“Disruption requires balance between exploration and exploitation”

The financial world (fintech), the meat industry (vegan products) and the installation sector (prefab) are examples of sectors where industry boundaries are becoming blurred. This is primarily caused by new players in the market who make smart use of technological developments. “The chances of survival for traditional players are low. These companies are faced with competences that are at risk of becoming obsolete, and positions in chains that are being turned upside-down. As a result, companies that are disrupted do not remain independent for long, and even go bankrupt. The speed at which this occurs has been increasing for years.” This is one of the conclusions reached by Richard Janssen in his dissertation titled “Ambidexterity as a prerequisite for an incumbent’s survival”, for which he will receive his doctorate from Nyenrode Business University on November 4, 2019.

Despite the trend of disruption, there are also companies that have been around for hundreds of years. They are able to adapt and develop new competences that match customers’ changing needs. Janssen cites Stora Enso, Du Pont and (until recently) Nokia as examples. “The key is to optimize the existing business so as to increase profitability while searching for new revenue streams in new markets. To achieve this, the organization must simultaneously organize and implement both exploration and exploitation.” The examples in the Netherlands are Royal Enschede (founded in 1703) and Nolet, Janssen says.

Relevance

Still, many companies come up against change and are unwilling or unable to adapt. Janssen: “Some companies focus too much on exploitation and are afraid to develop new products that might cannibalize the existing ones. At the same time, other companies see their revenues drying up because they are exploring too much and neglecting the existing business. Successful companies implement a dual strategy and are good at both exploration and exploitation.”

More than a dual structure

Janssen’s research shows not only that a dual structure is important, but also that skills and leadership are key. According to Janssen’s dissertation, successful companies invest in skills related to feeling out the market, making the right choices and developing processes that transform the organization. “Developing these transformation skills is essential for companies that want to survive disruption.

Companies also have to respond to market developments promptly. For a management board, this means preparing the organization for transformation at an early stage, with a focus on urgency, minimizing resistance and strengthening managers’ frames of reference,” Janssen says. As an example, he cites the role of the CFO who doesn’t always welcome exploration if his business case is not profitable within two to three years. “The cutting edge is thin and can involve major risks.”

Successful implementation

The successful simultaneous implementation of exploration and exploitation takes time and practice. Janssen states that this works best in a learning organization where people make disciplined investments in the development of necessary skills and processes and do not worry about making money in the short term. “Exploration is a process that all stakeholders must support. If you isolate your innovation efforts from the rest of your organization and do not ensure the step-by-step development of a vision through trial and error, then your dual strategy is doomed to fail.” And that is exactly where things go wrong, according to Janssen. “Companies now either don’t see the danger or step in too late. They miss all the signs. They only start exploring when customers start going elsewhere.” When asked whether this might be putting things a bit too strongly, Janssen says that he would gladly talk to people who see it differently or have different experiences.

Janssen continues: “The key for a manager is to find the right balance when dealing with changes in the market: a balance in which you move from exploitation to exploration, and vice versa. This is how companies can remain agile and continue to exist for over a hundred years. So who is then surprised by Trump’s protectionism? Or Silicon Valley platforms that enter your market?”