have had the opportunity to interact with many organizations, their managers, and their leaders. Most of these organizations had a strategic vision. They possessed immense financial capital. And they were filled with smart, hard-working people. Yet as we watched these firms over time, they often struggled in the face of innovation and change. For many, their inability to adapt as industries shifted was disastrous. As we reflected on these trials, it was clear to us that most of the problems these firms faced were not from a lack of insight or resources. The question of why successful firms found it so difficult to adapt kept recurring. The answer, we concluded, does not hinge on strategy or technology or even luck—as important as these factors may be. Rather, it has everything to do with leadership—and how leaders act in the face of change.
In the past ten years, the importance of this question has increased as more industries and firms confront disruptive change. The pandemic has accelerated this crisis. Airlines have been crushed. Clinical trial practices have been reinvented in pharmaceuticals. Telemedicine has changed centuries of medical practice. Online retailers have hammered their bricks-and-mortar counterparts. Remote working may transform office life and commercial real estate forever.
Fifty years ago, the average life expectancy of a firm in the Standard and Poor’s 500 was fifty years. Today it is closer to twelve. This dramatic increase in the rate of corporate failure reflects the increasing rate at which disruptive change is occurring. That change is putting immense pressure on leaders to react more quickly than ever before to this type of threat. You have only to look at what has happened in industries as diverse as music, media, health care, retail, and high technology to appreciate the threat that innovation poses for established firms. Fifty years ago, or even twenty, managers had the luxury of time. If they were slow to react to change, they could recover. This is no longer the case. In today’s world, firms that miss an inflection point or fail to respond to a disruptive innovation quickly find themselves to be irrelevant or out of business. Think about the plight of taxis confronted with ride-sharing firms, or traditional banks confronted by online banking, or retail stores facing competition from Amazon, or universities facing low-cost distance learning portals. How should leaders think about these threats? What can they do to avoid being disrupted? How can they respond?
Given the current emphasis on the importance of maximizing shareholder value, why should any leader care about helping the firm survive? Maybe the company should go out of business. As students of leadership, we appreciate the importance of profit, but think this is a narrow and anemic view of the real role of organizational leaders. We agree with Dennis Bakke, a former CEO, who said, “Profits are to business as breathing is to life. Breathing is essential to life, but is not the purpose for living. Similarly, profits are essential for the existence of the corporation, but they are not the reason for its existence.”
In our view, leaders have obligations not only to their investors but also to their employees and communities. This doesn’t legitimate poor performance but, to paraphrase Goldman-Sachs, leaders need to be “long-term greedy” and think about how to make their firms successful for more than just the next quarter or year. This means helping their organizations survive in the face of change—to preserve the ability of the firm to be profitable over decades, not quarters.
We believe that we have, if not an answer, then at least clear practical insights that can help leaders and managers as they confront disruptive change in their industries and organizations. These insights reflect the hard-learned lessons of leaders across a variety of industries and geographies. We’ve been fortunate to spend the past decade working with many of them to confront the issues of innovation and change. To illustrate their lessons learned, we tell the stories of many, both victors and those who were less fortunate, less successful.
As you turn the pages ahead, you will see that what looks to be conceptually simple is often extraordinarily complex in execution. It requires that leaders have an understanding of both what to do and how to do it. It requires leaders to design organizations that can succeed in mature businesses where success comes from incremental improvement, close attention to customers, and rigorous execution and to simultaneously compete in emerging businesses where success requires speed, flexibility, and a tolerance for mistakes. We refer to this capability as ambidexterity—the ability to do both. If leaders are the linchpin to success, then ambidexterity is the weapon with which they must do battle. We believe ambidexterity is the key to solving the innovator’s dilemma. How leaders and companies can do this is the story we tell here.
To tell this story fairly and in all its complexity we provide numerous in-depth cases of leaders and organizations wrestling with change and disruption. These examples range across industries and geographies. We look at organizations from the United States, Europe, India, and Asia. These include private-and public-sector organizations, large firms and small, successes and failures. We tell these stories in some detail to illustrate the nuances that can spell the difference between success and failure when implementing ambidexterity. We believe that understanding the context and details are important. But we also appreciate that some readers may lack the time or patience to wade through the many examples we provide. Understanding why Sears has failed and Amazon has succeeded—or why IBM was able to generate $15 billion in organic growth while Cisco failed—may simply be uninteresting to some readers. Therefore, we suggest that there are two ways to use this book.
The first is the conventional linear approach—beginning with Part I (Chapters 1–4), which sets up the challenge and provides the frameworks needed to understand ambidexterity. Then moving to Part II (Chapters 5–7), in which we provide examples of successes and failures. And, finally, examining in Part III (Chapters 8–10) the implications of ambidexterity and some lessons learned. Reading the book in this way provides the context, details, and frameworks that illustrate what it takes for a leader to build an ambidextrous organization. It illustrates some of the subtleties that can spell the difference between success and failure when adapting to change.
