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Why and How to be Ambidextrous? The Relationship between Environmental Factors,

Innovation Strategy and Organizational Capabilities

Pei-Wen Huang

Department of Business Management

Cheng-Shiu University, Kaohsiung, Taiwan

Graduate School of Management

I-Shou University, Kaohsiung, Taiwan

Email: pamela30@ms34.hinet.net

Correspondence:

Pei-Wen Huang, Department of Business Management, Cheng-Shiu University, Kaohsiung,

Taiwan; Graduate School of Management, I-Shou University, Kaohsiung, Taiwan

Email: pamela30@ms34.hinet.net

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Why and How to be Ambidextrous? The Relationship between Environmental Factors,

Innovation Strategy and Organizational Capabilities

ABSTRACT

“Organizational ambidexterity” has become an emerging research trend in both

the organizational management and knowledge management field (Gibson &

Birkinshaw, 2004; He & Wong, 2004). The central theme on organizational

ambidexterity is about organizational capability to simultaneously deal with

paradoxical or conflicting activities such as organizational alignment and adaptation;

evolutionary and revolutionary change; manufacturing efficiency and flexibility;

strategic alliance formation; and even strategic renewal (Adler, Goldoftas, & Levine,

1999; Crossan, Lane, & White, 1999; Gibson & Birkinshaw, 2004; Lin, Haibin, &

Demirkan, 2007; Tushman & O'Reilly, 1996). Exploitation and exploration are the

most recurrent underlying dimensions regarding organizational ambidexterity. This

paper tries to gain more insight on organizational ambidexterity by constructing a

comprehensive conceptual framework. In particular, our research interest is to

investigate why organizations need to be ambidextrous in the first place? How can

organizations enhance ambidexterity? A conceptual framework has been proposed

regarding the relationship between environmental factors, innovation strategy and

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organizational capabilities.

Keyword: ambidexterity, innovation strategy

INTRODUCTION

“Organizational ambidexterity” has become an emerging research trend in both

the organizational management and knowledge management field (Gibson et al., 2004;

He et al., 2004). The central theme on organizational ambidexterity is about

organizational capability to simultaneously deal with paradoxical or conflicting

activities such as organizational alignment and adaptation; evolutionary and

revolutionary change; manufacturing efficiency and flexibility; strategic alliance

formation; and even strategic renewal (Adler, Goldoftas, & Levine, 1999; Crossan,

Lane, & White, 1999; Gibson & Birkinshaw, 2004; Lin, Haibin, & Demirkan, 2007;

Tushman & O'Reilly, 1996). This emerging issue has increasingly gained its weight in

research since organizations have to cope with or balance the seemingly contradictory

tension within organizations under more and more dynamic environment and severe

competition (Nonaka, Toyama, & Byosiere, 2001). Due to the dynamism and

complexity of the environment, organizations’ short-term success does not necessarily

guarantee their long term survival. Therefore, research on “organizational

ambidexterity” tries to find out how organizations manage to maintain today’s success

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while preparing to adapt to tomorrow’s changing environment (Jansen, Bosch, &

Volberda, 2005a).

Exploitation and exploration are the most recurrent underlying dimensions

regarding organizational ambidexterity. In general terms, March (1991) described

exploitation related to things like “refinement, choice, production, efficiency,

selection, implementation and execution” and exploration being relevant to “search,

variation, risk taking, experimentation, play, flexibility, discovery, innovation”. March

stressed that both exploitation and exploration are learning activities. In his words,

“the essence of exploitation is the refinement and extensions of existing competencies,

technologies, and paradigms; and the essence of exploration is experimentation with

new alternatives” (1991:85). According to the definitions, exploitative and

exploratory activities would require different and sometimes conflicting resources,

mindsets and organizational procedures (Gupta, Smith, & Shalley, 2006; March,

1991). Therefore, should or could organizations pursue both activities to be

ambidextrous also receives challenges (Raisch & Birkinshaw, 2008).

Traditionally, scholars regard exploitative and explorative innovation demand

different attention and resources (Duncan, 1976; Gibson et al., 2004). Due to limited

resources, they are confronted with the tension between exploiting what they know

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and exploring what they do not know since both exploitation and exploration are

essential capabilities to their long term survival (Lewin, Long, & Carroll, 1999;

March, 1991). Therefore, organizations find themselves under more and more

pressures to cope with the tension between exploitation and exploration (Jansen, Van

Den Bosch, & Volberda, 2006; Tushman & O'Reilly, 1996). Since March’s (1991)

seminal work on exploitation and exploration, these two underlying dimensions of

organizational ambidexterity have been treated as two incompatible or competing

concepts (Tushman & O'Reilly, 1996). They argued that exploitation and exploration

are two ends of the continuum. Owing to limited organizational resources,

organizations have to make a choice between one of them. In other words, the

strategic choice between exploitation and exploration is a trade-off (Liu, 2006).

