Why Ambidexterity and Diversification Matter: A Simple Guide for Leaders

What if you could grow your business in new ways and improve what you are already great at? If you are a business or innovation leader trying to balance innovation (exploring new opportunities) and efficiency (refining what you already do), then understanding ambidexterity and diversification strategies could be a game-changing knowledge. In this post, let us unpack these concepts exploring how they relate, and what this means for your business or innovation teams.

What is Ambidexterity?

In business context, ambidexterity is all about balancing two big priorities: exploration (new products, new markets, big experiments) and exploitation (getting more out of your current profit-making products and processes). Wondering, why as innovation leaders we need both? Exploit - because you need to keep the lights on and show running. Explore - because in the times of uncertainty and disruption, you want to keep thriving.

There are two types of ambidexterity that are usually discussed frequently in Innovation literature:

1. Contextual Ambidexterity: Here managers and employees within the same team are responsible for both innovating (exploration) and improving existing operations (exploitation). It is like, in the game of football, being the team’s best scorer and best defender. Also, many firms include temporal ambidexterity within Contextual. These are more project focused efforts - sometimes focus is efficiency, sometimes focus is experimentation.

2. Structural Ambidexterity: In this setup, companies have separate teams or units for exploration and exploitation. One part of the company focuses on new ventures, while another team hones in on maximizing the current business. It is like having specialized players, one person is your star shooter, and another is your key defender.

How Does This Tie Into Diversification?

Diversification is simply expanding your business into new products, services, or markets. But the question is, how far do you go?

There are two key types of diversification:

1. Concentric Diversification: This is when a company expands into areas that are closely related to what it already does. Think Apple expanding from iPhones to Apple Watches. They’re still in the tech game but entering a new product category that fits their current expertise, their OS and market place.

• Contextual ambidexterity works great here. Teams can manage small innovations while sticking to the core business.

2. Conglomerate Diversification: This is like jumping into entirely different industries. Imagine if a tech company suddenly got into, say, food manufacturing or may be construction!

• This is where structural ambidexterity shines. You need separate units to handle the exploration of this totally new field without disrupting the core business.

Why Should You Care?

Knowing when and how to balance ambidexterity and diversification can give you a major advantage. Here is why:

• If you are trying to expand into related markets (concentric diversification), encourage your teams to be more flexible and agile. Give them the power to explore new opportunities within the framework of your current business. Your middle management needs to have that trait developed.

• If you are planning to enter completely unrelated fields (conglomerate diversification), your senior leadership is the key. The senior leadership should have an expert handle in managing ventures as separate units and be able to integrate at the corporate level.

Takeaways for Managers and Firms

• For Managers: Develop an “ambidextrous mindset.” Make sure you are balancing innovation and efficiency in your teams, whether it is within the same group (contextual ambidexterity) or across different units (structural ambidexterity).

• For Firms: Understand the type of diversification you are aiming for. If it is related, leverage contextual ambidexterity. If it is unrelated, structural ambidexterity is a leadership and dynamic capability your organization must have.

By mastering the art of ambidexterity and choosing the right diversification strategy, you can unlock growth opportunities and sustain your core business. Play the 'AND' game. Engage with XplorInn to grow the ambidextrous mindset!