A Summary of “Lead and Disrupt”
“It is a truth universally acknowledged, that a single business in possession of a good fortune must be in want of a new strategy.”
In Clayton Christensen’s The Innovator’s Dilemma, the concept of “disruptive innovations” that destroy incumbents and create new market opportunities, was unleashed on the long-suffering manager. The way for an incumbent to address these challenges is the subject of O’Reilly and Tushman’s book, Lead and Disrupt, How to Solve the Innovator’s Dilemma. Christensen eventually concluded that the best approach would be for such a threatened incumbent to encapsulate and spinoff the innovative technology. In Lead and Disrupt, the authors advocate differently: the incumbent must both continue to run its legacy business while investing in and developing an innovator business that may well cannibalize it. They call this the ambidextrous organization.
To develop this thesis, O’Reilly and Tushman first introduce innovation streams, which in their view are either incremental, discontinuous or architectural (and hence disruptive). Incremental innovation occurs within a well-developed product or industry and results in modest improvements in functionality. Discontinuous innovations typically harness new technology to perform the functionality of the existing product but in a discontinuous or dramatically different way. Architectural innovations are the Christensen-disruptive sort and they usually involve solving a problem more cheaply, but initially with less efficacy or refinement. Over time, these architectural innovations improve, gain scale and overturn the incumbent products.
The Difference between Exploitation and Exploration
In the nomenclature of the authors, successful companies become very adept at exploiting. That is, once established in their market with successful products or services, they become highly proficient at making steady and continuous improvements. They organize for this by developing their culture, their people, structure and internal measurement systems to incrementally build upon their market success.
But for new or emerging markets, firms must explore what products, business models, customers, etc., are the right ones to pursue. Once that is determined, these companies can transition from an exploratory to a growth and thence to an exploitation stage. The problem for mature companies is that they are so tightly bound to the exploitation ethos that they cannot successfully explore, even as their established markets are threatened and even as they can perceive this.
In short, companies that decline inevitably do so because they fail to explore even as their competitors and markets evolve. They become fixated on exploitation of their markets. O’Reilly and Tushman cite Sears as an example of a company that forgot its history of exploration and by the 1970’s began a swift and certain decline, while failing to recognize the competitors and threats that crept up.
To describe better how the dynamic of exploitation subsumes exploration, the authors detail the workings of innovation streams:
- Extending existing capabilities: usually this stream is the focus of exploitation and a capable organization can usually address this option.
- Developing new capabilities to address new markets: this is the most difficult stream, requiring mastery of new technologies and skills while entering unfamiliar markets, potentially with new business models, suppliers and partners. It is often outside the comfort zone of most incumbent management teams.
- Developing new capabilities to deliver new products to current customers and markets: often this is a relatively safe growth option, since it involves cross-selling to a customer. However, it still requires developing new skills, businesses, products, etc. It has the implicit risk of alienating existing customers.
- Using current capabilities to address different or new markets: this option may seem straightforward, but new markets have characteristics that could prove daunting. The authors describe how in the airline industry, low cost carriers (LCC) proved very difficult for full service carriers to copy (i.e., for them to enter the LCC’s market) because of organizational, operational and technical misalignments.
To become an organization that both exploits and explores, leadership is paramount. Leaders (as opposed to managers) will be able to promote enough exploration to anticipate threats that can destroy the company’s core business. Successful companies usually have aligned well around their exploitation processes; unfortunately, this alignment can kill exploratory efforts. To successfully do both means leaders have to weaken alignment in the organization, but in the right, balanced way.
What does an Ambidextrous Organization do Differently?
It is typical in popular business literature to recount case studies that illustrate the key theses. The authors cite six examples from a variety of industries to show their ambidextrous organization in action. The main reasons for their success are as follows:
- Identify key assets from the parent (or incumbent) organization that can allow an exploring organization to possess a unique advantage that others, especially startups, cannot duplicate. These assets might be access to customers, real world data, branding, and so on. These must be made available to the exploring team from the outset.
- Provide senior management support for the exploratory team. This support is needed because these efforts at first seem like distractions or, worse, threats to the exploiting business. Another aspect of support is to resolve the conflicts that can appear between the mature and emerging businesses.
- Separate the exploring team both physically and organizationally. The exploiting business can be stifling and all-consuming, so separation is necessary to give the exploring organization enough space to think and work.
The chief weakness identified by O’Reilly and Tushman seems to be that success hinged on the commitment of a very senior leader, usually the CEO. Without the right personality, the efforts would founder.
In two further cases, IBM and Cisco, the authors review what IBM got right about its Emerging Business Opportunity (EBO) process; and how Cisco, through a mix of excess complexity, lack of accountability and inadequate senior leadership support, fell short. In summary, IBM’s EBO did the following well:
- Rigorous and organic way to identify and nominate potential EBOs.
- Frequent and active senior sponsorship of the EBO.
- Dedicated leadership for the EBO.
- Process for cross-company alignment and leveraging of assets.
