Ambidexterity And Business Relationships

Article

Creating ambidexterity by integrating and balancing structurally separate interorganizational partnerships

Strategic Organization 8(4) 283–312 © The Author(s) 2010 Reprints and permission: sagepub. co.uk/journalsPermissions.nav DOI: 10.1177/1476127010387409 http://soq.sagepub.com

Olli-Pekka Kauppila Aalto University, Finland

Abstract Recent research indicates that interorganizational partnerships represent a potentially important resource for the development of ambidexterity. However, little is known about how a firm’s ambidexterity evolves from external partnership resources. This article reports an in-depth field investigation of a firm that has successfully created ambidexterity by employing its interorganizational exploration and exploitation partnerships. In particular, the article focuses on three innovation processes within this firm. The findings underscore the importance of a firm’s ambidextrous organizational context, enabling it to reap the distinct benefits of both exploration and exploitation partnerships. Moreover, the findings reveal the specific mechanisms through which the firm integrated and balanced exploration and exploitation within its organization. Overall, this article demonstrates how a firm can build and manage an organizational context that internally balances exploration and exploitation while augmenting both activities through structurally separate interorganizational partnerships.

Keywords ambidexterity, exploitation, exploration, innovations, interorganizational relations, organizational change

Introduction Since Duncan’s (1976) seminal work, strategy and organization scholars have shown increasing interest in organizational ambidexterity. By definition, ambidextrous firms are able to efficiently exploit current competencies while flexibly exploring future competencies with an equal degree of skill (Adler et al., 1999; Raisch et al., 2009; Tushman and O’Reilly, 1996). The interest in ambidexterity is warranted, as it is positively associated with several favourable organizational outcomes, such as profitability and growth (Gibson and Birkinshaw, 2004; He and Wong, 2004; Lubatkin et al., 2006), organizational responsiveness (Gilbert, 2006) and knowledge sharing (Im and Rai, 2008). However, as March (1991) has persuasively argued, both exploration and exploitation are self-reinforcing, and because they compete for scarce resources, they tend to crowd each other out. This strategic contradiction is both time-tested and well-established. Thompson (1967), for example, described it as a central paradox of administration. Students of ambidexterity have

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proposed several models to overcome this paradox and to avoid a complete separation between exploration and exploitation activities. Tushman and O’Reilly (1996) introduced the idea of dual structures for exploration and exploitation, which are only integrated at the top management level. Others have suggested that in an ambidextrous organizational context, the competing frames can be balanced at the employee and working group levels (Adler et al., 1999; Gibson and Birkinshaw, 2004). Researchers have only recently begun to consider that structures, management systems and other firm-level characteristics may be insufficient to fully explain ambidexterity in all firms. Kang et al. (2007) have suggested that because organizations have few mechanisms available to avoid harmful conflicts between exploration and exploitation, ambidexterity might be more successfully created by utilizing networks within and across firm boundaries. Similarly, alliance researchers have argued that interorganizational partners play a key role in strengthening and complementing firms’ exploration and exploitation agendas (Baum et al., 2000; Heimeriks et al., 2007; Hoffmann, 2007; Koza and Lewin, 1998). Whereas each distinct antecedent provides intriguing explanations, a comprehensive picture of how a firm can create ambidexterity is missing. In the spirit of Cassiman and Valentini (2009), I suggest that because interorganizational structures, intraorganizational structures and strategy are closely intertwined, they should be analysed concurrently to generate a comprehensive understanding. In reality, firms are likely to create ambidexterity through a combination of structural and contextual antecedents and at both organizational and interorganizational levels, rather than through any single organizational or interorganizational antecedent alone. To this end, key questions remain unanswered: are structural and contextual antecedents substitutes and/or complements? What roles do partnerships play? What is the interrelationship between the firm-level antecedents and knowledge sourced from interorganizational partnerships? How can firms reap the benefits of their partnerships? The goal of this article is to fill the aforementioned gaps by combining insights from studies on organizational ambidexterity and interorganizational partnerships. To this end, I perform an in-depth, embedded historical case study on Vaisala Oyj – a Finnish environmental measurement firm – which was once trapped in failure (see Levinthal and March, 1993), but has since used this particular crisis to embrace ambidexterity. The findings demonstrate that firms’ ambidexterity rests on two basic mechanisms: structurally separate external maximization and an internally balancing organizational context. In short, maximization refers to the attainment of high levels of exploration and exploitation. External maximization is important because interorganizational partnerships augment firms’ own – usually inadequate – exploration and exploitation. Moreover, exploration partnerships are those that focus on value creation associated with upstream activities, and exploitation partnerships focus on creating value that is generally associated with the downstream activities of the value chain (Lavie and Rosenkopf, 2006; Rothaermel and Deeds, 2004). For instance, Vaisala augmented its exploration through partnerships with research institutes and universities while using contract manufacturing to maximize exploitation. Internal balance, in turn, refers to activities that aim to equalize the representation of exploration and exploitation and manage the process of exploiting what has been explored. Balancing is ‘internal’ because it is the firm rather than a network of firms that creates ambidexterity by bridging between explorative and exploitative partnerships. The rest of this article is organized as follows. I first briefly review the literature and identify the key elements in creating ambidexterity. The following sections outline the empirical context and offer a case description of how ambidexterity evolved in Vaisala after the firm’s crisis in the early 1990s. Moreover, the discussion focuses on three embedded case studies regarding innovations

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that were developed by Vaisala during that period. I conclude with a discussion of the findings and implications for future research.