Recently, the trade-off view of exploitation and exploration has been challenged by

many scholars (Raisch et al., 2008). They pointed out that organizational resources

may not necessarily be limited. For example, organizational knowledge has the

characteristics of being accumulated more and more by just utilizing it (Huber, 1991).

In addition, there are also other means of acquiring resources external to organizations

such as strategic alliance or merger and acquisition (Gupta, Smith, & Shalley, 2006).

Therefore, regarding exploitation and exploration, some researchers have moved from

a trade-off (either/or) thinking to a paradoxical (both/and) one (e.g. Duncan, 1976;

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Gibson et al., 2004). Recent research starts to be interested in the possibility of the

interaction between these two dimensions. Once the organizational resources are not

so limited, organizations seem to be able to manage both activities simultaneously.

Our research interest in this paper is to investigate why organizations need to be

ambidextrous in the first place? What is the impact of environmental pressures

perceived by organizations’ top management team on their strategic choices in terms

of innovation? What are the internal factors that may enhance organizations’

ambidextrous strategy (adoption of both exploitative and explorative strategies)? We

presume that why organizations need to be ambidextrous is the most fundamental

question that we should ask if we are to contribute to the concerning literature.

Furthermore, when top management teams perceive the external pressures to be

ambidextrous, they might be eager to explore the internal factors that enhance such

strategies. Literature regarding how to enhance organizational ambidexterity seems to

be limited. We conclude that when organizations feel the need to adopt ambidextrous

innovation strategy, combinative capabilities and absorptive capabilities could

enhance this strategy and achieve better performance in new product development.

LITERATURE REVIEW AND THEORY DEVELOPMENT

“Organizational ambidexterity” has become an emerging research trend in both

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the organizational management and knowledge management field (Gibson et al.,

2004). Organizational scholars have been trying to define what organizational

ambidexterity is. Broadly speaking, organizational ambidexterity could refer to

organizations’ ability to simultaneously deal with two paradoxical demand such as

alignment and adaptation (Birkinshaw & Gibson, 2004), evolutionary and

revolutionary change (Tushman et al., 1996), efficiency and flexibility (Adler,

Goldoftas, & Levine, 1999), differentiation and low-cost strategy (Porter, 1996),

global integration and local responsiveness (Doz, Bartlett, & Prahalad, 1981),

zero-level capabilities and higher-order capabilities (Winter, 2003), and incremental

and radical innovation (Benner & Tushman, 2003). More specifically, Jansen, Van den

Bosch and Volberda (2005a) treated organizational ambidexterity as “the ability to

pursue exploratory and exploitative innovation simultaneously”. Tushman and

O’Reilly (1996) described ambidexterity as “the ability to simultaneously pursue both

incremental and discontinuous innovation and change”. Duncan (1976) paid attention

to the structural arrangement to cope with innovation. March (1991), Levinthal and

March (1993) maintained that balance between exploitation and exploration is

advantageous for firm’s long term success. The nature of ambidexterity is also

implicitly recognized in the dynamic capabilities literature which urges the need to

blend two different strategic logic - exploitation and exploration- within organizations

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(Ancona, Goodman, Lawrence, & Tushman, 2001; Eisenhardt & Martin, 2000). In

this paper, we specifically regard organizational ambidexterity embodied on

organizations’ strategic choice. That is, organizations simultaneously adopt

exploitative and explorative innovation strategies.

Scholars that maintain organizational ambidexterity should be pursued by

organizations have two basic assumptions. First, the relationship between exploitation

and exploration is orthogonal rather than two ends of a continuum. Since March (1991)

made a distinction between exploitation and exploration based on organizational

learning theory, most research treated exploitation and exploration as a trade-off under

the constraint of limited organizational resources. However, recent research explored

the possibility of the interactive relationship between these two dimensions, arguing

that not all organizational resources are limited and constrained. Organizational

resources such as knowledge and information may have the characteristics of being

accumulated more and more by using it (Shapiro & Varian, 1998). Second, even

though exploitation and exploration generally require quite different mindset and

organizational routines, both activities could still be executed under different domains

in terms of different knowledge or separate units (Gupta et al., 2006). Exploitation

and exploration would be mutually exclusive when they are considered within single

individual or subsystem. However, across different domains, it is possible that

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organizations arrange two different activities at different units or individuals be

executed. This argument implies that the more resources or individuals that

organizations possess, the more possible that organizations to present ambidexterity.

Therefore, in this paper, we generally consider that not all organizations could pursue

both exploitation and exploration and benefit from the interaction between these two.

The issue of organizational ambidexterity is very contingent on different

organizational conditions both internally or even externally.

