In their influential book “Digital @Scale”; Meffert and Swaminathan talking about the importance of a two-speed IT infrastructure given that fast development times, short cycles and rapid changes are overwhelming most traditional organizations. They say that due to speed is the hallmark of the digital world, CIOs need to have the idea of running two systems in parallel: An agile, fast, cloud based system that can work with apps for all processes targeting the customers at front end; and a stable, solid, cost-effective system for back-end systems and an integration platform connecting these two IT worlds. While this is good perspective from IT perspective, I think this is a just limited focus on how companies should structure themselves given the broader disruption happening in the market; hence it is a good idea to look the broader picture of the organization beyond IT.
Most businesses, in order to succeed both at executing their current activities in the market- which they must do efficiently in order to maximize their current profits- and at pursuing an organization wide transformation/innovation agenda- which they must do effectively in order to maximize their future revenues- will need to pursue a dual-path program of execution and experimentation. In order to be able to do this, businesses often adopt an organizational structure known as the ambidextrous organization, also known as bimodal organization. The first mode is concerned with maximizing the cash they generate from today’s sources of value and usually focused on margin optimization and profit maximization through efficiencies, cost reductions and sales volume maximization. The second mode or parallel track is concerned with developing tomorrow’s sources of value by creating new value streams. The question this brings to the table is what the best organizational structure and resourcing to drive these two tracks in parallel.
There are two possible resourcing structures which are recognized:
- Structural: A concurrent, parallel-path approach executed with two or more completely separate groups each working simultaneously on their respective focus.
- Contextual: A consecutive, dual-path approach executed with one common group oscillating back and forth between each track as needed or planned.
Despite the choice between two options depends a lot on the resources available to organizations, research is clearly pointing out that structural ambidexterity is the preferred one and most innovative companies in the world choose structural ambidexterity to better keep pace with the strong changes happening in the market. Hence the speed of change in the market doesn’t just require a new approach to the IT but to the broader organization.
What about Post-Ambidexterity than? While the construct of the ambidextrous organization is giving a broader picture, it is still inadequate to fully convey the activities and focus required to have the greatest impact over the long run, given the accelerated transformation and disruption in the market. Hence a business should be viewed along three, not two, swim lanes, which we might call as Execution, Renewal and Reinvention.
Execution- the first swim lane is focused exclusively on executing today’s foundations of value; and doing so with the utmost efficiency, to extract maximum value from them. Usually driven by operational excellence, the results of those initiatives directly impact the bottom line.
The second swim lane- Renewal- is focused on exclusively on extending today’s foundation of value by using incremental innovation to improve current offerings. Whether through technology roadmaps or product roadmaps, it is about evolving current offerings. This swim lane is important for keeping current portfolios alive and relevant to their markets as those markets gradually evolve. This is where the business will execute its Horizon 1 Innovation Strategy.
The third swim lane- Reinvention- is focused exclusively on designing and developing entirely new foundations of value for the business to monetize, usually emerging needs rooted in technological, sociocultural, political or other types of changes happening in the world, bringing breakthrough, disruptive and even transformative innovations in a process of new value creation. This is where the enterprises execute their Horizon 2 and Horizon 3 Innovation strategies.
In the long term strategic life of a business, there are three swim lanes that ultimately matter, being able to deliver value through execution, extending the value through renewal (incremental innovation) and delivering new value through reinvention (breakthrough, disruptive and transformative innovations). When businesses get this formula right and effectively align on Horizon 1 / Horizon 2/ Horizon 3 strategies, they stay relevant and resilient over the long run. To summarize the main idea of this article; this approach requires a renewed look not only to technology but people, processes and in broader terms to the business architecture of the organization.