Ambidexterity and the Company’s Performance

In strategic management, the context of studying the efficiency of strategy has shifted from the assessment of achieving the company’s objectives (effectiveness) to the assessment of the effects, consequences, or accomplishments of an enterprise (performance) (Ronda-Pupo, G. A. & Guerras-Martin, L. A, 2012). Performance is determined by quantitative results (e.g., sales volume, profitability, return on assets—ROA, return on equity—ROE) and qualitative results (e.g., effectiveness, customer and employee satisfaction, innovation), which may be measured objectively based on stock exchange data or internal indicators of the company, or subjectively by surveying the opinion of managers regarding the results of the enterprise, while there is no agreement as to the universal measures (Singh, Darwish, & Potocnik, 2016).

Taking the above into consideration, I have included performance in the category of strategic activities, which helps assess the strategic plans of the company in comparison to the actual choices reflecting the implementation of strategy, as well as the financial and market effect referring to the basic financial (e.g., profitability, ROA, ROE) and market measures (e.g., sales growth rate, market share, customer loyalty), which allow us to assess the results of the business.

The researchers of ambidextrous organizations indicate that enterprises involved both in exploration and exploitation activities stand a greater chance of achieving better results than companies that concentrate on just one of the two activities (Raisch & Birkinshaw, 2008; Tushman & O’Reilly, 1996). Too high a concentration of exploitation at the expense of exploration may lead to the “success trap” and consequently organizational inertia, which may prevent the company from proper adaptation to changing conditions and, in consequence, will contribute to poorer results of the enterprise in the long term (Levinthal & March, 1993; Smith & Tushman, 2005). In turn, too much concentration on exploration may lead to the “failure trap” of insufficiently developed ideas, because continuously created, new ideas may replace those under implementation before they start to bring adequate revenues to the company (Levinthal & March, 1993). Therefore, logically, balancing between exploration and exploitation and adequate involvement in the two types of activities should contribute to the success of the company, in both the long and short terms.

The relation of ambidexterity with performance was the subject of many studies. The great majority of them demonstrated a positive relation. It was proven, among others, that ambidexterity has a positive impact on sales growth (e.g., He &C Wong, 2004; Lubatkin et ah, 2006;

Han &C Celly, 2008; Martini, Neirotti, &C Aloini, 2015), innovation (e.g., Katila & Abuja, 2002; Rothaermel & Alexandre, 2009; Phene, Tallman, & Almeida, 2012; Bai &C Ren, 2016), profitability and market valuation (e.g., Bierly & Daly, 2007; Wang &C Li, 2008; Uotila et al., 2009; McDermott &C Prajogo, 2012), subjectively perceived company performance indicators, for example, market share, company’s reputation, employee satisfaction, cash flows (e.g., Auh & Menguc, 2005; Im & Rai, 2008; Cao, Gedajlovic, &C Zhang, 2009; Boumgarden, Nickerson, &C Zenger, 2012; Chang & Hughes, 2012), and survival of the organization (Piao, 2010; Hill & Birkinshaw, 2014; Alpkan & Gemici, 2016).

On the other hand, some studies indicate absence of the impact of ambidexterity on the company’s performance (e.g., Venkatraman, Lee, & Iyer, 2007; Vrontis et al., 2017) or even a negative relationship between these variables (e.g., Atuahene-Gima, 2005; Lavie, Kang, & Rosenkopf, 2011), which proves their ambiguity. This ambiguity may be caused by differences in the method of measuring the ambidexterity phenomenon, different levels of analysis and different research methodology, as well as cultural, institutional and industrial differences between the analyzed research samples (Junni et al., 2013). The review of selected research in this area is presented in Table 2.3.

