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Ambidexterity as a Dynamic Capability: Resolving the
O Reilly Tushman 02 19 07 3 Ambidexterity as a Dynamic Capability Resolving

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Ambidexterity as a Dynamic Capability: Resolving the

O Reilly Tushman 02 19 07 3 Ambidexterity as a Dynamic Capability Resolving the Innovator s Dilemma It is not the strongest of the species that survive nor the most intelligent but the one

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	Copyright © 2007 by Charles A. O’Reil
ly III and Michael L. Tushman. 
Working papers are in draft form. This working pa
per is distributed for pu
rposes of comment and 
discussion only. It may not be reproduced without pe
rmission of the copyright holder. Copies of working 
papers are available from the author. 
O’Reilly & Tushman 02/19/07  1 
Ambidexterity as a Dynamic Capability: Resolving the Innovator’s Dilemma. 
Charles A. O’Reilly III 
Stanford University 
Michael L. Tushman 
Soldiers Field Road 
[email protected]
March 24, 2007
O’Reilly & Tushman 02/19/07  2 
How do organizations survive in the face of 
change? Underlying this
 question is a rich 
O’Reilly & Tushman 02/19/07  3 
Ambidexterity as a Dynamic Capability: Resolving the Innovator’s Dilemma. 
of change? This fundamental question 
disparate as management, history, strategy, 
1997; Hannan & Freeman, 1984; Nelson & Wint
& Dutton, 1981; Tushman & Romanelli, 1985). It 
O’Reilly & Tushman 02/19/07  4 
both arguments. For example, in a study of 
the largest U.S. manufacturing firms in the 20
report that only 28 of the initial 266 compan
ies remained on the lis
1997. In their sampling across three major time 
the firms appear only once, and then disappe
ar, suggesting that most firms do not adapt 
life expectancy of firms in the S&P 500 
 was 90 years. By 1975, that number had 
dropped to 30 years, and in 2005 it was estima
2001). Being large and successful at one poi
nt in time is no guarantee of continued 
survival.  Another McKinsey study (Deva
n, Millan & Shirke, 2005) examined 266 firms 
during the period 1984-2004 and found only a sma
ll number were financially successful 
Similarly, Wiggins and Ruefli (2002) st
udied 6,772 firms across 40 industries 
over 25 years and found only a small minority ex
hibited superior economic performance. 
reports the failure of former
ly prominent firms such as 
Polaroid, DEC, PanAm, RCA, Sears, and 
organizations alive and thriving through strategic 
insight and strategic execution (Harreld, O’Reilly & 
Tushman, 2007)—not to assist in their death. This position underlies most research in strategy and 
O’Reilly & Tushman 02/19/07  5 
O’Reilly & Tushman 02/19/07  6 
become increasingly inert as they age (e.g., So
rensen & Stuart, 2000) even as some adapt 
O’Reilly & Tushman 02/19/07  7 
sses. More specificall
y, these routines are 
O’Reilly & Tushman 02/19/07  8 
ability to develop dynamic 
Similarly, Verona and Ravasi (2003) ex
amined innovation at Oticon, a Danish 
hearing-aid company, and found th
at the ability of the firm 
ize and implement these advances through 
 the development of 
new capabilities relies on the orchestration 
and process to simultaneously sustain existi
O’Reilly & Tushman 02/19/07  9 
 While much of the literature discusses ambidexterity
 as a structural characteristic (eg Tushman and 
O’Reilly & Tushman 02/19/07  10 
Tushman & O’Reilly, 1997). Exploitation is 
autonomy, innovation and embracing variation. 