Two streams of research on the antecedents of organizational ambidexterity were

mostly studied in the literature, namely structural ambidexterity (Duncan, 1976) and

contextual ambidexterity (Gibson et al., 2004). According to Duncan, the most

important factor to influence organizational ambidexterity is its formal structure. By

deliberately separating different units to execute different tasks, organizations manage

to solve the conflicting demands from exploitation and exploration. The main

argument in structural ambidexterity follows the logic of organizational design

theories in that organizational structure supports knowledge-related activities within

organizations (Ettlie, Bridges, & O'Keefe, 1984). In a meta analysis of organizational

factors influencing innovation, Damanpour (1991) concluded formalization,

centralization, horizontal differentiation, and vertical differentiation as four most

important structural constructs. Some other research argued that configuration,

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complexity, formalization and centralization as critical (Blackburn & Cummings,

1982). In the organizational ambidexterity literature, decentralization and

formalization are two most studied constructs (e.g. Jansen et al., 2005a, 2006) . As for

the more precise picture of being ambidextrous organizations, Benner & Tushman

(2003) explicated a more specific picture:

Ambidextrous organization designs are composed of highly differentiated but weakly integrated

subunits. While the exploratory units are small and decentralized, with loose cultures and

processes, the exploitation units are larger and more centralized, with tight cultures and processes.

Exploratory units succeed by experimenting- by frequently creating small wins and losses (Sitkin,

1992). Because process management tends to drive out experimentation, it must be prevented

from migrating into exploratory units and processes. In contrast, exploitation units that succeed by

reducing variability and maximizing efficiency and control are an ideal location for the tight

coordination associated with process management efforts (2003: 252).

The nature of studying organizational structure is to find out how conflicting

organizational activities could be reconciled through organizational arrangement.

Broadly speaking, this research stream recognized the fact that organizational

ambidexterity could be achieved as long as conflicting activities are balanced.

Organizational structure reflects how exploitation and exploration are coordinated and

arrayed within organizations. Generally, conflicting activities must be executed

separately.

In contrast to structural ambidexterity, another research stream treats

organizational ambidexterity as a trait of organizational behavior. By studying the

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requisite contextual conditions, they claimed the significance of the organizational

systems and process for enhancing organizational ambidexterity. Gibson and

Birkinshaw (2004) termed contextual ambidexterity as “the behavioral capacity to

simultaneously demonstrate alignment and adaptability across an entire business unit”.

Therefore, to achieve ambidexterity, organizations’ task is to arrange a set of process

and system that could enable as well as encourage organization members to perform

ambidextrous behavior by their own judgment. This research stream generally

considers the contextual factors such as connectedness, trust, stretch, discipline and

support as most influential.

Although scholars are eager to examine the antecedents of organizational

ambidexterity, empirical findings did not completely support the ambidexterity

hypothesis in the strategy literature. Some studies found that firms pursuing different

strategies at the same time may not result in better performance than those focusing

on either one strategy (Ebben & Johnson, 2005; Ghemawat & Costa, 1993; Porter,

1980). In this paper, we argue that to achieve organizational ambidexterity, some

contingent conditions must be met. To be more specific, both external and internal

conditions must fit to make the organizations perform better. In the following sections,

we first explicate the dimensions of organizational ambidexterity. Then we try to find

out the factors affecting organizations to be ambidextrous.

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Though organizational ambidexterity embodied on many organizational aspects,

such as alignment and adaptation (Gibson et al., 2004), evolutionary and

revolutionary change (Tushman, O'Reilly, & Anderson, 2004), efficiency and

flexibility (Adler et al., 1999; Ebben & Johnson, 2005), this paper focuses on aspects

related to organizational innovation. We are interested in organizational innovation in

that capabilities of innovation have been regarded as main sources of competitive

advantages (Grant, 1996a; Marsh & Stock, 2006). In addition, through innovation,

organizations evolve and adapt to the changing environment (Nelson & Winter, 1982).

Organizations adapt to the changing environment by utilizing their existing

technology or knowledge and also by creating new ones (Teece, Pisano, & Shuen,

1997). In the following section, we discuss different types of innovation and the

relationship between organizational ambidexterity.

Innovation and Organizational Ambidexterity

Technological Innovation has been considered one of the most important

sources of competitive advantages in the literature. However, the field of innovation is

very broad. Therefore, before investigating any further the relationship between

innovation and organizational ambidexterity, we would like to clarify the concept of

innovation first.

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Innovation has been generally distinguished between technological and

administrative innovation. Technological innovation is more task-oriented and

knowledge or technology focused. On the other hand, administrative innovation

pertains to organizational structure, administrative processes and human resources

management (Damanpour, 1996). In this paper, we focus our research on

technological innovation. In other words, we are more concerned about the

knowledge or technology that organizations utilize or create to produce new products

to satisfy different market demand. To further classify its concept, technological

innovation is distinguished between component knowledge (knowledge of core

concepts of components) and architectural knowledge (knowledge of how the

components and competence can be combined and linked) (Henderson & Clark, 1990).