Due to differences between individual research findings, Junni et al. (2013) carried out a meta-analysis to assess the strength of this relationship in the context of the interaction of various moderators. Based on the conducted analyses, researchers confirmed a positive and statistically significant average impact of the effect of the relationship between ambidexterity and performance. Moreover, this relationship was analyzed from the perspective of contextual and methodological moderators, which include methods employed to measure ambidexterity, methods to measure company results, analysis level, methods to collect data and section of operation of studied enterprises. The obtained results confirmed that there are indicated moderators and that they exert an impact on the strength of the relationship between ambidexterity and company performance. In particular, the following were demonstrated:

  • • cross-cutting research and application of many methods reflect a stronger relationship between ambidexterity and company results than research of archive data;
  • • subjective measures of company results yield stronger effects than objective measures;
  • • combined ambidexterity indicates a stronger relationship with company results than balanced ambidexterity;
  • • dependence between ambidexterity and company results is stronger on more aggregated levels of analysis (company, alliance level);
  • • the impact of ambidexterity on the company results is weaker in the manufacturing industry.

Autbor(s)

Level of analysis

Research description

Main conclusions

Positive relation between ambidexterity and company’s performance

He & Wong (2004)

Company level

Survey conducted in the years 1999-2000 on a sample of 206 manufacturing enterprises, including 137 from Singapore and 69 from the Malaysian state of Penang. Respondents included top management. Performance was measured through the average sales growth rate over the last three years, as declared by respondents, and ambidexterity was studied from the combined and balanced perspective, while exploration and exploitation were treated as orthogonal activities

It was proven that: (1) the interaction between the innovation exploration and exploitation strategies is positively connected with sales growth rate; (2) relative imbalance between these strategies is negatively connected with sales growth rate; and (3) low level of both exploration and exploitation of innovation does not contribute to sales growth, and therefore these types of strategies should be regarded as ambidextrous

Auh and Menguc (2005)

Company level

Survey research on the sample of 260 manufacturing companies from various industries. Respondents included top management. Performance was measured by the effectiveness and efficiency of the company over the last three years, and effectiveness was measured by the growth in: profit, sales, market share and efficiency through profitability, return on investment, return in sales, and return on assets. To that end, subjective measures based on a 5-point Likert scale were employed. Exploration and exploitation were measured separately and treated as mutually exclusive activities

It was proven that in the case of prospectors, exploration is more positively related to the efficiency of the company than exploitation, and in the case of defenders, the opposite is true. Moreover, regardless of whether the company is a prospector or defender, exploration has a stronger positive impact on the company’s effectiveness than exploitation, whereas exploitation has a stronger impact on the company’s efficiency than exploration, but only in the case of innovators

(Continued)

Autbor(s)

Level of analysis

Research description

Main conclusions

Lubatkin etal. (2006)

Group level, company level

Survey research using a sample of 139 SMEs from Australia. Respondents included representatives of top management. Performance was studied a year after the analysis of predictor variables, and it was measured subjectively in comparison to main competitors in the categories of profitability and growth in: sales, market share, return on equity, and return on assets. Ambidexterity was researched from the combined perspective

It was demonstrated that social integration of the TMT is of fundamental importance for SMEs to achieve ambidexterity, and joint pursuit of both exploration and exploitation activities contributes to higher company performance in the context of financial and market results

Uotila et al. (2009)

Company level

Research of data acquired for 279 manufacturing companies listed on the New York Stock Exchange (S&P 500) for the years 1989-2004. Performance was measured using Tobin’s q market value ratio, and ambidexterity was analyzed from the balanced perspective

A curvilinear relation was demonstrated (in the shape of a reversed U) between the share of orientation on exploration and the financial results of the company. This relation is positively moderated by the intensity of R&D works in the industry in which the enterprise operates

Rothaermel

and

Alexandre

(2009)

Company

level,

alliance and

acquisition

level

Survey research on a sample of 141 American manufacturing enterprises. Respondents included top managers or managers responsible for technology. Performance was measured objectively through innovation (number of patents) and return on equity, and adequate data were acquired for the years 2000-2003. Ambidexterity' was referred to technology (new/known) and sources of acquisition (internal/external)