Theoretical background Overcoming the tradeoff between exploration and exploitation In strategy and organization research, the conventional resolution to the exploration–exploitation paradox has been a separation between these activities. In this vein, Ebben and Johnson (2005) and Giarratana and Fosfuri (2007) have indicated that separation is necessary because firms pursuing either exploration or exploitation generally outperform those adopting a mixed strategy. These claims are consistent with contingency theory, which posits that organizations should aim to achieve a fit between their environment, structure, strategy and processes (Burns and Stalker, 1961; Lawrence and Lorsch, 1967). For example, turbulent environments call for adaptive structures and innovation-focused strategies that contribute to increased exploration. Mechanistic form and shortterm profit-seeking strategies promote exploitation, thus helping firms to prosper in stable environments. However, a growing body of ambidexterity literature (for a review, see Raisch and Birkinshaw, 2008) shows that through certain organizational arrangements, simultaneous exploration and exploitation can yield positive outcomes. In this study, ambidexterity is defined as a firm’s ability to pursue simultaneously high levels of exploration and exploitation and in a balanced manner (see Cao et al., 2009). Early ambidexterity models suggest that the structural separation of exploration and exploitation activities enables firms to pursue both simultaneously. Structural separation is necessary because individuals who have operational responsibilities cannot explore and exploit simultaneously, as dealing with such contradictory frames creates operational inconsistencies and implementation conflicts (Benner and Tushman, 2003; Gilbert, 2006). As Tushman and O’Reilly (1996) have outlined, structural independence ensures that distinctive processes, structures and cultures in explorative units are not overwhelmed by a culture of exploitation. At the same time, the established (exploitation) units can continue to focus on serving their current customers and running efficient business processes without the distraction and pressures of exploration. Furthermore, in structural ambidexterity, units that are structurally autonomous are managerially integrated at the senior management level. The tight coordination and integration of top management are vital for ambidexterity, as they allow cross-fertilization and resource sharing across units (Smith and Tushman, 2005). In contrast to the authors who advocate the separation of exploration and exploitation, Gibson and Birkinshaw (2004) suggest that ambidexterity is something that should be present in the mind of each employee rather than being incorporated into the structure of the organization. They assert that ambidexterity is achieved by building an organizational context at the business unit level that emphasizes both performance management and social support. According to these researchers, structural separation between exploration and exploitation units can lead to harmful isolation, and frameworks that are based exclusively on organizational structure are top-down by nature. Additionally, few organizations have the resources to support separate structures for exploration and exploitation (Floyd and Lane, 2000). Adler et al. (1999) have called contextually ambidextrous organizations ‘enabling bureaucracies’, as they have routinized the processes through which they adapt and align knowledge. An ambidextrous organizational context that adapts and aligns knowledge effectively may be considered a valuable, rare and inimitable resource that confers sustained competitive advantage for a firm (Simsek, 2009).

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Figure 1.  Conceptual framework of interorganizational ambidexterity

Because both structural and contextual ambidexterity models incorporate valuable insights, neither should be totally rejected. Therefore, this article presents a synthesis that builds on both models. Synthesis is a novel construction that departs from both thesis and antithesis and creates new patterns or structures (e.g. Lourenço and Glidewell, 1975). In particular, I suggest that structural and contextual models can be synthesized through structurally separate exploration and exploitation partnerships and an ambidextrous organizational context of a focal firm. In addition to synthesizing the two prominent ambidexterity models, this article takes into account recent findings that suggest that exploitation and exploration occur both within and between organizations (Holmqvist, 2004; Kang et al., 2007; Raisch et al., 2009). In this sense, this study attempts to fill the void of ambidexterity studies spanning multiple levels of organizing (Raisch et al., 2009; Simsek, 2009). The multilevel perspective further recognizes that exploration and exploitation are both continuous and orthogonal variables, depending on the level of inspection (Gupta et al., 2006). That is, interorganizational ambidexterity implies maximization through partnerships (orthogonal exploration and exploitation) and balance (continuous exploration and exploitation) within a firm. Figure 1 depicts this synthesis in the form of a conceptual framework.

External maximization of exploration and exploitation A key shortcoming of the contextual ambidexterity model is that it does not really consider how a firm can simultaneously conduct radical forms of exploration and exploitation. Rather, it merely assumes that explorative knowledge is produced somewhere and that it is then selectively adapted to the organization’s purposes. Furthermore, the contextual model assumes that a firm exploits the knowledge that it has aligned, but it does not explicate how this exploitation is organized. These are important limitations because, as Gupta et al. (2006) have posited, radical exploration and exploitation are probably mutually exclusive within a single domain. Radical exploration, in particular, is ill-fitting with the contextual model. This is because both elements of contextual ambidexterity – adaptability and alignment – represent formal, rational and feedback-based organizational technologies. As such, they prohibit foolish, radical exploration (March, 2006; Weick, 1979). Therefore, as several scholars (Gilbert, 2006; Jansen et al., 2009; Tushman and O’Reilly, 1996) have argued, the separation between exploration and exploitation helps firms to maximize the distinct benefits of both activities (cf. Andriopoulos and Lewis, 2009). Structural separation ensures