The distinction between component knowledge and architectural knowledge is useful

for us to examine how innovations affect different kinds of organizational knowledge

(Benner, 2002).

Incremental and Radical Innovation Since Schumpeter’s (1942) notion of

creative destruction, literature on technological innovation has differentiated different

kinds of innovations in terms of their impact on organizations’ established capabilities

or the degree of radicalness or novelty compared with their existing knowledge or

technology (Damanpour, 1991; Henderson & Clark, 1990). Incremental innovation

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refines and improves existing components or products while radical innovation

represents departure from existing organizational knowledge. They are mostly

conceptualized as two ends of a continuum. In addition to radical and incremental

innovations, Henderson and Clark (1990) further identified two more categories:

modular and architectural innovations. Modular innovations depict the innovation that

change the core concept of the core components and leave the products’ architecture

intact. To the contrary, architectural innovations reconfigure the existing components

and create new relationships among them. To simplify our analysis of technological

innovation, we regard architectural innovation as one kind of incremental innovation

and modular innovation as radical one. In the same vein with Henderson and Clark

(1990), we regard these different types of innovation are just matters of degree and

there are no definite boundaries between these different categories. Moreover, the

degree of radicalness or novelty should be defined in terms of organizations’ existing

knowledge. For example, radical innovation adopted by small firms may be treated as

incremental innovation in larger organizations. Therefore, the distinction between

different types of innovation is helpful for us to understand possible outcomes of

innovations.

Definition of Exploitation and Exploration Exploitation and exploration are two

recurrent dimensions in the organization management literature such as innovation,

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organizational design, organizational alignment and adaptation, organizational

learning, and even strategic alliance. The key issue on organizational ambidexterity is

the balance between exploitation and exploration. We would like to discuss two

aspects regarding exploitation and exploration. First is the issue of definition, and the

second one is the relationship between these two dimensions.

The definitions of exploitation and exploration receive a lot of debate. Gupta and

his colleagues (2006) argued that the ambiguity lies in whether these two represent

different types of learning or they can be simply distinguished by the presence or

absence of learning. To be more specific, most researchers agree that only exploration

involves learning activities. As for exploitation, whether it also represents a kind of

organizational learning to certain degree has not reached a consensus.

Those who agree that both exploitation and exploration are learning activities

assert that both activities move along with the learning curve even when they are just

reusing past knowledge. March (1991) described exploitation related to things like

“refinement, choice, production, efficiency, selection, implementation and execution”

and exploration is relevant to “search, variation, risk taking, experimentation, play,

flexibility, discovery, innovation”. March stressed that either exploitation or

exploration includes at least some learning. In his words, “the essence of exploitation

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is the refinement and extensions of existing competencies, technologies, and

paradigms and the essence of exploration is experimentation with new alternatives”

(1991:85). According to Baum and his colleagues, “exploitation refers to learning

gained via local search, experiential refinement, and selection of existing routines and

exploration refers to learning gained through processes of concerted variation,

planned experimentation, and play” (2000:768). Drawing on learning literature,

Benner and Tushman (2002) also defined exploitation and exploration by the location

of search. They claimed that exploitation involving local search for firm’s existing

technological capabilities while exploration is a distant search for new opportunities.

Though both exploitation and exploration are learning activities, they follow entirely

different learning trajectories. He and Wong (2004) distinguished exploitation from

exploration by whether organizational innovation aiming at improving existing

product-market domains or entering new product-market position. In contrast, some

scholars assert that there is no learning at all when organizations are engaged in

exploitation since they just reuse their existing knowledge. That is, exploration is the

only activity that accounts for learning and leads to innovation. Rosenkopft and

Nerkar (2001) explicitly treated all activities as a kind of exploration. In conclusion,

we follow Yell’s (1979) assertion that “even when an organization is attempting to do

nothing more than replicate past actions, it accumulates experience and goes down the

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learning curve, albeit in an incremental manner.” Drawing on organizational learning

theory, we regard both exploitation and exploration as important organizational

approaches of utilizing, searching, and creating organizational knowledge. Regarding

the relationship between exploitation and exploration to organizational innovation, it

is generally considered that exploitation lead to incremental innovation and

exploration inclines for radical innovation. Different outcome of innovation needs

different types of innovation activities. Through exploitative and explorative activities,

organizations accumulate learning experience to refine and improve their

organizational effectiveness. To avoid competence trap and failure trap, both activities

are required (Ancona et al., 2001; Benner & Tushman, 2002; Eisenhardt & Martin,

2000; Levinthal & March, 1993; Liu, 2006; March, 1991, 1996, 2006). Particularly,

the balance between exploitation and exploration has been widely accepted as critical

to organizational success (Levinthal et al., 1993; Lewin, Long, & Carroll, 1999;

March, 1991). As March noted, “Adaptive systems that engage in exploration to the

exclusion of exploitation are likely to find that they suffer the costs of

experimentation without gaining many of the benefits. They exhibit too many

undeveloped new ideas and too little distinctive competence. Conversely, systems that

engage in exploitation to the exclusion of exploration are likely to find themselves

trapped in suboptimal stable equilibria” (1991). Therefore, how to achieve a balance

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between these two activities became central issue in the organizational ambidexterity

literature.

