Do You Manage an Explore/Exploit Portfolio?
Disruption often strikes when a firm is at its weakest, when all resources are diverted to sustain core operations. That is what makes today’s market uncertainty so dangerous. And while postponing investment in the future or funding a more comfortable present would be the easier path, you need to both fund the present and the future: what I have called an ambidextrous organization. With this approach, you can simultaneously exploit the core business while exploring new growth sources.
While this strategy is easy for a business professor to teach, in the real world, it’s more challenging for managers to implement. For instance, one key challenge is how to reallocate resources from the core business to fund unproven explore ventures with uncertain returns. This ‘portfolio management’ decision is key to success. Without a disciplined way to manage your portfolio, safer, more predictable exploit investments will attract more resources that the explore ones leaving a firm vulnerable to disruption.
What to do? How do firms bring discipline to these resource allocation decisions? This is the question behind our ambidextrous portfolio management survey. We want to learn the practices of firms that enable them to evaluate investment alternatives, commit resources, and track performance.
Our hypothesis is that portfolio management is a fundamental capability for the Ambidextrous Organization, and at its best, it is evidence-based, e.g., incorporating data about market and customer behavior into decision-making. We are keen to learn how corporate leaders are attempting to dynamically reset their innovation aspirations to match today’s highly uncertain, rapidly changing marketplace. What challenges they face, what pitfalls they must overcome, and what they know about the conditions for success.
To share your insights with us, please, take part in our Change Logic study about managing an ambidextrous innovation portfolio.
By Professor Michael L. Tushman, Professor, HBS, and Director, Change Logic