But we understand that not all readers have the time or the interest to appreciate all the details. The second approach to reading the book, which may be more suitable for readers who simply want the important takeaways from the research, is to focus on three critical chapters that highlight the main lessons from the book. Chapter 2 illustrates the power of organizational alignment and how it can contribute to an organization’s success in a mature business (exploitation) and become a source of inertia in a new business (exploration). This framework is core to understanding why ambidexterity is the solution to the innovator’s dilemma. Chapter 7 describes the three fundamental disciplines that underpin ambidexterity—ideation, incubation, and scaling—and how each is critical in identifying and growing new businesses. Finally, Chapter 8 summarizes the lessons from the many case studies covered in other chapters and identifies the four major elements needed for a leader to be successful at implementing ambidexterity. These chapters are based on the many examples we describe but can be read without delving into all the details.
The original edition of this book was published in 2016 and summarized the lessons we as researchers and consultants had learned over the previous two decades. Since that time, we and our colleagues at the consulting firm Change Logic have continued to study and work with leaders of organizations around the world that are confronting disruptive change. This new edition incorporates some of the lessons and insights we have learned in the past five years. This revised edition adds what we believe are important insights into the role of organizational culture in promoting or hindering ambidexterity (Chapter 4) and the fundamental disciplines that underlie ambidexterity (Chapter 7). We also have revised and added to other parts of the book to incorporate new examples of ambidexterity, including from firms in Europe and Japan. These additions enrich and deepen our original insights and suggest new ways to implement ambidexterity.
Before we proceed, we owe a debt of gratitude to the many people who helped us in our research and enriched our understanding for how organizations can explore and exploit. These include Lou Gerstner, Bruce Harreld, Sam Palmisano, and Carol Kovac at IBM; Tom Curley and Karen Jurgenson at USA Today; T. J. Rodgers and Brad Buss at Cypress Semiconductor; Phil Faraci and Mark Oman at HP; Mike McNamara, Nader Mikhail, and Dave Blonski at Flex; Kent Thiry and Josh Golomb at DaVita; Glenn Bradley and Dan Vasella at Novartis; Steve Kessel at Amazon; Lori Flees, Anthony Hucker, and Mark Tallman at Walmart; Sagi Ben Moshe, Mark Yahiro, and Rimi Dasgupta at Intel; and Takuya Shimamura, Yoshinori Hirai, and Shinji Miyagi at AGC. Thank you for allowing us to learn from your hands-on experiences of confronting disruptive innovation. We have also learned from watching other leaders, including Jeff Bezos at Amazon, Shigetaka Komori at Fujifilm, Adrianna Cisneros at Cisneros, Jeff Davis at NASA Space Life Sciences, David Jones at Havas, John Winsor at Victors & Spoils, Ganesh Natarajan at Zensar Technologies, Ben Verwaayen and Alison Ritchie at BT, Ingrid Johnson at Nedbank, Vince Roche at Analog Devices, Mike Lawrie at Mysis and CSC, and John Chambers at Cisco. All have generously shared with us their insights and experiences. We hope we have represented these accurately in telling your stories.
Beyond these specific leaders, we also have benefited from the constructive feedback of managers who attended the many executive education programs that we have taught at Stanford and Harvard and in companies around the world. These audiences have helped us to understand the nuances of ambidexterity and have corrected mistakes and omissions we have made. We are particularly grateful to the participants of the Leading Change and Organizational Renewal Program, which we have taught at both Stanford and Harvard for more than twenty years. Many of these participants have volunteered their time and expertise to help us refine our understanding and make the lessons in this book useful to readers.
We have benefited from the wisdom of our academic colleagues. Although we have written this book for practicing managers, a large body of academic research underlies our views on ambidexterity. While we have spared our readers exhaustive (and exhausting) citations to this body of research, this book reflects that empirical scholarship. In particular, we have drawn on the research and comments of Clay Christensen at the Harvard Business School; David Teece at the University of California, Berkeley; Justin Jansen at Erasmus University in Amsterdam; Julian Birkinshaw at the London Business School; Mark Ventresca at the Said Business School, University of Oxford; and David Caldwell at Santa Clara University. These and other colleagues such as Jeremy Utley and Perry Klebahn at the Stanford Design School, Wendy Smith at the University of Delaware, and Mary Benner at the University of Minnesota have been coauthors and commenters on our work.
We are very thankful for several colleagues with whom we have worked as consultants in applying the ideas contained in this book. They have taken our concepts and helped organizations make them real. Andy Binns and Christine Griffin at Change Logic have been using, shaping, and refining the tools that readers will discover here. Their experience and expertise have been central in developing our understanding for how leaders can be ambidextrous. Peter Finkelstein, founder and managing principal in UpstartLogic, has been an invaluable friend, colleague, and champion of these ideas for twenty years. His contributions, both intellectual and emotional, are an integral part of the story we tell. Finally, Masanori Kato, Kazuhiko Toyama, and Akie Iriyama provided us with a window into the world of Japanese companies and helped us see how ambidexterity was applied to Japanese organizations.
All books, and this one in particular, are really collaborations among a large set of people whose contributions shape the authors’ views. We can say with certainty that the arguments contained in this book comes from the many people who have helped us as we have tried to understand why it is that successful firms often fail in the face of disruptive change. We hope that we have done justice to their ideas. And we hope that this book serves as a corrective to the troubling trend that sent us on this journey.
Stanford, California, and Cambridge, Massachusetts