It was demonstrated that the relation between mixed acquisition of technology (known and new) and company performance has the shape of a reversed letter U, which suggests that technological ambidexterity boosts innovation of an enterprise and its financial results. Moreover, it was noticed that a higher absorption capacity' of a company allows it to better use the opportunities related to technological ambidexterity and to yield better results

Sarkees, Hulland, and Prescott (2010)

Company

level,

functional

level

Survey research on a sample of 135 American listed companies. Respondents include marketing managers or representatives of top management. Performance was measured subjectively, respondents were asked to assess the company’s results in terms of revenues from sales, profitability, customer satisfaction, and number of new products in reference to key competitors. In addition, net profit for a specific financial year was taken into consideration, determined based on the published financial data. Ambidexterity was researched from the combined perspective

It was proven that the ambidexterity concept ha; a significant impact on company performance only when it is implemented successfully on a functional level. Strong positive relationships were identified between the ambidextrous strategies and subjectively measured: revenues from sales, profitability, customer satisfaction, and number of new products introduced, as well as objectively measured net profit

Martini, Neirotti, and Aloini (2015)

Company level

Survey research conducted in the years 2009-2010 on a sample of 112 SMEs from various industries of medium and high- tech sectors in Italy. Respondents included managers of R&D departments or top management. Performance was measured as the logarithm of the growth rate of revenues from sales in the years 2006- 2009, whereas data were acquired from statements published in the AIDA database. Ambidexterity was researched from the combined perspective

It was demonstrated that ambidexterity leads to higher sales growth if exploration and exploitation activities are structurally separated than if only behavioral context that takes into account social support and performance management is taken into consideration

(Continued)

Author(s)

Level of analysis

Research description

Main conclusions

Bai and Ren (2016)

Company level

Survey research on a sample of 175 high- tech enterprises from China. Respondents included top- and medium-level managers. Performance in terms of innovation was measured through subjective opinions using Likert’s scale, from the perspective of the last three years, whereas ambidexterity was studied from the combined and balanced perspective

It was demonstrated that both balanced and combined ambidexterity have a positive impact on performance determined through the increase in innovation, and the balanced form, in comparison to combined, contributes to better results. What is more, the more exploration and exploitation are balanced, the higher the innovation. Moreover, entrepreneurial orientation moderates the relation between the balanced ambidexterity and company results in terms of innovation and does not have any impact on this relation in the case of combined ambidexterity

Absence of or negative relation between ambidexterity and company’s performance

Atuahene- Gima (2005)

Company level

Survey research on a sample of 227 enterprises from China. Respondents included representatives of the management board, marketing managers, or R&D departments, and in each company two respondents answered the questions. Performance was narrowed down to innovation and measured through radical and incremental innovations. Ambidexterity was researched from the combined perspective

The research demonstrated: (1) a positive relationship of exploitation with company results in the area of incremental innovation and a negative relationship with company results in the area of radical innovation; (2) a positive relationship of exploration with company results in the area of radical innovation and a negative relationship in the area of incremental innovation; (3) the absence of a relationship between ambidexterity and results in the area of incremental innovation and a negative relationship in the area of radical innovation; (4) the absence of a relationship between exploration and results in the area of radical innovation, when the exploitation level is high and a positive effect

when the level is low; and (5) the absence of a relationship between exploitation and results in the area of radical innovation, when the exploration level is low and a material negative effect if the level is high. Therefore, effective balancing between exploitation and exploration requires adjustment on the high-low level rather than high-high level

Venkatraman, Lee, and Iyer (2007)

Company level

Observation of 1005 IT companies in the years 1990-2002 (which jointly yielded 4153 observations) in the areas of introduction of new products to various industries and market over the period of 13 years. Performance was measured using sales growth, and ambidexterity was researched in the context of sequencing (when exploration and exploitation are mutually exclusive) and simultaneity (when they are treated as orthogonal, complementary activities)

