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In a 2012 report on Indonesian family business, BCG (Boston Consulting Group) concluded that only 30% of family businesses are successfully passed down to the second generation, this rate declines to 9% for third generation successions. Reasons for this low success rate for succession across family generations can be diverging perspectives among family members, ad-hoc and non-coherent evolution of organizational structures and absence of clear governance systems. One potential framework that family firms could use to align values across generations and give direction to the development of more coherent organizational structures and governance mechanisms would be organizational ambidexterity.

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Organizational ambidexterity consists of a dual attention for exploitation and exploration. Exploitation is associated with issues such as refinement and efficiency, facilitating incremental change with respect to existing products[i]. Exploration refers to variation and experimentation, facilitating the search for new products and services or exploring new markets[ii]. Managers often experience challenges in integrating the different rationales of exploration and exploitation, but the latest insights from research show that these activities can be organized simultaneously. More importantly, following guidelines on ambidexterity may provide unbiased and objective scope for management practice at family firms, leading to more successful succession events.

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Ambidexterity implies that firms need to combine decentralized and flexible structures that support divergent, bottom-up cues for exploration; and centralized, more rigid structures that support convergent, top-down directives for exploitation[iii]. These contrasting requirements are often experienced as contradictory by firms, in turn leading to a natural inclination to overemphasize either exploitation or exploration[iv].

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Studies show that the conflicting demands of ambidexterity are particularly pronounced in family firms, since they “have to be especially careful to balance tradition with innovation and renewal”[v]. On the one hand, family firms act more long-term oriented as they are more willing to innovate if it is required for firm survival[vi]. Yet, on the other hand, they are more inclined than non-family firms to extract resources from the firm and have been evidenced to be more risk averse[vii]. The main problem is that firms need to embrace uncertainty in order to explore, while existing practice (and exploitation) is more certain and therefore provides a comfort zone[viii]. When firms exploit too long, however, they risk to become obsolete, think e.g. Kodak or Blockbuster.

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How then can we organize for ambidexterity?

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Structural and Temporal Differentiation: Separating functions of exploitation and exploration practice is common and offers clear benefits in that both can be pursued under relative independence. The benefit here is that specific structures can be created that support both aspects of strategy in the firm. There are generally two ways to separate exploitation and exploration, structural and temporal. The first suggests to devise separate business units for exploitation and exploration. The second presupposes a time-variant approach where the whole firm shifts from exploitation focus to exploration focus at key strategic timepoints. Most firms opt for the first approach.

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Multi-functional teams: Given that most firms use structural differentiation (with separate business units pursuing exploitation and exploration), the use of multi-functional tams can be one strategy to liaise between the different functions in a continuous fashion. For instance, key constituents from exploitation units can discuss and align activities with those of exploration units to achieve e.g. fit between the converging lines of business and appropriate timepoints for product-line shifts. While discussions between organizational actors engaged in exploitation and exploration is key here, these teams also provide bridging ties across functional areas, e.g. finance, marketing and operations.

 

Managerial interfaces: Recent research on IDX-listed firms[ix] during the Covid pandemic revealed that firms that engaged in cross-hierarchical interfaces, e.g. between middle managers and top managers, but also between frontline employees and top managers were much better positioned to explore new ways of serving customers under conditions of lockdown and social distancing. It was found that those firms where top managers acknowledge and learn from those lower in the organizational hierarchy were faster, more efficient and more effective in changing status quo activities to suit the new normal under pandemic conditions. While these interfaces will usually be more ad-hoc, it may provide natural pathways for bottom-up innovation going forward, especially in an innately hierarchic society such as Indonesia.

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References

[i] March, J. G. (1991). Exploration and exploitation in organizational learning. Organization Science, 2(1), 71–87.

 

[ii] (Gibson, C. B., & Birkinshaw, J. (2004). The Antecedents, Consequences, and Mediating Role of Organizational Ambidexterity. Academy of Management Journal, 47(2), 209–226.

 

[iii] Benner, M. J., & Tushman, M. L. (2003). Exploitation, Exploration, and Process Management: The Productivity Dilemma Revisited. Academy of Management Review, 28(2), 238–256.

 

[iv] Gedajlovic, E., Cao, Q., & Zhang, H. (2012). Corporate shareholdings and organizational ambidexterity in high-tech SMEs: Evidence from a transitional economy. Journal of Business Venturing, 27(6), 652–665.

 

[v] Miller, D., & Le Breton-Miller, I. (2005). Management insights from great and struggling family businesses. Long Range Planning, 38(6), 517-530.

 

[vi] (Gentry, R., Dibrell, C., & Kim, J. (2014). Long-term orientation in publicly traded family businesses: evidence of a dominant logic. Entrepreneurship: Theory & Practice,

 

[vii] Huybrechts, J., Voordeckers, W., & Lybaert, N. (2013). Entrepreneurial Risk Taking of Private Family Firms: The Influence of a Nonfamily CEO and the Moderating Effect of CEO Tenure. Family Business Review, 26(2), 161–179.

 

[viii] Van Doorn, S., Tretbar, T., Reimer, M. & Heyden, M. (2020). Ambidexterity in family firms: The interplay between family influences within and beyond the executive suite. Long Range Planning, vol.55, 78-111.

 

[ix] van Doorn, S., Japutra, A., Utami, A. & Ekaputra, I., (2021), Managing digitalization and its role on performance and adaptive response to Covid-19: Evidence from IDX firms