- Resources in the EBO fenced off (protected from arbitrary cuts).
- Actions tied to milestones.
- Clear guidelines to stop EBOs that weren’t meeting milestones.
But, What if Ambidexterity is Not Needed?
Since ambidexterity is difficult and expensive to achieve in gestating a new business, the authors introduce a model with which to help determine if such an effort is needed in the first place. There are 4 cases:
- Not strategic and not operationally related: no need for ambidexterity; a better approach is to spin out the business.
- Not strategic but operationally related: no need for ambidexterity; outsource the function for efficiency.
- Strategic, but no leverage from current assets or capabilities: no need for ambidexterity; create an independent, but owned business unit, with appropriate goals, metrics, resources, etc.
- Strategic and able to leverage assets and capabilities: ambidexterity!
In a concluding chapter, the authors boil down their insights into four behaviors that are at the heart of an ambidextrous organization:
- Strategic intent for exploration. The conditions are met for both a strategic opportunity and the need to leverage core assets.
- Senior management dedication. While this may seem axiomatic, the senior leader needs to be consistent and repetitive in his or her continued support.
- Separation from the exploitative businesses. The appropriate design organizationally and otherwise is essential for success.
- Culture that unifies all teams. The ability for an organization’s members to harken to a larger vision or history or intent can help teams with wildly different objectives to support each other.
What must Leadership do?
In sum, it appears leadership is at the heart of the successful ambidextrous organization. There appear to be principles that are common:
- Have an emotionally motivating strategic aspiration that the organization can rally around.
- Deal with the tension that often arises between exploring and exploiting teams by designing it into the organization at a suitable juncture.
- Don’t shy away from conflict, but resolve it in a way that balances the exploiting and exploring prerogatives.
- Hold different exploring business units to different standards (e.g., metrics, goals, etc.) than the exploiting ones — and make this explicit.
- Adapt decision-making practices for the explore vs. exploit businesses.
When Does An Organization Need a Makeover?
O’Reilly and Tushman then turn their attention to an even more fundamental question: how does an organization know when it is in want of strategic renewal? Here, they offer four tests:
- Is company performance dominated by mature strategies with limited growth? Is thinking dominated by common wisdom that progress has plateaued?
- Is there an opportunity that could shift the organization’s strategy?
- Is the opportunity or threat outside the core market that the firm is currently in?
- Is the opportunity or threat an existential challenge?
Pondering the need and nature of strategic renewal is the most important issue for senior management. The authors review the responses that IBM and Haier initiated. Both are characterized by deep analysis, careful assessment of the company’s culture, strengths and weaknesses and a complex, sophisticated process or plan that depended on the highly talented workforces that both companies had.
Finally, they distill five leadership principles that aid and abet leadership renewal:
- Visualize an aspiration that connects emotionally.
- Iterate and interact with the organization to build and evolve the strategy.
- Experiment and test to learn and grow.
- Create top-down and bottom-up involvement to drive renewal.
- Allocate resources, time and effort to the renewal; apply measures and other disciplines.
Discussion and Critique
The authors obviously conducted a lot of research, apparently in the form of interviews and elicitations with managers in various companies. While most of their examples were US-based firms, it was interesting to see Haier as one of the cases. Haier’s ZZJYTs, COIs (both exploitative in nature) and xiaowei (mostly exploitative) are a very complex solution that may not be applicable to any other company.
A useful organizing aspect of the text is O’Reilly and Tushman’s willingness to summarize and boil down their messages to key points — which made this summary easier!
Some concepts discussed by the authors are repetitive and overlapping. For example, the principles of ambidextrous leadership seem to be closely linked to strategic renewal. While the flow of the book traverses the “burning platform” of Christensen, it goes through a number of intermediate formulations that seem to stretch out the conclusion and recommendations.
Additionally, this book is not a roadmap; instead, it is more like a set of principles and guidelines that have to be adapted to the culture and context of any organization. The IBM and Haier approaches may at an abstract level be the same, but the day-to-day operational details they each used to create their ambidextrous organizations are very different.
The recommendations are in some cases a touch high-level and obvious. The key insight though is stated at the outset: the Christensen panacea probably won’t work in most cases and it’s up to management to get down to the business of strategic thinking to constantly rebuild the organization. In fact, the closing sections identify the most important lessons: when is ambidexterity needed and when is strategy needed. These issues seem the precursor to the best practices that occupy most of the book, but are perhaps the most relevant.
Finally, most of the organizations built very complex solutions to address the problem of ambidexterity. Implicitly, they could count on and leverage supremely capable, tight-knit and high-performing teams, which had already enjoyed success together. Doing so with an organization that’s not nearly so capable is likely an insuperable challenge. Perhaps the authors owe us one more set of tests: when is an organization up to the challenge of even attempting ambidexterity!
O’Reilly, Charles A and Michael Tushman. Lead And Disrupt. 1st ed. Print. Stanford University Press. Year unknown.