The Relationship (Tension) between Exploitation and Exploration The main

reason that exploitation and exploration have been treated as two ends of a continuum

is the concern of organizational scarce resources. Most scholars have regarded these

two dimensions requiring different organizational resources and attention. As

mentioned in the above section, one of the premises of organizational ambidexterity is

that the relationship between exploitation and exploration could be orthogonal. That is,

organizations could arrange both activities simultaneously when there is slack

resource and when these activities could be executed by separate organization units or

members.

Katila and Ahuja (2002) explicitly treated exploitation and exploration as two

distinct dimensions to be distinguished from those who position local search and

distant search in a unidimensional spectrum. The empirical findings support their

argument about exploitation and exploration. When these two activities are not

limited to resource constraints, the interaction between these two could positively

affect organizations’ new product introduction, which is consistent with March’s

(1991) assertion. Based on organizational learning perspective, Katila and Ahuja

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(2002) also recognized that organizations engage in many kinds of search activities to

solve problems. They define exploitation as “search depth”, which describes how

deeply organizations use and reuse their existing knowledge. As for exploration, they

call it as “search scope”, describing it as how widely organizations explore new

knowledge.

Although organizational learning helps the development of exploitation and

exploration, it also inhibits innovation in some way. Exploitation may lead to

competence trap and exploration may lead to failure trap owing to the effect of

organizational learning. Therefore, it is not easy to maintain a balance between

exploitation and exploration.

Pressures for Exploitation and Exploration Although proposals of

“organizational ambidexterity” advocate ambidextrous organizations would

outperform non-ambidextrous firms, few studies have asked the most fundamental

issue: “why organizations need to be or have to be ambidextrous?” We posit that,

since it is not easy to keep both exploitation and exploration balanced, “being

ambidextrous” is not necessarily the organizations’ first priority. To make sure firm’s

current viability, most firms would incline for exploitative strategy since its outcome

is more certain and could be expected in the short term. When the market competition

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is intense, exploitative strategy seems to be the most secured way to remain survived.

On the other hand, since explorative strategy means experimentation and variation, its

outcome is uncertain and can not be expected. Therefore, we do not reckon the fact

that all organizations would opt for ambidexterity in terms of innovation in the first

place. Therefore, we wonder what the factors that affect organizations’ innovation

strategy are. In the organizational ambidexterity literature, most studies focused on

the internal antecedents that affect organizational ambidexterity. In this paper, we

would like to fill the literature gap to argue that environmental conditions may be

major forces of firm’s strategic choices which is consistent to the logic of contingency

perspective. We posit that the different extent of task environment pressures perceived

by organizations’ top management team may play an important role on the decision

making.

Therefore, in this paper, we would first infer that organizations would choose to

be ambidextrous only when they perceive the pressures to be so. However,

ambidextrous organizations do not necessarily outperform other forms of organization.

This argument is analyzed from two aspects. First, not all organizations perceive the

same degree of environmental pressures even when they are in the same industry. We

argue that organizations would choose to be or not to be ambidextrous according to

the top management teams’ perception of the environmental pressures. Our rationale

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is in the same vein with the integration-responsiveness framework in the international

business theory. The fit between environmental pressures and organizations’ strategic

choice is our first concern. Second, when organizations feel the pressures to pursue

both exploitative and explorative innovation simultaneously, they have to possess the

abilities to do so. Only when they want to be ambidextrous and are capable of being

one, would they perform better than other firms. In this section, we would first discuss

the pressures for exploitation and exploration that perceived by the organizations’ top

management team. We argue that the strategic choice between either exploitative or

explorative innovation, or to do both, is the result of environmental pressures.

Traditional contingency theories suggest that environment has significant impact

on organizations’ strategy (Burns & Stalker, 1961; Dess & Beard, 1984; Miller &

Friesen, 1984). The fact that managerial perceptions of organizational environment

shaping managerial choice has long been reckoned in several research (e.g. Duncan,

1972; Lawrence & Lorsch, 1967). One way to understand the effect of environment

on organizations is through managerial perceptions (Sharfman & Dean, 1991).

Organizations behave in the way that how managers perceive the environment and

respond to it. Three most studied dimensions of the environment are “munificence”,

“complexity” and “dynamism” (Dess & Beard, 1984).

