Herman Singh: Corporate organisations of the future need to act like a boxer who can box on either foot.
Only a small proportion of the world’s population are ambidextrous! eighty-seven percent of humans are right hand dominant and 11 percent are left. Only two percent are both. This plays out very interestingly in the world of business and life in general. Anthropologists argue that left-handed individuals have several disadvantages in a world designed for the right-handed and have a higher chance of contracting a number of illnesses so logically should have died out in the gene pool. But, they argue, the fact that the trait is still here is because our left-handed ancestors were more successful over their right-handed competitors especially in combat and so propagated their trait over generations. That is even more true for ambidextrous individuals.
That analogy is the best one to describe the digital war when legacy firms meet up in combat with new start-ups or big tech firms. South paw (a boxer who leads with his left) meets north paw (leading with your right) in business and the legacy firms struggle to compete against an adversary that they barely understand and whose tactics and business model are a surprise. The corporate organisation of the future needs to look more like the boxer who can box on either foot. An ambidextrous organisation is one that can be both agile and creative on “the one hand” and yet be rigorous with a focus on risk mitigation while delivering industrial strength execution “on the other hand”. It is the exceptional firm that has an executive who can both build and run a conventional business on the one hand and simultaneously disrupt it, as Elon Musk is doing.
Almost all organisations fail at this because of the dominant logic within the corporation, given its history, the incentives, and the types of skills at the top. A good example of this in practice is the astonishing predominance of financial skills on boards with an almost complete lack of start-up innovation and digital skills. It is very rare to see board directors whose mandate is the digital transformation of the business and who bring enough real-world experience and successful track records to bear. Sustaining innovation and disruptive innovation need very different leadership styles.
There are an increasing number of legacy firms that are tentatively learning to dance digitally using a hybrid solution. One wants to retain the robustness and rigor of the industrial machine, the performance engine, while building out the innovation engine to drive the digital disruptions. The latter being funded by the former and in certain cases handing over innovative and disruptive solutions to the former. The performance engine is the right-handed competence and the innovation engine is the left. The ambidexterity is getting them to work in harmony. Ambidexterity also speaks to the performance engine itself becoming more agile but in a more incremental manner over time. Each firm will design their own portfolio of initiatives based on the answer to three questions:
Does the new business aid the core in any way?
The first question is answered by looking at whether the new business aids the core in any way. Does it increase existing client stickiness, lower the cost of operating the core ,win more clients for the core, enhance revenue per user etc. Mobile Money wallets did all these things for telcos including lowering the costs of airtime distribution and so was a natural fit. Bolting on media businesses to a Telco also helped the core by driving up data consumption and reducing churn.
Does the new business need anything from the core?
The second question is whether the new business needs anything from the core. Does it need access to the distribution, customer data or even IT systems. Often new adjacent businesses are heavily dependent on the core business for the heavy lifting especially for going to market under the existing stronger brand in order to get to scale. Some new data analytic businesses need access to raw customer data in order to deliver monetisation of the customer base.
Where the business needs to be close to the core the firm will want to keep that part of the innovation engine close to the existing organisation with a view to possibly integrating it later. If the new business both needs the core and can help the core, like mobile money in a telco, then that becomes a Strategic Star and will need to be absorbed into and nurtured by the core.
Businesses that don’t impact the core business but need access to the core’s capabilities are Adjacent Stars. Here the incumbent business has absolutely zero incentive to assist the new start-up. The only way to get this to work is to open internal APIs to reduce the internal need for cooperation and to also incentivise the legacy team on the success of the new business. In the longer term these businesses are likely to be either spun off on their own. An example of this could be an ecommerce company within a traditional media business as happened with Naspers.
What about businesses that aid the core but need nothing from it to succeed which we will term Strategic Adjacencies? An example of this could be a digital marketing business within a brick and mortar retailer. They will become a part of the core eventually so the firm will need to acquire that start-up and integrate it into the mothership.
Then there are businesses that neither aid the core nor need its capabilities. Well these Diversification Adjacencies are just financial investments into brand new industries or verticals by the firm. They need to be in a VC and dealt with accordingly. It’s effectively an attempt to build an investment portfolio and this means having investment fund managers who assess these businesses based on Economic Value and exits.
Does an incumbent need to deal with disruption?
The third question is whether an incumbent needs to deal with disruption. If the business is non-disruptive and additive in nature, there will be a natural synergy and cooperation with the core will be organic. This could be internet banking within a universal bank and are basically Strategic Stars. If the business is disruptive, like a full digital bank within a universal bank, then it will need to be carved out and run separately. The complication comes when the new business is both disruptive and needs access to the core’s services, namely, Strategic Disruptors. An example would be launching an instant messaging business within a telco which will cannibalise both voice and text revenue into the future. These businesses cannot be expected to be supported by the core and in fact will be actively attacked by it. So, they need to be housed and nurtured separately and managed outside of the core business. Often reporting straight to the board or the Group structure, where one exists.
The key to building ambidexterity is to move decision making on resource allocation to those who are most motivated for success of the overall business and not just the legacy one. This becomes increasingly important as the once nascent business rivals the existing one and the battle for resources ensues. It is the wise board that recognizes the need for an investment portfolio approach where one harvests the legacy business and invests in the future stars. The harvested business is very unlikely to make that decision on its own especially as it may lead to a disinvestment in its own business over time.
There are other elements to ambidexterity that are important especially in the core business like the investment processes, incentive schemes, the IT platform. A very important part of ambidexterity for the legacy part of the business is the ability to inculcate experimentation and to tolerate failure while scaling success. So, the ability to create safe sandboxed environments to manage these disruptions in a responsible manner is a critical part of the thinking.
The ability to strategically dispose of these innovations internally and externally, to develop a corporate venturing mindset combined with a portfolio mindset meshed with the ability to merge these businesses back into the fold or spin them off is a key part of becoming a successful ambidextrous organisation of the future.
This is an extract from Herman’s book, Di-Volution, which is available on print and as an e-book.