Ambidexterity is about doing both. In 
March’s terms, this is the fundamental tensi
survival. “The basic problem confronting an
exploitation to ensure its current viability 
and, at the same time, devote enough energy to 
The trade-offs necessary to balance this tension are difficult and most often tilted 
dback in the form of customer demand and 
& Tushman, 2002; Gupta, Smith & Shalley, 
that because of this short-term bias “established organizations will always specialize in 
exploitation, in becoming more efficient 
in using what they already know. Such 
organizations will become dominant in th
e short-run, but will gradually become 
O’Reilly & Tushman 02/19/07  11 
iplines that enable th
firm to identify threats and opportunities a
O’Reilly & Tushman 02/19/07  12 
from their resources (planes, routes, or em
ployees) but from the combination of factors 
gh productivity from their employees, and low 
O’Reilly & Tushman 02/19/07  13 
The organizational alignments associated
resources, this capability also requires a ba
lance in centralization 
O’Reilly & Tushman 02/19/07  14 
O’Reilly & Tushman 02/19/07  15 
Seizing opportunities is about making th
O’Reilly & Tushman 02/19/07  16 
development, Daneels (2002) suggested that
O’Reilly & Tushman 02/19/07  17 
integration across organizational units to capture
 the advantages of co
O’Reilly & Tushman 02/19/07  18 
fit, alignment, or complementarities is a diffi
cult challenge, especially with organizations 
of any size or complexity (Milgrom and R
do succeed at achieving this fit, the very sour
te inertia from the 
strategies, structures, people, and cultures 
that have created the success—what Tushman 
the “success syndrome” and Audia, Locke and 
O’Reilly & Tushman 02/19/07  19 
Exploration, Exploitation, and Or
ganizational Ambidexterity: Dynamic 
Capabilities in Practice 
Based largely on March’s seminal paper 
there has been a growing interest in research
change. For example, Christensen (1997) 
O’Reilly & Tushman 02/19/07  20 
While provocative, this sentiment sits unc
omfortably with the mandate for leaders 
of organizations to ensure that their firms 
are profitable in the short-term and able to 
adapt to changes and remain successful in th
e long-term. Shareholders
firm but to develop strategies that ensu
fundamental question of the field of strate
gic management is how firms achieve and 
O’Reilly & Tushman 02/19/07  21 
ce that some firms can do this. In a study of 100 large 
organizational failures, Probst and Raisch (2005
failure was home-grown and not inevitable.
organizational ambidexterity is specifically
review revealed more than 40 studies in this
 domain, most conducted within the last few 
years. These studies are me
simulations, formal modeling, lab studies 
and field studies. Several explicitly 
O’Reilly & Tushman 02/19/07  22 
ational ambidexterity,” Duncan (1976), 
long-term success firms needed to consider dual 
structures; different structures to initiate 
ambidexterity occurs sequentially as 
as innovations evolve. Firms ad
just their structures by the 
ctures are employed to explore followed by 
mechanistic structures to exploit. This view
temporal sequencing is 
evident in some of the curre
O’Reilly & Tushman 02/19/07  23 
and team processes capable of managing these 
inconsistent alignments in a consistent 
fashion (e.g., O’Reilly & Tushma
n, 2004; Smith & Tushman, 2005).  
When ambidexterity is adopted sequ
management are quite different that when 
O’Reilly & Tushman 02/19/07  24 
e senior team about the strategy and the 
importance of ambidexterity? Can the senior
 team manage the c
onflicts and interface 
issues that such a design entails? Without th
is consensus, disagreemen
team undermine the coordination needed to
O’Reilly & Tushman 02/19/07  25 
more long-term orientation. Managing an 
ambidextrous form brings with it a further 
Given this difficulty, why should managers
 even attempt this feat? Two figures 
help illustrate contexts where ambidexterity ma
y be strategically crucial. The first is the 
notion of innovation streams (Figure 2) a
t is incremental innovation 
O’Reilly & Tushman 02/19/07  26 
ientific paradigms. A second way innovation occurs is 
through major or discontinuous changes in
 which major improvements are made, 
O’Reilly & Tushman 02/19/07  27 
O’Reilly & Tushman 02/19/07  28 
rather than optometrists), had different
technologies (chemistry rather than app
lied materials) and required a different 
manufacturing process, the company spun the 
where it became a successful pharmaceutical compound.  
If a product has low strategic importance 
ither internalized or contracted out. For 
example, the repair of most personal co
mputers, a low margin item, is handled by 
contractors rather than the manufacturer. Wh
cannot benefit from leveraging existing firm 
assets, the advice is to operate the new 
 This is often th
e case with product 
substitutions, when one technology or process is
 replaced by another. For instance, in the 
O’Reilly & Tushman 02/19/07  29 
circumstances, to spin the exploratory unit out 
is to sacrifice the future or, at minimum, 
lable resources.  Burgelman (1991) builds a 
persuasive case that, when managed effectiv
internalizing the variation-selection-retention 
O’Reilly & Tushman 02/19/07  30 
challenge, when executed in the appropriate strategic contexts, these complex designs are 
O’Reilly & Tushman 02/19/07  31 
needed is the identification of specific 
processes/routines that allow firms to ma
strategies. Ambidexterity as a dynamic capabil
O’Reilly & Tushman 02/19/07  32 
Ambidexterity is both a difficult managerial
O’Reilly & Tushman 02/19/07  33 
O’Reilly & Tushman 02/19/07  34 
O’Reilly & Tushman 02/19/07  35 
make the already delicate balancing act be
tween exploration and exploitation more 
 There are several ingredients for this reci
pe. First, diversity in experience within 
the team has been shown to promote ambi
dexterity (Beckman, 2006) while a lack of 
O’Reilly & Tushman 02/19/07  36 
Gerstner, who replaced almost his entire senior
 team upon his arrival at IBM, is on record 
noting the potential importance of “public 
vision are essential for the success of 
O’Reilly & Tushman 02/19/07  37 
While simple conceptually, it is freque
ntly the case that in the pursuit of 
exploration, senior managers fa
new business with systems and thinking from th
units without sufficient resources or at the 
risk of being overwhelmed by the mature 
business. For instance, units may be asked to
 comply with the demands of the legacy 
business (e.g., financial reporting, IT system
s, or HR processes) that burden them. 