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Environmental Munificence Starbuck (1976) conceptualized environmental

munificence as the extent to which the environment can support sustained growth.

Aldrich (1979) referred as environmental capacity. To synthesize, Dess and Beard

(1984) treated environmental munificence as organizations’ seeking opportunities to

grow and therefore generate slack resources as organizations’ buffer for scarcity. One

of the important factors that determine environmental munificence relates to the

industry product life cycle. Rate of market growth implies for the environmental

capacity that organizations could expand in the market. When the product market is

growing, organizations may obtain more resources from the environment and are

more capable of adopting explorative innovation strategy. Therefore, environmental

munificence not only supports the existing product market but also represents the

capacity to encompass new products.

Proposition 1-1. Top management teams’ perception of environmental

munificence has a positive effect on their adoption of both exploitative and

explorative (ambidextrous) innovation strategies.

Environmental Dynamism A dynamic environment is characterized by

unpredictable change (Lawless & Finch, 1989). Changes in technologies, customer

preferences, and demand or supply of products and services make current products

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and services obsolete and therefore require new variations (Jansen et al., 2005a;

Sorensen & Stuart, 2000). To minimize the threat of obsolescence, organizations need

both incremental and radical innovations to satisfy the existing market and prepare for

the emerging market. By exploitative and explorative activities, organizations search

information extensively to lessen pressures of uncertainty. Facing dynamic

environment, organizations are under the pressures to respond to all kinds of change.

Proposition 1-2. Top management teams’ perception of environmental

dynamism has a positive effect on their adoption of both exploitative and

explorative (ambidextrous) innovation strategies.

Environmental Complexity This dimension refers to the amount and variety that

organizations should deal with in the environment (Lawless et al., 1989). As the

amount and variety increases, the degree of complexity increases too. For example,

environmental density means the concentration of competing firms. When the

competition is more intense and concentrated, organizations would need more effort

on monitoring customers, suppliers and competitors. Under complex environment,

organizations would feel the need to keep improving their existing market and to

explore new opportunities or possibilities.

Proposition 1-3. Top management team’s perception of environmental

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complexity has a positive effect of their adoption of both exploitative and

explorative (ambidextrous) innovation strategies.

Fit Between Environmental Factors and the Adoption of Strategy

The concept of fit is a central theme both in the strategic management literature

and contingency perspectives (Porter, 1996; Venkatraman, 1989; Zajac, Kraatz, &

Bresser, 2000). Porter argued that strategic fit is fundamental to both competitive

advantages and the sustainability of those advantages. In this regard, we posit that the

concept of fit is very similar to our notion of organizational ambidexterity. In addition,

the concept of fit in the strategy literature also stands for better performance

(Ginsberg & Venkatraman, 1985; Katsikeas, Samiee, & Theodosiou, 2006; Lukas, Tan,

& Hult, 2001). Organizations that adopt a “fit” or “matching” strategy with the

environmental demand would end up with superior performance.

The concept of “fit” between strategy and environment depicts the

appropriateness of the adopted strategy by organizations (Zajac et al., 2000).

Organization adopting “fit” strategy would outperform others because this strategy

matches the environment demand or conditions. Regarding the central issue of this

research, the adoption of innovation strategy depends on the environmental pressures

perceived by top management teams. When top management teams perceive the

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pressures to deal with and manage both existing and emerging product market and

therefore adopt an ambidextrous innovation strategy, organizations would be better off

than if they do not adopt a fit strategy.

Proposition 2. Firms perceived high degree of munificence, dynamism and

complexity and adopt ambidextrous strategy would outperform those perceive

the same degree of environmental needs but do not adopt ambidextrous strategy

Capabilities to be Ambidextrous

The key issue in how organizations can be ambidextrous resides in how both

exploitation and exploration can be simultaneously managed. As we mentioned before,

March (1991) maintained that an appropriate balance between exploitation and

exploration is critical for firm’s survival and growth. Tushman and O’Reilly (1996)

also suggested that an ambidextrous organization is like a juggler that can both

compete in mature markets (where cost, efficiency, and incremental innovation are

important) and develop new products and services for emerging markets (where

experimentation, speed and flexibility are vital). They argued that an ambidextrous

firm that is capable of operating simultaneously to explore and exploit is likely to

achieve superior performance than firms emphasizing on one at the expense of the

other. Therefore, when we consider how organizations can be ambidextrous, we

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wonder what capabilities organizations can possess to engage in both exploitation and

exploration.

Since organizations’ ability to be ambidextrous is discussed at an organizational

level, we investigate what capabilities organizations have to possess to facilitate their

innovation performance in terms of new product development. Two capabilities are

identified as most important capabilities that contribute to organizational

ambidexterity: combinative capabilities and absorptive capabilities. We discuss how

these two capabilities may enhance the implementation of ambidextrous innovation

strategy in details.