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that radical exploration and radical exploitation are shielded from the distractions of contradictory mindsets and organizational routines (O’Reilly and Tushman, 2004). Separation is especially needed to shelter radical exploration, which plays a key role in creating new knowledge in general and radical innovations in particular (Benner and Tushman, 2003). When examining ambidexterity from the interorganizational perspective, it is clear that outside partners have the potential to contribute to a focal organization’s radical exploration processes. In this vein, Cassiman and Valentini (2009) have interestingly pointed out that the openness and radicalness of R&D covary positively. A vast stream of empirical research supports this conclusion. In their influential study, Powell et al. (1996) argue that research breakthroughs demand a range of intellectual scientific skills that far exceeds the capabilities of any single organization. Utilizing outside partnerships also increases the amount of knowledge and cognitive variation that internal R&D lacks (Baum et al., 2000; Gilsing and Nooteboom, 2006; Heimeriks et al., 2007). Scholars who focus on partnership building have discovered that firms are prone to establishing specific relationships whose precise purpose may be to maximize explorative innovation (Hagedoorn and Duysters, 2002; Hoffmann, 2007; Koza and Lewin, 1998). These relationships are regularly established with universities, research centres and innovative firms (Bercovitz and Feldman, 2007; Faems et al., 2005; Rothaermel and Deeds, 2004). The literature on interorganizational relationships also affirms that firms engage in partnerships that are motivated by exploitation (Colombo et al., 2006; Lavie and Rosenkopf, 2006; Lin et al., 2007; Rothaermel, 2001). Interorganizational partnerships towards increased efficiency typically take the form of outsourcing or another expedient means of lowering unit costs. For example, firms increase the efficiency of resource utilization by means of contract manufacturing and outsourcing (Parmigiani, 2007), resource pooling (Möller et al., 2005) and differentiated learning (Dyer and Nobeoka, 2000). Whereas previous research has not explicitly examined it, interorganizational partnerships seem primarily to serve the function of structurally separate units that help firms to maximize exploration and exploitation. To further investigate this matter, I pose a question: What roles do different interorganizational partnerships play in creating ambidexterity in a focal firm?

Ambidextrous organizational context and exploration and exploitation Structural separation between radical exploration and exploitation is a necessary, yet insufficient, condition for ambidexterity. As Jansen et al. (2009) elucidate, ambidextrous organizations need routines and processes to mobilize, coordinate and integrate structurally separate exploration and exploitation activities at all levels of organizing. In this order, the contextual ambidexterity model focuses on firms’ ability to search and adopt new knowledge as well as align it with their organizations. In order to succeed in this endeavour, the organization needs integration tactics that accentuate the importance of both poles of adaptability of alignment (Andriopoulos and Lewis, 2009). Previous studies have revealed that such integration tactics include behavioural integration among the upper management (Lubatkin et al., 2006), cross-functional teams and processes (Jansen et al., 2005, 2009), a synergetic combination of optimized organizational practices (Kim and Rhee, 2009), paradoxical mindsets (Andriopoulos and Lewis, 2009) and an emphasis both on performance management and supporting contextual attributes (Gibson and Birkinshaw, 2004). The absorptive capacity perspective further illuminates why contextual ambidexterity is important for firms that employ interorganizational partnerships in their radical exploration and exploitation. As Cohen and Levinthal (1990) have claimed, firms need absorptive capacity in order to recognize the value of new, external information, assimilate it and apply it to commercial ends. Absorptive capacity

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is largely a function of a firm’s prior related knowledge. Because contextually ambidextrous firms pursue activities that relate to both exploration and exploitation, they will be capable of recognizing, evaluating and assimilating both explorative and exploitative knowledge outside the firm (De Wever et al., 2005; Powell et al., 1996). In practice, investments in internal exploration are particularly acute when connecting with R&D (Faems et al., 2007) and university-based resources (Bercovitz and Feldman, 2007). Similarly, it is expected that firms need related knowledge to be able to establish exploitative partnerships. That is, firms that do not value efficiency within their own organization are unlikely to recognize or appreciate efficiency in their interorganizational activities. On the grounds of the arguments discussed in this section, it seems reasonable to expect that firms using interorganizational partnerships need an ambidextrous organizational context that balances exploration and exploitation. However, this contention begs further questions: through which processes and mechanisms do firms assimilate and integrate the knowledge generated through partnerships? What tensions do simultaneous exploration and exploitation imply within firms? How do firms facilitate balancing and switching between exploration and exploitation?

