ERM – Creating an Ambidextrous Organisation
@ the IERP® Global Conference, October 2022
“An ambidextrous organisation is what every organisation should be,” said session moderator Ramesh Pillai, INED, AmInvestment Bank. “It’s about exploration and exploitation; being ambidextrous means being able to balance between the two.” Introducing the concept, he said that the term organisational ambidexterity, coined in 1976, was not new but not many people have thought about it or how it applies to them, or tried to understand how it can be applied to business and strategy. “Research has shown that ambidextrous organisations are champions,” he said. “They are successful, better managed and controlled, have less risk, better strategy and better performance.”
Ambidexterity is made up of two components, exploration and exploitation; organisations do business by exploring the future while exploiting the present. Such organisations have six characteristics: laser-like focus on maximising returns; the fearsome ability to implement or execute plans; the necessary operational expertise;efficiency in margins through activity;incremental gains; and they function like a well-oiled machine. Being ambidextrous allows the organisation to explore and create room for diversity. Primary disruptive technology is actively pursued. Creativity, flexibility and adaptability are encouraged in staff, and risks are taken in pursuit of game-changing outcomes.
Organisations striving for ambidexterity need to balance between exploitation and exploration, and cultivate the ability to switch between the two. “Sometimes it’s better to exploit, sometimes it’s better to explore,” Ramesh said. “And sometimes, it’s better to do both simultaneously. Being able to balance between the two means being able to reduce external risk and increase financial performance that will result in a fitter organisation.” Describing four potential dimensions – Adventurer, Zombie, Miner and Conqueror – that organisations should consider if they are aiming for ambidexterity, he said each of these had their own characteristics, their own ‘super power’ and ‘fatal flaw.’
For instance, the Adventurer’s super power was the ability to seek out new ideas, spot market shifts and being unafraid of risk while its fatal flaw was that it often struggles to put ideas into practice, and although it may have a lot of strategic intent, there is little effective action, and it may be weak when it comes to driving day-to-day performance. While the Zombie had negative connotations, its super power was that it keeps on going despite the odds – although its fatal flaw is that it is living on borrowed time but doesn’t realise it. ‘Conqueror’ companies can exploit and explore equally well but there’s a down side to this.
“The Conqueror’s fatal flaw is that it can sometimes be overstretched when trying to explore and exploit simultaneously,” Ramesh said. “It may not have the strength and resources to support this.” Organisations also need to consider another dimension, he added – what they will do if their strategy is more successful than they thought it would be. “What happens if you do achieve your strategy – what will you do then?” he queried. While organisations may aspire to be Conquerors or Adventurers, these criteria are not without their own peculiar challenges. An Adventuring organisation may have lots of innovative ideas but may struggle to deliver when faced with the reality of changes in demand.
For many entities, there may be much strategic intent but little effective action. For early-stage businesses like start-ups especially, it is not easy. Start-ups are generally adventurous because they are looking for opportunities to exploit. As ideas develop and stabilise, opportunities can be maximised by exploiting resources but they may find it difficult to create strategic alignments for continuous improvement. Start-ups need to be able to exploit because if they don’t, they cannot go further. ‘Conqueror’ companies, on the other hand, consistently keep eyes on the future and the present, and are able to maximise returns on existing competencies, while adapting to a changing environment.
Amid all these, companies should determine where they stand, and decide where they want to be. They can then move to where they should be, or work out how to get there. “The ability to explore and exploit has to be mastered,” Ramesh said, stressing that firms generally cannot have the same teams doing exploration and exploitation. “Look at structural separation but always seek to reintegrate constantly.” Boards need to constantly question; management needs to understand why it is being questioned, and everyone concerned should be asking if the organisation can do things better. “There is a need for balance between exploration and exploitation,” he stressed.
However, there may be instances when balancing means the firm will have ‘to go for broke’ he said, as there was no right or wrong answer. Firms should do what they think is right, given their respective circumstances, and build differences on a common foundation – and they should dare to fail. “As risk managers, you must dare to fail,” he asserted. “Share the risk-taking and the responsibility. Understand what you require to make dynamic decisions although there are some things you cannot control. Creating a truly ambidextrous organisation requires you to be self-aware, have management skills, be dedicated to excellence, and be willing to take risks to build something worthwhile.”
Mohammad Ridzuan Abdul Aziz, INED, KAF Investment Bank, shared his experiences of companies in whose transformation processes he had been involved. Citing KAF Investment Bank as an example of an organisation which can become ambidextrous, he conceded that experienced bankers were sceptical about the success of digital banking, when the concept was introduced. At that point, very few digital banks he had interacted with had been successful. “You need to ask questions based not on old business models but what customer lifetime value can be created, and how the bank aims to do customer relationship strategy,” he said. “Questions like these may be alien to some bankers.”
Pointing out that digital banks which are already in operation do not focus solely on savings, he said that they had become a digital platform or market place for financial services. Many of them were a part of a larger digital ecosystem, or had become the host of that system, collaborating with other competitors in the same space. Citing the example of Family Mart in Korea, he said that at the end of the day, the bank earns more and has better cost management as the cost of running branches was undertaken by another party. “Do you want to hold on to your brand while getting smaller returns, or do you want significantly better margins and revenue – but without your brand?” he said.
The entire narrative is changing; banking is no longer exclusively about saving and lending. Banks have to offer more in terms of services and options for wealth management strategy to their customers. They also have to offer non-financial services, he said. Maximising shareholder value was no longer the focus. Instead, banks need to be customer-focused, and be able to tell their customers how they are doing this. In essence, banks have to become ‘good story tellers’ because “If you don’t tell good stories, nobody is going to be attracted to you,” he stated flatly. “Just having a banking licence is not enough.”
How then should organisations go about achieving this? They need to have an integrative mindset in terms of how to do it, he advised. Customers now have a different perspective of what banks should be doing; organisations have to demonstrate better accountability and responsibility. Internally, they should avoid siloes. Everyone should be helping each other achieve common results, be aware of and manage risks. There is a need to know everything. “Be nosy,” he urged. “Make sure you are the best in what you do. Be disciplined and mature; avoid having superstar performers in the organisation. That’s bad culture.”
Appropriate advocation should be applied at all levels so that everyone understands that they are on a journey. Corporate executives must constantly look backward, attending to the products and processes of the past, while also gazing forward, preparing for the innovations that will define the future, so that if they want to ‘go with the Conquerors’ they can; but they can keep to the traditional system as well. The mental balancing act which is organisational ambidexterity is one of the toughest of all managerial challenges, and – unsurprisingly – few companies do it well. One example of a great conquering company, he said, was the Australian Macquarie Bank.
Well aware that they were “running a business with other people’s money,” Macquarie applied creativity and innovation to become the owner and operator of Sydney Airport and the highway leading to it. Calculating the cash flow from the airport and highway, Macquarie asked the Australian government to be allowed to run the airport and highway for a number of years, based on these projections. The Bank succeeded in making more than a billion in net profit, which was at that time unheard of, and established itself as an example of creative, adventurous fundraising to be emulated by other organisations.