Combinative Capabilities

The resource-based view of the firm maintains that the source of competitive

advantages depending on the development of firm’s specific competence and

capabilities (Barney, 1991; Wernerfelt, 1984, 1995). However, recent research has

moved beyond “local search” within organizations and stressed that reconfiguration of

organizational resources and knowledge is also critical to the development of

competitive advantages (Rosenkopf & Nerkar, 2001). Based on Henderson and

Cockbun’s (1994) logic, local search is similar to search for organizational

“component competence”, which is fundamental to everyday task requirement; while

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reconfiguration is parallel to “architectural competence”, which is to utilize and

integrate the existing component competence and to generate new component

competence. Either of these capabilities is vital to firm’s sustained competitive

advantages. It is this capability of integrating knowledge rather than knowledge itself

that constitutes competitive advantage(Boer, Van den Bosch, & Volberda, 1999).

Several studies have tried to capture the essence of organizational reconfiguration.

Kogut and Zander (1992) recognized firms’ ability to synthesize and apply existing

knowledge as “combinative capabilities”. The purpose of knowledge or resources

combination is to generate new forms of existing knowledge that would ultimately be

commercialized in the market. This concept is also similar to the concept of

“integration” (Grant, 1996a) and “reconfiguration” (Henderson et al., 1990). Since

exploitation means the refinement and improvement of existing knowledge, we regard

combinative capabilities as one of the “process facilitators” that contribute to the

performance of ambidextrous strategy. The importance of organizational

“combinative capabilities” to organizational ambidexterity is in that they are the

sources of organizational uniqueness (Katila & Ahuja, 2002). The fundamental

technological knowledge possessed by organizations may be similar across the

industry. However, what makes organizations to be distinct and unique from others

are the processes and systems utilizing and integrating organizational knowledge. In

28

the literature, “routines” (Nelson et al., 1982) and “metaroutines” (Adler et al., 1999)

represent some characteristics of combinative capabilities since they are the distinct

ways that organizations solve problems. Three types of combinative capabilities,

namely systems capabilities, coordination capabilities and socialization capabilities,

are generally discussed in the literature (Boer et al., 1999; Jansen et al, 2005b; Van

den Bosch, Volberda, & Boer, 1999). Each of the capabilities has its special function

for organizations’ innovation. Therefore, though we discuss these capabilities

distinctively, we would also like to emphasize the need for all of these three

capabilities to achieve organizational ambidexterity.

Systems capabilities This type of capabilities is relevant to the formal

mechanisms of combining organizational knowledge and resources. Organizations

employ rules, procedures, instructions and communication channels to complete task

requirements. Systems capabilities are very useful for integrating organizations’

explicit knowledge. The innovation literature has recognized formalization as an

important antecedent of ambidexterity (Damanpour, 1991; Jansen et al., 2005a, 2006;

Khandwalla, 1977). Systems capabilities such as formalization integrate and combine

organizations’ knowledge or resources in most efficient fashion because they

eliminate unnecessary communication and coordination (Boer et al., 1999).

Formalized working rules and procedures enhance organizational efficiency in

29

integrating and combing knowledge and resources. However, they might hamper

organization’s innovativeness since they allow less variation and constrain

organizational development within existing reference of frame. Therefore, systems

capabilities alone do not enhance organizational ambidexterity.

Coordination capabilities Based on knowledge-based view, organizational

knowledge is dispersed and embedded in organization members. One of

organizations’ primary tasks is to coordinate and therefore collect the efforts made by

different specialists (Grant, 1996b). Organizational coordination is regarded as

solution to align conflicting goals within organization members (Lawrence et al.,

1967). Kogut and Zander (1996) argued that coordination converges conflicting

expectations within organizations. Hence, coordination capabilities facilitate lateral

communication across disciplines and organizational boundaries (Henderson &

Cockburn, 1994; Teece et al., 1997). Coordination capabilities complement systems

capabilities since systems capabilities mostly depending on vertical communication.

Boer, Van den Bosch and Volberda (1999) deemed coordination capabilities as

organizations’ way of relating individuals, tasks and divisions. Mechanisms such as

cross-functional interfaces, participation in decision making and job rotation are

employed by organizations to coordinate organizational activities (Jansen, Bosch, &

Volberda, 2005b). In turbulent environment, mutual adjustment is regarded as vital

30

way of knowledge coordination (Mintzberg, 1979). Mutual adjustment needs

interaction and coordination capabilities facilitate frequency and quality of interaction

within organization members or among divisions. Technological innovation,

especially in terms of exploration, requires variety of knowledge, thinking and ideas.

Coordination among individuals and organizational activities enhance the possibility

of creating new knowledge. To enhance organizations’ ambidextrous innovation

strategy, both systems and coordination capabilities should be in place to complement

each other.