Research design To address the questions identified in the previous sections, I carried out an empirical study. A case study method was employed due to its ability to offer context and a deeper understanding (Gibbert et al., 2008). Instead of generating completely new theory, the objective of the present research is to synthesize and to extend existing theory on ambidexterity. Therefore, before collecting the data, I developed a conceptual framework (Figure 1), which served as an overarching theoretical proposition of how interorganizational partnerships and an ambidextrous organizational context might interconnect. Theoretical propositions are particularly useful, as they help to focus attention on certain data, organize the entire case study and define alternative explanations that need to be examined (Yin, 2009: 130–1). Given the need for detailed information, an in-depth study of ambidexterity in a single organization was considered appropriate. This methodological approach follows the recommendation of Dyer and Wilkins (1991) that one in-depth case study is more reliable and valid than multiple superficial case studies. However, because only investigating firm-level issues could lead to overly simplistic conclusions, I also study three embedded innovation processes (Yin, 2009). Through these embedded cases, I am able to identify specific issues and mechanisms that underpin ambidexterity but may be indefinable at the firm-level inspection. I retrospectively studied the development of the firm and its innovations from the late 1980s to the late 2000s. By adopting a long-term historical perspective, the current study offers insight into the evolutionary nature of ambidexterity, interorganizational partnering and organizational mechanisms.

Research setting and data sources The research setting is Vaisala Oyj, a medium-sized firm that develops, manufactures and markets technologically sophisticated environmental and industrial measurement products. It is headquartered in Finland, but its operations outside Finland account for approximately 94 percent of its sales. Vaisala’s major customer groups are meteorological institutes, aviation organizations, defence forces, road and rail organizations, system integrators and process-oriented manufacturing. In 2008, Vaisala had over 1200 employees and sales of €243 million, yielding €39 million in operating profit. In collaboration with the case firm’s managers, I first selected appropriate innovation processes. The goal was to find different processes that represent the whole range of value created by a given

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organization, from small incremental product improvements to the radical creation of new markets. Another criterion in selecting these cases was that the process had to have occurred relatively recently. The reason for this was to ensure that there would still be sufficient employees at the firm who were involved in the process and who could recall the sequence of events. Based on discussions with a group of managers at Vaisala, I chose to analyse the development processes of three innovations: (1) the Drycap dew point sensor technology, (2) the Handheld Instrument Platform and (3) the Micro Weather Station. These particular cases were selected because they met the aforementioned criteria and because there was a general consensus among Vaisala managers that they are representative examples of the firm’s overall innovation activity during the period analysed. Case descriptions are presented in the Appendix. The data sources for this study consist of in-depth interviews with eight managers and executives, brief interviews with 15 managers and salespeople and archival documents. The in-depth interviews lasted from one hour to over two hours, whereas the brief interviews were approximately 30 minutes each. The interviews were tape-recorded and transcribed. Moreover, interviews were semi-structured and based on a common guide derived from the case study plan. Interviewees were first asked to discuss their specific role in the firm and in the selected innovation processes. I then asked them to discuss the partners involved in the processes. In general, discussions covered the development of innovations, management and change in Vaisala’s organization, tangible cooperation within and outside Vaisala and any other issues that interviewees raised during the discussion. Aside from the interviews, various data sources were deployed in order to gain an understanding of the firm and its products. These included a book about Vaisala’s history (Michelsen, 2006), issues of the company newsletter, Vaisala News, between 1990 and 2007, financial reports, informal discussions with Vaisala’s managers, presentations and workshops. The use of multiple data sources allows for data triangulation, thus improving the validity of the information (Eisenhardt, 1989; Yin, 2009).

Analytical techniques My approach can best be described as analytical abduction. I started with pre-existing theoretical knowledge, constructed a conceptual framework based on this knowledge and finally evaluated my framework against the data. Abduction is a continuous process that persists throughout all phases of the research process (Van Maanen et al., 2007). It characterizes not only the data analysis but also the theoretical development and relevant iterations between theory and data. Because an embedded case study design was used to analyse the data, analyses were carried out at two levels. First, innovation processes embedded within the firm were analysed to learn how different partnerships were employed in creating ambidexterity and how different processes contributed to firm-level ambidexterity. Second, firm-level analyses were conducted to find out how Vaisala, as a firm, managed its ambidexterity across different processes and between multiple interorganizational partnerships. Before collecting the interview data, I had some prior knowledge of Vaisala and its products that I had gained through several firm visits, informal discussions with the firm’s management and from reviewing archival data. This helped me significantly during the interview stage. After carrying out the interviews, I started a case analysis for each embedded innovation process. As a first step in understanding the data, I read each of the interview transcripts several times, applying a coding scheme unique to the semi-structured thematic interviews. The coding scheme featured different codes for (1) the utilization of external exploration and exploitation partners, (2) ties and relationships among actors both within and outside the firm and (3) integration and balancing mechanisms. I then clustered critical passages under the coding scheme, which allowed me to understand how consistent each embedded case was with the theory and

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with my conceptual framework. In this, I followed the pattern-matching logic recommended for case study designs of this type (Miles and Huberman, 1984). Moreover, I supplemented interviews with other data sources and compared information gained through different sources to triangulate the data. After completing the embedded case analyses, I compared my findings across the three cases. In particular, this analysis improved my understanding of how explorative and exploitative innovation processes differ in terms of the relevant balancing mechanisms, partnership utilization and relationships among the actors. Finally, I raised the analyses from the process level to the firm level. Again, using the coding scheme, I clustered firm-specific information, systematically comparing the emergent theoretical interpretations with prior theoretical knowledge and the embedded cases. The iterative process of moving back and forth between the theory and data as well as between the analytical firm and process levels allowed me to construct a representation of ambidexterity in Vaisala and its innovation processes. Next, I report the empirical findings.

