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Monday, June 23, 2014

Ambidextrous Innovation Strategy of New Ventures

Vincent Kuo



Ambidextrous Innovation

          Innovation is the mechanism by which organizations produce new products, processes and systems required for adapting to changing markets, technologies and modes of competition (Utterback 1994; Dougherty and Hardy 1996). Innovation strategy as an integrated means to build and manage multiple capabilities, and to continuously transform knowledge and ideas into new products, processes, and systems for the benefit of the firm and its stakeholders (Kanter 1989; Cohen and Levinthal 1990; Henderson and Clark 1990). It is a key business process for success, survival and organizational renewal both for incumbents and new ventures (Lengnick-Hall 1992; Brown and Eisenhardt 1995).

          The notion of exploration and exploitation has emerged for more than two decades, involving in the fields of organizational learning and strategy, innovation, and entrepreneurship. Exploration is more about learning new knowledge of technology and market. Exploitation is more about using existing knowledge to use the technology and serve the market (Li, Vanhaverbeke et al. 2008). Exploratory innovations are radical innovations and are designed to meet the needs of emerging customers or markets. They offer new designs, create new markets, and develop new channels of distribution. Exploratory innovations require new knowledge or departure from existing knowledge. Business operations engaged in exploratory innovation pursue new knowledge and develop new products and services for emerging customers or markets. Exploitative innovations are incremental innovations that are designed to meet the needs of existing customers or markets. They broaden the existing knowledge and skills, improve established designs, expand existing products and services, and increase the efficiency of existing distribution channels. Exploitative innovations build on existing knowledge and reinforce existing skills, processes, and structures. Business operations engaged in exploitative innovation build upon existing knowledge and external existing products and services for existing customers.

          Various researches from scholars and practitioners have urged that organizations need to be ambidextrous. The outperforming firms are recognized as those who can manage balance between exploitation and exploration innovation simultaneously (Tushman, Smith et al. 2002; Gibson and Birkinshaw 2004; Andriopoulos and Lewis 2009). The small and medium size enterprises, and particularly new ventures, characterized by constrained resources, operated differently to large and multi-national firms such that generating current recipe for ambidexterity into innovation strategies for these firms may be incorrect and inappropriate (Chang and Hughes 2012).

Strategic entrepreneurship and resource orchestration

          Strategic management and entrepreneurship are concerned with creating value and wealth. Entrepreneurship involves identifying and exploiting opportunities, and strategic management involves creating and sustaining one or more competitive advantages as the path through which opportunities are exploited. Therefore both strategic management and entrepreneurship are concerned about growth, creating value for customers, and subsequently creating wealth for owners. To integrate strategic management and entrepreneurship, strategic entrepreneurship offers a framework to illustrate how entrepreneurs can and should conduct opportunity-seeking and advantage-seeking behaviours simultaneously to achieve superior performance by orchestrating resources strategically. Resource orchestration poses a key process involves resource management framework and asset orchestration (Sirmon, Hitt et al. 2011). Resource management framework contains resource structuring, bundling and leveraging. Asset orchestration refers to the search, selection, configuration and deployment of asset and capabilities.

          Due to the nature of exploratory innovation, new ventures are risky for high uncertainty and the survival rate is relative low. Entrepreneurs are passionate about realizing creative ideas, but bearing social, financial and psychological risks. Can new ventures manage exploratory and exploitation innovation simultaneously? To address this question, we collected data on two new ventures in the greater China area that adopted ambidextrous innovation strategy. The two cases were chosen to illustrate different types of ambidextrous strategy (case summary at Table 1). One adopted ambidextrous strategy aligned with customer base while the other aligned with technology base. Data collected via interviews with founders, investors, advisors and senior managers, were triangulated with observations collected during periodic visits to the new ventures within 6-month period. We want to illustrates how new ventures orchestrated resources to manage the balance of ambidextrous innovations.














Case Studies


Case 1 Robospark Tech Inc.


          Robospark Technology is founded in July 2009 with the vision to offer digital contents of education for children under twelve years old. Particularly, the new venture wanted to seize the opportunity of the increasing demand in education before primary school. The market opportunity resulted from the structural change of population due to the low birth rate in the past two decades. Parents and grandparents are anxious for the new generation's education and invest with all they can afford. That Chinese family emphasize heavily on education strengthens the need for early education.


Ambidextrous Strategy

          With the perceived opportunity, the founding members articulated their business into two units. One aimed for education materials for children and the other aimed for house appliances for health living. They expect to fulfil their mission with the two interlinked business and operations.

          For exploitation, they leveraged their existing capabilities and experiences that chose to represent an international brand of household appliances exclusively in the greater china region. They selected the product categories to carry based on two criteria. One was health related. For example, air cleaner, antibacterial and vacuum cleaner are products that help build healthy environment. The other criterion was technical characteristics that can associate with automation and robotic technology. The first product introduced was a robot vacuum cleaner from Korea. The distribution channels for the appliance include department stores, online shopping sites and TV shopping channels. The second product they carried was an antibacterial bed vacuum cleaner that can kill bacterial and remove dust mites and their allergens.

          As for exploration, it is the unit aiming for education materials for children. The founding members realised that contents were more valuable and scalable than hardware from their prior experiences. They also found that it is better positioned to be a content aggregator than a developer. However, they lacked of the knowledge and expertise in education. To fill in the gap, Robospark allied with a kindergarten group for their proprietary teaching method and reading materials. Robospark offered to digitalize these materials in exchange for the digital content license. The same arrangement has been made with other publisher or traditional content owners without digitalization. To distribute the content, Robospark developed a platform, iSpark, to provide access for the customers via app services for PC, smartphones and tablet devices. Members can subscribe the service by monthly payment or buy all contents at one time.