Corporate staff typically attempt to minimize tr
ansaction costs, a reasonable endeavor for 
mature businesses. However, this emphasis is
To mitigate the effects of the legacy 
business on EBOs, IBM is explicit in 
categorizing businesses by thei
r time frame (Horizon 1, 2, and 3 businesses). Exploratory 
level sponsor, hire people with the necessa
ry skills, design appropriate metrics and 
from those required in running mature businesse
s. IBM’s senior team recognizes that the 
management challenges are different across time 
emerging businesses differently from their 
O’Reilly & Tushman 02/19/07  38 
 Ambidextrous organizations
 create inevitable conflicts between operating units. 
The short-term, efficiency and control of a matu
inefficiency of experimentation. How these tens
ions are resolved is a crucial element in 
the ability of an organization to simultaneous
unit is not seen as strategic by senior mana
gement, it runs the risk of succumbing to 
short-term cost pressures or 
a lack of management attenti
businesses are likely to lay claim to n
eeded resources. To succeed requires what 
Burgelman (2002) refers to as “strategic 
encourage dissent and permit would-be 
champions to argue their points.  
O’Reilly & Tushman 02/19/07  39 
resource patterns. Routine rigidi
 to use these resources. The
research reviewed here on 
distinctions. In many of the 
s, the incumbents had the 
Christensen, 1997; Nobeoka & Cusumano, 1998; Sobel, 1999; Sull, 1999a; Tripsas & 
ed to run either an
the fundamental issu
organizational alignment with the strategy—eith
O’Reilly & Tushman 02/19/07  40 
experimentation, risk and speed. In the 
ambidextrous form, managers must be 
O’Reilly & Tushman 02/19/07  41 
e view that ambidexterity promotes 
ovindarajan & Trimble, 2005; He & Wong, 
O’Reilly & Tushman 02/19/07  42 
development processes that are exploitative; 
that is, in terms of the innovation streams 
emental (e.g., Daneels, 2002). Studies that 
equate ambidexterity with new product developm
ent often fail to make this distinction 
O’Reilly & Tushman 02/19/07  43 
need for exploration is reduced while in 
O’Reilly & Tushman 02/19/07  44 
it will be most salient for 
O’Reilly & Tushman 02/19/07  45 
xploitation but does not necessarily signify the presence of a 
dynamic capability (e.g., He & Wong, 2004). It is 
only if management is consciously able 
O’Reilly & Tushman 02/19/07  46 
turn, ambidextrous organizations. We induced a 
O’Reilly & Tushman 02/19/07  47 
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Long-lived Firms That Have Changed 
Goodrich  1870   Fire Hose  Aerospace 
Nokia   1865   Lumber  Mobile Phones 
Harris   1895   Printing Press  Electronics 
3M   1902   Mining   Office Supplies 
Allied Signal  1920   Chemicals  Aerospace 
American Express 1850   Express Delivery Financial Services 
Armstrong  1860   Cork   Floor Coverings 
Bally   1931   Pinball Machines Casinos / Fitness 
J&J   1885   Bandages  Pharmaceuticals 
Black & Decker 1910   Bottle Cap Mach. Power Tools 
Carlson  1938   Gold Bond Stamp Travel 
W.R. Grace  1854   Bat Guano  Chemicals 
O’Reilly & Tushman 02/19/07  59 
Innovation streams 
Type of Innovation
Mechanical Watches
Disk Drives
Bias Ply tires
Print Newspapers
Hard Contact Lenses
Quartz Watches
Disk Drives
Radial Tires
Daily Disposable Lenses
Web-based News
Fashion Lenses
O’Reilly & Tushman 02/19/07  60 
When should ambidexterity be considered? 
Strategic Importance
Business Unit
O’Reilly & Tushman 02/19/07  61 
Proposition 1
 - A clear strategic intent 
that justifies the importance 
of the ambidextrous form for future survival and provides intellectual 
Proposition 2
to provide for 
emotional engagement and a common identity. Provides the 
foundation for multiple cultures in
Proposition 3
to manage the ambidextrous form
 and to relentlessly communicate a 
common reward system based on me
Proposition 4
 - An organizational architecture 
different alignments and physical
exploit sub-units (different busine
contradictions of multiple alignments
offs and conflicts that occur.