Vaisala’s path to ambidexterity Although the pursuit of innovation has been critical for Vaisala since the establishment of the firm in 1936, the focus on exploration was exceptionally strong in the late 1980s and in the early 1990s. The firm participated in numerous research consortia around the world, expanded its operations and technologies into new fields, acquired firms and spent more than 15 percent of its sales on R&D. At the same time, substantial grants were offered by the firm for independent scientific research. The burst of creativity resulted in a rapid growth and diversification of Vaisala’s business. However, this extensive and radical exploration proved not to be very profitable, and when a severe recession hit the Finnish economy in the early 1990s, Vaisala’s executives saw that three decades of spending rather than earning money had left the firm with minimal assets. In 1991, Vaisala recruited Pekka Ketonen to take the place of CEO Yrjö Toivola, who had directed the firm for the past 22 years. Under Ketonen’s lead, Vaisala narrowly survived its financial difficulties by adapting a more balanced strategy. In particular, Vaisala survived by strengthening its efficiency and ability to exploit without giving up too much of its exploration. Since then, Vaisala has grown while maintaining its profitability. Figure 2 demonstrates how Vaisala’s financial structure has changed since 1991, when the firm began to augment its ambidexterity through interorganizational partnerships and internal balance between exploration and exploitation. Notable in the figure is Vaisala’s reduced reliance on external financing, especially interest-bearing liabilities, such as bank loans. This can largely be attributed to the increased use of interorganizational exploitation partnerships, which resulted in the release of capital from manufacturing, as is discussed in the next section. Moreover, the rapid growth of the firm’s net sales reflects continuing exploration and more efficient exploitation. In consequence of adopting a more balanced strategy, Vaisala no longer suffered from a bias against either orientation. As Figure 3 displays, after the firm crisis, the enhanced exploitation helped the firm to gain more returns on sales, whereas a more moderate level of exploration set a cap on R&D spending. A balance between R&D spending and the ability to obtain profits indicates that neither exploration nor exploitation is overly dominating. However, as Vaisala embraced exploration and exploitation simultaneously, it soon learned that pursuing far-reaching exploration and far-reaching exploitation was difficult. This expected maximization problem was particularly the case with respect to radical exploration, as Vaisala’s tightly integrated ambidextrous context facilitated rational feedback-based activities but eschewed foolish, radical exploration. CEO Pekka Ketonen’s comments demonstrate these challenges and their context:

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Interviewer: Which types of projects did Vaisala avoid? Ketonen: Those that would have required entering completely new areas. For example, our ammonia [gauge] fell into this category. Interviewer: How did you manage to maintain your explorative, creative activity, without falling into the trap of focusing only on incremental developments to your existing technology? How did the two efforts coexist? Ketonen: Actually, I don’t think they did. We should have had more [radical exploration]. . . . That would have helped us to grow . . . we would have been able to finance more of it. . . . The reason, in retrospect, may have been that we had multiple division structures in place, and each division was so tightly focused on existing offerings that they failed to think outside their domain. The division managers were unwilling to take risks because they had their own budgets and assigned goals and competitive contexts etc., all of which tied them so tightly to today’s business that nobody had the time to think about anything else. You really need to have a group with its own dedicated resources [to pursue creativity as a primary goal]. . . . Well, we had our Research Unit, but it didn’t have enough resources. We just should have had more [exploration].

Interorganizational partnering and exploration and exploitation Maximizing exploration through interorganizational partnerships Even though Vaisala struggled to conduct radical forms of exploration and exploitation within its own organization, it was able to tap into the benefits of these activities through its interorganizational partnerships. In terms of exploration, Vaisala mostly utilized public actors, such as universities and governmental research institutions. The most valuable of all has been a governmental research institution, the VTT Technical Research Centre of Finland. VTT has been Vaisala’s most important research partner over the past several decades, having played a key part in several profound technological innovations that Vaisala has since successfully exploited. One specific advantage in collaborating with VTT and other research partners is that these actors are continuously conducting radical and wide-ranging exploration. This compensates for Vaisala’s inability to pursue wide-ranging scientific exploration internally, and it also reduces the need to invest the firm’s scarce resources in radical exploration, which is unprofitable on average (March, 2006). CEO Pekka Ketonen explained that Vaisala sources a problem from the markets, seeks a solution in collaboration with a partner such as VTT and then exploits the solution commercially: We used to say that the concept is entirely different from the implementation – namely engineering. Engineering is often . . . performed internally within our firm because we have a lot of experience, we know our customers’ application areas . . . but it can be drudgery, just fine-tuning a system. A new concept, such as technology, is what causes the breakthrough, that becomes the revolution . . . and for a new concept, we need an external partner. . . . I once counted something like six, seven, eight cases, in which VTT played a key role in creating a new product concept that subsequently became a source of real competitive advantage for us.