Resource orchestrating

          In terms of resource structuring, the founding members have made several achievements. They successfully convinced angels and venture capitalist for five million US dollars fund raising. The founder also invited experienced executives to be board members. The partnership with the specialized kindergarten obtained education methods and proprietary materials as critical resources in developing education market. Robospark did not have strength to transform traditional materials into digital format on their own capacity. By referring, Robospark identified a company that dedicated to making digital content. Robospark contracted a bulk service of a thousand pieces of flash work to transform all the materials into digital.

          For resource bundling, more partnerships were formed with traditional publisher who have reading materials for children in paper-based format to enlarge the content portfolio. Robospark started to interact with the teachers to be familiar with the usage in kindergarten. Robospark also tried to cooperate with the semi-government organization in China, taking advantage of their symbolic authority to influence the market.

          For resource leveraging, the customer base of the house appliance and children education materials can be mutually beneficial to each other. The customer database of children education materials has detail information about the age and number of children in the family because in every development stage, children need different materials to develop specific capability. Family with children are care more for environment hygiene so this gives great opportunity to sell house appliances.

Case 2 White Rabbit Entertainment


          White Rabbit Entertainment was set up in February 2011 by three computer engineers. The venture aimed to make motion pictures by integrating their technology and creativity like Pixar. In Asia, this was a market where there were only a few players based in China. Japan remained focused on 2-D animations and Korea focused on gaming and TV drama. With the insights, White Rabbit Entertainment was confident of the emerging opportunity in Asia.

Ambidextrous Strategy

          Three founding members researched the relevant technology in computer graphic, pattern recognition and information management from literature and built their prototype TWR3D technology from the scratch. 3-D image effects come from two types of technology, image based rendering and depth image based rendering. TWR3D utilize depth image based rendering that servers can calculate the parameters to generate the 3-D cues that present 3-D effects. It can lower the cost by sixty-six percent compared with current practice. The cost reduction resulted from the automation of the transformation by computing and therefore less manpower and time was needed. Further, this technology is applied on a private cloud environment. There is no storage device at terminal end and each picture and image were processed via the internet. By doing so, the infrastructure is scalable at an affordable cost and there is high confidentiality of each project.

          With this technology, White Rabbit stepped into the entertainment and movie industry by offering post-production service. To bring TWR3D to the international stage, Charles recruited a creative director that participated in Hollywood post-production projects such as Avatar, Happy Feet, and Rise of the planet of the Apes. With the leadership, White Rabbit started to cultivate their own director, storyboard expert, and screenplay writer. This is to prepare for the long term mission, their own animation movies.

          The 3-D transformation service has been recognized by the movie industry in Asia and worldwide. White Rabbit participated in the production of Titanic 3-D version in 2011. In 2012, they were the main partner for symbolic movie in Chinese society for New Year holiday, the twelfth zodiac animals. In addition to the movies, they extended the service category to popular music concerts. Popular music artists tended to shoot the concert and made into films. These concert videos were also in favor of 3-D effects that requires post-production process. Nonetheless, it required visual effect directors to involve. White Rabbit not only participated in post-production, but also involved in visual effect planning and directing. These performances they have cooperated with include May Day concert and Wang Lihon's Shanghai concert.

          To make an animation movie requires not only technology but also screenplay, story and filmmaking techniques. For a young motion picture house, it is very exploratory in the sense. To make White Rabbit's own animation movie, the Journey to the West, the animation department developed the technology they may need apart from 3-D effects. The leading actor in the story was a monkey. It is very difficult to draw the fur and hair vividly and natural. And the hair in motion is more complicated. The R&D team developed a technology that solved the problem based on computer generated imagery. This technology offers molding, design, and coloring for hair in animation. The embedded engine can perform the movement of hair smoothly and seemingly natural. This technology, called Big Cat, has been licensed to many studios for 3-D and animation post-production. The animation department made their first short animation pictures Hatching in 2012 and was nominated to participate in SIGGRAPH 2012. This was a milestone of international recognition.

Resource orchestration

          The founding members are resources structuring on their own right. They offered the foundation of the technology capabilities in this new venture. The recruitment of expert with industry domain knowledge strengthened the resource portfolio and brought the company into international arena.

          The experiences learned in movie post-production, 3-D rendering, and visual effect directing, would be crucial for White Rabbit to make their own animation movie. Moreover, the 3-D and visual effect department could generate not only the revenue to support the exploration of animation department but also the knowhow and skills to make a film. The animation department can also leverage technology, know-how, and industry domain knowledge originated from 3-D rendering business.

Conclusion         

          The two cases illustrated how new ventures adopts ambidextrous strategy to generate innovation. It is little discussed about the ambidexterity in new ventures in the literature, and in practice, new ventures are usually characterized by exploratory. We propose that exploitation innovation strategy is beneficial for new ventures if its customer base or technology development can align with the exploratory arms. One of the advantages to adopt ambidextrous strategy for new ventures is that it allows entrepreneurs to mitigate the risks. The business unit for exploitation innovation can generate positive cash flow in a short time. This not only can support the exploratory business but also can ease the capital requirement by soothing the burn rate. The customer and technology base developed by the initial investment could reduce the time it may take to put exploratory innovation into market. Nonetheless, the exploitation innovation business unit can operate independently and accumulate more resources regardless the performance of the exploratory innovation.
          The lesson for managers can be derived from these observations is that ambidextrous strategy can offer benefits to new ventures. New ventures can orchestrate the resources by leveraging the customer and technology base bundled and structured by exploitation innovation strategy. This does not only mitigate the risks from allocating entire resources on exploratory innovation but also generate more resources to support exploratory activities.

References

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