31 May 2007Working Paper Summaries

Organizational Designs and Innovation Streams

by Michael Tushman, Wendy K. Smith, Robert Chapman Wood, George Westerman and Charles O'Reilly

Ambidextrous organizational designs are those that sustain current success while simultaneously building new products, services, or processes. This research looks at a sample of 13 business units and describes the relations between alternative organizational designs and innovation streams. These business units used 4 distinct organizational designs in service of innovating and improving existing products: functional, cross-functional, spinouts, and ambidextrous. The researchers also used longitudinal data in order to explore how designs evolve over time and how design transitions affect innovation success. Key concepts include:

Ambidextrous organizational designs are composed of an interrelated set of competencies, cultures, incentives, and senior team roles.
These designs are significantly more effective for serving innovation than are functional, cross-functional, and spinout designs.
Business units that switched to an ambidextrous design improved their innovation outcomes while transitions to cross-functional or spinout designs did not.
Ambidextrous designs for carrying out innovations helped the performance of existing products.

Author Abstract

This paper empirically explores the relations between alternative organizational designs and a firm's ability to explore as well as exploit. We operationalize exploitation and exploration in terms of innovation streams; incremental innovation in existing products as well as exploring into architectural and/or discontinuous innovation. Based on in-depth, longitudinal data on 13 business units and 22 innovations, we investigate the consequences of organization design choices on innovation outcomes as well as the ongoing performance of existing products. We find that ambidextrous organization designs are significantly more effective in executing innovation streams than functional, cross-functional, and spinout designs. Further, transitions to ambidextrous designs were associated with significantly increased innovation outcomes, while shifts away from ambidextrous designs were associated with decreases in innovation outcomes. We explore the nature of ambidextrous organizational designs—their characteristics, how they operate, and their boundary conditions. Given these results, we discuss the relations between streams of innovation, organizations designs, and the nature of organizational adaptation.