Drycap represents a typical example of how Vaisala sourced the revolutionary concept from VTT. In the 1970s, VTT developed Humicap, a radically new way to measure humidity that was based on the thin-film polymer sensor technology. Using this technological concept, Vaisala expanded the measurement range from humid surroundings to the other end of the spectrum, namely, the dew point. While developing Drycap dew point measurement technology, Vaisala

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continued using research partners, most of which were universities, to contribute to scientifically demanding sensor and materials development. External partnerships were especially salient in activities that demanded far-reaching technological exploration: We used technology partners to do things that we weren’t able to do ourselves. . . . the Department of Polymer Science at the University of Helsinki participated in certain phases of our materials development. [We also collaborated with] Åbo Akademi University . . . and TU Hamburg was involved in developing another technology. (Research manager for the Drycap project)

Similarly, the development of the Micro Weather Station started with an extensive exploration phase that utilized external partners. Vaisala’s Research Unit coordinated these activities, with the goal being to specify and develop sensors for all key parameters needed for the device. Of the key parameters, there was no existing technology to measure rainfall, whereupon Vaisala begun to develop one from scratch with the Department of Physics at the University of Helsinki. A PhD student began to develop the rain sensor under his professor’s supervision, first working at the university but later becoming a Vaisala employee. Research efforts resulted in a rain sensor concept that used the acoustic method to monitor rainfall. However, as was the case with other major technological innovations that derived from exploration partnerships, the rain sensor was at first merely a concept that required extensive work in Vaisala before it could be commercially exploited: I gave the firm my raw rain sensor, which had everything I was able to do with it. It was a good instrument but very much a product of the university world. It had the method of how it works. However, the biggest task, productization, was about to begin – and I knew nothing about how to do that. (Researcher and project manager for the Micro Weather Station project)

The development of the Handheld Instrument differs from the other two cases in that it did not involve technologically demanding exploration. Therefore, instead of universities and research centres, users played a central role in defining its product specifications. For example, users were filmed using the product, and the footage was then analysed. The willingness to focus on usability derived primarily from the project manager’s extensive field experience and collaboration with potential users across numerous external projects. Moreover, Vaisala had earlier developed a handheld instrument that both customers and salespeople criticized for poor usability. This criticism levelled at the first-generation handheld humidity measurement instrument led to vigorous improvement of the product to better meet the user needs.

Maximizing exploitation through interorganizational partnerships The development of interorganizational exploitation partnerships was one of the greatest changes that Pekka Ketonen undertook after being hired as CEO. Before Ketonen’s tenure, Vaisala had attempted to do all of its manufacturing and other exploitative tasks on its own: They felt that they had to do everything themselves. That was in some sense considered more valuable. Well, after I arrived, we adopted a different stance – I asked the firm to focus on doing what we were best at. I said we should go to contractors immediately if they are better equipped for a certain project. . . . So we started to outsource our work to contract manufacturers . . . even the radiosonde, which is Vaisala’s main product, is now produced, assembled, and packaged in Malaysia. (Pekka Ketonen)

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Exploitative partnering led to an increase in turnover and freed up capital. As a consequence of starting to utilize exploitation partnerships, Vaisala’s solvency ratio significantly improved and its dependence on liabilities decreased (see Figure 2). Vaisala also closed both of its mechanical workshops, having outsourced routine manufacturing and assembly. However, instead of terminating their employment, Vaisala assigned more demanding tasks to people who performed these functions. Furthermore, outsourcing simplified Vaisala’s business, as laborious production management was no longer needed. Owing to this improved efficiency, Vaisala was able to pay generous dividends to its shareholders for the first time in its history. The involvement of extensive contract manufacturing was also evident in the innovation processes analysed. For example, the entire display unit of the Handheld Instrument arrives fully constructed and assembled from a contract manufacturer. Similarly, interorganizational exploitation partners play a key part in manufacturing Drycap products and Micro Weather Stations. Because of its interorganizational collaboration in exploitation, Vaisala has been able to focus on integrating and balancing without the need to disperse resources to radical exploitation activities, such as the fine-tuned efficiency needed in manufacturing. However, the firm has also pursued some internal exploitation activities, especially when there have not been efficient partners available. In this vein, a product development manager for the Drycap project elaborates on Vaisala’s utilization of contract manufacturers: Regarding the actual manufacturing, it is increasingly done elsewhere. As a principal rule, one could say that [Vaisala’s products] come from elsewhere. But they are not necessarily fully assembled elsewhere.

In addition to contract manufacturing, Vaisala occasionally utilized small-scale contracting in product development. Notable in the outsourced development is that it has dealt with product features that are beyond Vaisala’s actual competence areas, which involve sensor technology and measurement parameters. This is a conscious choice made by the firm; the organization focuses only on its competence areas, leaving other tasks to its collaborators. For example, in the case of the Handheld Instrument, the development of the software needed for the device was outsourced to a specialized firm. Finally, the distribution of products primarily through system integrators is a form of exploitative partnering. For example, Micro Weather Stations were sold to firms that used them as parts of larger weather stations. In this manner, Vaisala serves relatively broad groups of end-users without itself needing to build and maintain all of the distribution systems and user relationships.

Integration and balancing mechanisms Whereas interorganizational partnerships are effective vehicles for exploration and exploitation, a firm needs to integrate and balance both activities internally. In Vaisala, the ability to integrate and balance exploration and exploitation has rested on an ambidextrous core in general and three foundational pillars in particular. First, the ability to collaborate with different partners and employ their knowledge required functional partnership ties and absorptive capacity. Second, the coexistence of exploration and exploitation within the organizational processes required the ability to deal with the paradoxical mindsets. Finally, third, specific mechanisms supported switching and balancing exploration and exploitation through paradoxical mindsets. In the following, I discuss the details of each foundational pillar and elucidate how they were manifested in Vaisala and its innovation processes. Table 1 presents additional samples of representative data.

