Digital Transformation: An Ambidextrous Approach

Bernd Welz

We’ve all seen cases in which an agile organization with a new product or service and business model disrupts competitors that chose to stay on a path of continuous improvement. And it seems that the only “real” digital transformation cases are those that show exponential growth potential.

I recently came across the ambidextrous model, by Charles O’Reilly, of the Stanford Graduate School of Business, and Michael Tushman, of Harvard Business School. According to this model, to be successful and stay relevant, companies need to be ambidextrous: they must remain competitive in their established markets while also exploring new, innovative products and markets.

In other words, companies must simultaneously:

  • Compete in their existing business with continuous, incremental improvements (exploitation), leveraging digital technology to improve products and services, deepen customer relationships, and grow revenues and margins.
  • Identify new products/services and business models based on breakthrough innovation (exploration) and exponential technologies.

In the graph below, improving the existing business is shown as a linear growth/performance curve until it reaches a plateau or a decline. Meanwhile, the exploration of new digital businesses is described as an exponential growth rate/performance. This is a snapshot of what is happening when one s-curve replaces the next.

Companies can benefit from consciously managing digital transformation using an ambidextrous approach.

First, it is important to determine which digital projects or initiatives exploit the current business, and which ones explore a new area with exponential growth potential. Neither of the two project portfolios and investment buckets should be empty.

Exploitation projects need to be managed based on business cases and reliable forecasts of return on investment, while exploration projects should be based on a lean startup approach with highly autonomous teams working in fast iterations and market-testing cycles.

Skill development is an important element of any successful digital transformation strategy. Organizations should systematically develop a strategic workforce and skill development plan. In the ambidextrous model, the majority of the workforce is on the “exploitation” side. Key challenges include:

  • Continuously updating the skills of all employees and management in a scalable way
  • Acquiring the new digital skills needed to improve the current business
  • Consciously filling foundational knowledge gaps to enable all employees to progress into a new digital future with even more changes

Cloud learning platforms such as openSAP and SAP Learning Hub, complemented by classroom sessions, provide a great way to offer an efficient and scalable training program and adopt a culture of continuous learning. Exploration needs the latest digital skills, but it also requires inspiration and cross-pollination through connecting with networks of professors, students, and startups.

Finally, an ambidextrous organization needs an IT landscape that is stable and efficient enough to run the current business with reliability and automation, but also flexible and agile enough to enable exponential improvements and to experiment with entirely new business models. Gartner and McKinsey call this bi-modal IT and two-speed-IT, respectively.

For more digital transformation strategies that take your business to the next level, see Bringing The Four Degrees Of Digital Transformation To Life.

Bernd Welz

About Bernd Welz

Bernd Welz is executive vice president and Chief Knowledge Officer of Products & Innovation at SAP SE. In his role, he is responsible for user assistance content and services in the SAP products, and product learning offerings, as well as the leading cloud learning services openSAP and SAP Learning Hub for SAP professionals, end-users, and other external communities.