Socialization capabilities These capabilities are contrary to systems capabilities.

Systems capabilities are solid structure of how organizations arrange organizational

activities and solve problems while socialization capabilities are the soft mechanisms

that make organizations stick together. In the innovation and ambidexterity literature,

connectedness (Jansen et al., 2005a, 2006) represents social relations that exist among

organization members. Formal procedures and arrangement within organizations

though directly help solve problems, informal interaction among individuals also help

exchange and flow of organizational knowledge. From knowledge-based view,

organizations are social communities that integrate different expertise (Kogut et al.,

1992). Therefore, socialization capabilities that organizations possess may enhance

organizations’ ambidextrous strategy.

31

Different dimensions of combinative capabilities perform different functions for

achieving organizations’ ambidextrous strategy. We posit that the interaction between

these capabilities could moderate the relationship between ambidextrous strategy and

innovation performance.

Proposition 3. The strength of the relationship between ambidextrous strategy

and new product development performance is positively related to combinative

capabilities (the interaction of systems, coordination, socialization capabilities).

Absorptive Capabilities

In the previous section, we discuss that organizations choose to be ambidextrous

under environmental pressures. This particular environment is characterized as

munificent, dynamic and complex. Under such hypercompetitive context,

organizations not only create and commercialize new knowledge by utilizing existing

knowledge, they have to sense the opportunities and threat and seize the opportunities

to obtain useful resources (Teece, 2007). Cohen and Levinthal (1990) refer such

ability to sense and seize new knowledge outside of organizations as absorptive

capabilities. More specifically, they define absorptive capabilities as “the firm’s

ability to value, assimilate, and apply new knowledge”. Such capabilities enable firms

in hypercompetitive context to explore new knowledge outside organizations

32

therefore contribute to organizations’ exploration. Absorptive capabilities are

especially essential for firms’ under selection pressures.

Hypothesis 4. The strength of the relationship between ambidextrous strategy

and new product development performance is positively related to absorptive

capabilities.

-----------------------------------------------------------------------------------------

Insert Figure 1 here

-----------------------------------------------------------------------------------------

Our specific relationships among these constructs are depicted as above (Figure 1).

We explicated that the adoption of organizations’ innovation strategy (specifically

ambidextrous strategy here) is affected by top management team’s perception of

environmental pressures. Organizations’ new product development performance

depends on whether organizations adopt a “fit” strategy with their external

environment. As for how organizations could enhance their new product development

performance when they adopt an ambidextrous strategy, it depends on organizational

capabilities. Combinative capabilities and absorptive capabilities are two

“process-facilitators” we inferred from the literature. These two capabilities provide

the requisite capabilities of exploiting existing organizational knowledge while

33

maintaining unique by exploring new knowledge and possibilities.

Conclusion

This paper explores the organizational ambidexterity from strategic management

perspective and knowledge-based view. Previous issue did not explicitly link the

strategic choice of innovation strategy with knowledge-based view. We tried to fill

this literature gap and emphasize the fit concept between strategic choices and

environmental demand for ambidextrous organizations. Based on knowledge-based

view, we argue that when organizations perceive the pressures to engage in both

exploitative and exploration activities, certain organizational capabilities are essential

to the achievement of organizational ambidexterity. Previous research seems to put

less emphasis on organizational capabilities. In an era of knowledge economy,

knowledge-based view would provide more insight on the concerning issue.

In conclusion, our research aims to provide more insight from different and more

related perspectives to the concept of ambidexterity. Organizations’ strategy is often

determined and influenced by their environment, especially when this environment is

highly dynamic and competitive. To consider the fitness of the innovation strategy

adopted by organizations, we posit that environmental pressures should be examined

in the first place. Strategic management literature has put lots of emphasis on the

34

concept of fit, stating that the adoption of fit strategy would support organizations’

growth. Previous research on organizational ambidexterity did not emphasize the

concept of fit between environment and strategy. We fill the literature gap in this

research. Another contribution of this research is that we not only examine

organizations’ external environment, we argue that certain capabilities in terms of

knowledge-based view should be taken into account as well. Since the nature of

organizational ambidexterity is the tension between exploitation and exploration, such

capabilities should be able to combine and integrate different knowledge activities

within organizations. We propose that combinative capabilities and absorptive

capabilities positively enhance the relationship between ambidextrous strategy and its

performance on new product development. For managerial implication, we presume

that this conceptual framework regarding organizational ambidexterity would give

managers a comprehensive picture of why they have to adopt ambidextrous

innovation strategy and how to simultaneously manage exploitative and explorative

innovation capabilities when they have to do so.

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Figure 1. Research Framework

Environmental

Pressures

Munificence

Dynamism

Complexity

Ambidextrous

Strategy

New Product

Development

Performance

Combinative Capabilities

Absorptive Capabilities