Embracing the paradoxes associated with jointly pursuing exploitation and exploration [In the 1990s it was realized that] Vaisala had expanded Chaos ↔ discipline over the years without strict strategic guidelines. The company was strong in technology but weak in management and business. (Michelson, 2006: 158)

Integrating partnership resources and the ambidextrous organizational context Strong ties to strategic Local Finnish development projects with the Technical exploration partners Research Centre of Finland and the Helsinki University of Technology date back many years, and continue strong today. (Vaisala News, 2006, No. 170: 24) Weak ties to other As a Practitioner Partner, Vaisala has the chance to explorative actors influence CASA’s [Engineering Research Centre for Collaborative Adaptive Sensing of the Atmosphere] strategic direction through the semi-annual industry advisory board meetings, as well as by reviewing and assisting individual research projects. Vaisala also hosts CASA student internships. (Vaisala News, 2006, No. 171: 18) Weak ties to exploitation Some [contract manufacturers] follow the contracts partners more strictly, whereas others less strictly, but anyhow, it is much easier to change the supplier [than an exploration partner]. (CEO Pekka Ketonen) Related internal As an R&D centre ourselves, we also appreciate knowledge (i.e. absorptive Vaisala’s continual investment in product development. capacity) and a shared We have clearly benefited from their R&D projects. frame of reference (Len Ruby of the New Zeeland National Climate Laboratory in Vaisala News, 1995, No. 137: 23)

Firm level

Table 1.  Data table for integration and balancing mechanisms

(Continued)

In this kind of project world, it is sometimes hard to pursue those [radical] kinds of innovations. Because before the project even starts, you must prepare schedules and define a budget for it. (Researcher and project manager, Micro Weather Station)

We want to be able to terminate relationships and change a contract manufacturer to a new one. Recently, we changed to a less expensive contract manufacturer. (Product line marketing manager, Micro Weather Station) During the product development of the Vaisala Weather Transmitter WXT510, we had the possibility to construct a laboratory for calibrating and testing the Vaisala RAINCAP® rain sensor. . . . In October 2007, Salmi and Elomaa presented a study of the terminal velocity and shape of falling raindrops at the 7th EMS Annual Meeting. (Vaisala News, 2008, No. 176: 19)

[Having close relationships with exploration partners] is a great advantage . . . you go to visit them in half an hour and say ‘hey what’s up, let me see what that thing was about’. (Research manager, Drycap) We are in touch with them [the Centre for Metrology and Accreditation], but it isn’t monthly communication . . . maybe once a year. (Product line manager, Handheld Instrument Platform)

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There was lots of old blood – combined with experience. (Project manager, Handheld Instrument Platform) We had lots of inexperienced folks. People – product developers – didn’t know what a weather station was! . . . The CEO was backing us up, and the head of Research Unit, and our own supervisors too. (Sales manager, Micro Weather Station) Whereas technology development is science-driven, the actual product development has long emphasized market orientation. So, I wonder if we have a convergence problem somewhere . . . (Research manager, Drycap)

N/A

Technology push ↔ market pull

How did it progress? Well, it was nowhere near a process! (Research manager, Drycap) We first introduce what we’d do, what’s the market, and about how much we could make cash flow out of it. Then, we develop the product a bit further and then we have the project review zero – or it’s sort of a kick-off – if the decision is to proceed . . . (Sales manager, Micro Weather Station)

They [product lines and R&D] are organized in the matrix so that we have product lines like this (draws a matrix) and then we have R&D like this. . . . It is not the type of an organization where R&D is under the product line . . . but they are parallel. (Researcher and project manager, Micro Weather Station)

Process level

Firm level

In order to be successful in the solutions business we have to master both the customer’s application and the technologies that can address the challenges. (Vaisala News, 2005, No. 167: 3) Balancing and switching mechanisms Matrix organizational The market side draws on customers and R&D on structure technologies, but it’s like a matrix that meets within the firm boundaries. And I don’t know which one was the main driving force; I think they were pretty wellbalanced. I think that in an engineering culture, like in Vaisala, there is a great danger that they just start to push the products. But I don’t think that it went too much in that direction. We tried to listen to our customers; and we succeeded to do that through our specified processes. (CEO Pekka Ketonen). Formal development Vaisala works hard to continuously improve the process product creation process. . . . With our fine-tuned product process we have every intention of generating further technology breakthroughs. (Vaisala News, 1997, No. 145: 4)

Inexperienced ↔ experienced employees

Table 1.  (Continued)

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N/A

We are customer-focused and customer-driven. We want to be close to our customers both physically and in understanding their mission-critical processes. (Vaisala News, 2006, No. 173: 3)