Research has confirmed a positive impact of sequential ambidexterity on an enterprise’s sales growth and, at the same time, demonstrated the absence of the impact of simultaneous ambidexterity on company performance. Moreover, it was noticed that sequential ambidexterity is strongly moderated by the age of the company, degree of market domination, and intensity of multi-industry competition

Vrontis et al. (2017)

Company level

Survey research on a sample of 189 Italian knowledge-based companies. Respondents included the representatives of top management or managers responsible for technology. Company’s performance was measured subjectively taking into consideration growth in profit, sales, and market share in 2014. Ambidexterity was researched from the combined perspective

Research has demonstrated the absence of a direct relationship between ambidexterity and results achieved by the company and, concurrently, an indirect effect through a significant impact of this relationship’s mediator, that is, acquisition of external knowledge

Concurrently, researchers encourage further studies of relationships between ambidexterity and company performance in the context of other factors, including the environment and related uncertainty, structure, culture, or experience of management staff (Junni et ah, 2013). The empirical research presented in the book follows this trend.

Taking into account the current deliberations, mostly corroborating the positive relationship between ambidexterity and company performance, and also the fact that performance was most often determined through financial categories (e.g., net profit, return on assets, return on equity) and market categories (e.g., market share, sales growth rate), the following hypothesis was put forward:

H8. The ambidextrous strategy has a positive impact on company performance expressed through (a) financial and (b) market parameters.

The ambidextrous strategy is based on the simultaneity of exploration and exploitation activities, and is targeted on new markets, products, and competences as well as the use of the existing ones, which should yield better results in the short and long terms. Therefore, financial and market parameters should be systematically improving owing to the implementation of the strategy.

Yet another important issue in studying ambidexterity from the perspective of results achieved by the enterprise is the impact of market orientation7 on strategic choices made. Current research shows that enterprises with reactive market orientation allocate more resources in strategic activities within existing product and market domains; therefore, this orientation has a greater impact on exploitation activities, thus contributing to the company achieving better results from this type of operation. In turn, a proactive market orientation is related to the allocation of a greater amount of resources to strategic activities beyond the existing product and market domains, that is, it has a stronger impact on exploration, leading to higher efficiency of this type of activity (Morgan &C Berthon, 2008; Narver, Slater, &t MacLachlan, 2004; §anal et ah, 2013). Enterprises with proactive orientation attain better results when they adopt the ambidextrous strategy, whereas a reactive orientation has a negative impact on company performance when this strategy is followed (Wei, Zhao, &C Zhang, 2014). Some researchers indicate difficulties in effectively combining the proactive orientation with reactive orientation (Lamore, Berkowitz, &C Farrington, 2013), whereas others noticed that the balance between proactive and reactive market orientation has a positive impact on company results, and they are lower if proactive orientation is higher than reactive orientation. What is more, when the level of balance between orientations is on the rise, company performance first drops and then grows (Herhausen, 2016). Surely, market orientation has an impact on results achieved by the company, as does the selection of strategy, and by combining reactive orientation with proactive orientation to the same degree the enterprise has an opportunity to generate better results through reaping benefits both from exploration and exploitation activities. Thus, the following hypothesis was put forward:

H9. Market orientation moderates the relationship between the ambidextrous strategy and company performance in the sense that balancing the reactive and proactive orientations yields better results than imbalance between them.

The strategy of an enterprise, and the choices made in line with it as to where and how to compete, is supposed to ensure the company’s longterm development as well as its current profitability. Therefore, the choice and implementation thereof are strongly related to the implementation of intended objectives and results obtained by the company. The ambidextrous strategy, which by combining exploration and exploitation activities concentrates not only on making the most of the current competitive advantage but also on creating a new advantage that will yield benefits in future and assure the progress of the company in the long-term perspective, should assure high company performance.

 
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