Physical proximity

Shared customeroriented culture

Although I first came to Vaisala’s R&D, I didn’t take part in the actual technology development. [My job in this project] was scanning markets, applications, and competitors. (Product line marketing manager, Drycap and Handheld Instrument Platform) He [a product line manager] has a strong background in R&D that now and then comes up with a force. (Researcher and project manager, Micro Weather Station) Physical proximity is important. . . . It makes a great difference whether a person sits 10 metres from here or on the other side of this labyrinth. (Research manager, Drycap) When we did this, we all sat in the same pile. I sat there too and it was pretty important. (Sales manager, Micro Weather Station) Now we are leaning more towards customers with our new technology, because we want to get going faster than what we were used to. (Research manager, Drycap)

I was the project manager in the preceding humidity product family . . . learned my lessons and made many mistakes. But that’s good because if I hadn’t made them, I couldn’t have attained any improvement. (Project manager, Handheld Instrument Platform)

It is imperative that the projects are managed with absolute discipline. The feedback we receive from customer satisfaction surveys is extremely valuable when providing additional training for our specialists and when further developing our project management processes. (Vaisala News, 2005, No. 167: 5) N/A

Project management skills

Job rotation

Process level

Firm level

Table 1.  (Continued)

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Integrating partnership resources and the ambidextrous organizational context Well-functioning partnership ties formed the basis for integrating external resources. The desired strength of each tie depended upon the type of the partnership. In contrast to exploitation partnerships, many exploration partnerships involved closely related internal capabilities along with close and frequent interactions (i.e. strong ties) (Hansen, 1999). Accordingly, Vaisala purposefully invested in activities that strengthened ties to exploration partners and increased the social capital of the relationship. For example, relationships with universities were actively maintained: We had a budget for funding dissertations just because we wanted to keep our relationships with universities alive, to know the professors . . . so that the professors know what we are doing and can then call us when they run across something that could benefit Vaisala. (Pekka Ketonen).

The rationale of having these close relationships was, as Ketonen’s comment implies, that in explorative partnerships, it is imperative to understand what kind of knowledge and capabilities the partner possesses. This understanding is important because when a firm aims to reap the benefits from explorative partnerships, both parties must transfer knowledge and capabilities that involve not only explicit, but also tacit components (Ahuja, 2000). Tacit knowledge sharing, in particular, requires strong ties between the partners (Hansen, 1999). In addition, Vaisala had weak ties, which refer to distant and infrequent relationships, to other explorative actors. These ties increased the awareness of new opportunities without involving actual collaboration. For example, Vaisala’s researchers attended conferences and research consortia in order to stay abreast of technological progress. In contrast to collaboration in explorative partnerships, exploitative partnerships did not require close and enduring relations. CEO Ketonen’s comparison between the relationships with subcontractors and research organizations effectively highlights this difference: Subcontractor relationships are different. These [explorative partnerships] – like the one with VTT – are strategic relationships, and it is difficult to find other partners to substitute for them. . . . But in subcontracting, they are usually such that you can always find another firm. They are very much contract-based . . . they are about the terms of the contract and those kinds of things.

Besides ties, related internal capabilities (i.e. absorptive capacity) played an important role in facilitating the integration of partnership resources. Specifically, some of Vaisala’s employees held knowledge that was very similar to that of its partners. This was particularly the case with explorative relationships, as the firm’s ability to internalize and apply resources from these partnerships rested almost entirely on Vaisala’s own researchers who possessed related knowledge. Unlike researchers, the employees who were primarily responsible for formal product development processes, and who were thus compelled to deal with concurrent exploration and exploitation, did not always feel that their capabilities sufficed to absorb knowledge from explorative partnerships: In those [explorative partnerships] the sensor researchers take care of the connections outside the firm. They are, after all, discussions at the level where I have nothing to contribute . . . because they discuss the technologies so profoundly. (Product line marketing manager for Drycap and Handheld Instrument Platform projects)

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Because researchers played such an important role in internalizing external explorative knowledge, it was necessary that they collaborated closely with marketing personnel in integrating knowledge. After being internalized, external knowledge was applied to products and technologies that were internally developed in Vaisala. On the other end of the value chain, other interorganizational partners were utilized to maximize exploitation. The integration of exploitative partners required a similar frame of reference more than a similar knowledge base. That is, Vaisala started to employ exploitative partnerships and expected them to be efficient only after the firm had begun to value exploitation in its own operations. Collaboration with exploitation partners, such as contract manufacturers, usually took place under the project manager’s supervision.

Embracing the paradoxes associated with jointly pursuing exploitation and exploration Although a few of its employees focused primary on exploration, contextual ambidexterity characterized Vaisala’s organization as a whole. In practice, this implied that employees had to deal with the paradoxical mindsets and balance exploration and exploitation in their activities. The analyses reveal that much of the balancing focused on reconciling between the paradoxical poles of three specific continuums. With respect to each continuum, employees saw both paradoxical poles as elemental parts of their job. First, the informants discussed the co-presence of chaos and discipline in the organizational processes. The development of Drycap was an exception in this sense because its core technologies were first developed when the firm had not yet established its formal product development process. Because the formal process was the central vehicle for discipline, chaos tended to dominate, and coordinated efforts to exploit the technological concept were mostly absent until the formal process was created in the mid-1990s. When Vaisala then began to consider ways to exploit Drycap, doing so turned out to be difficult because the exploitability of the product concept had not been considered from the beginning. Eventually, the delayed exploitation incurred substantial financial costs: Now, after 10 years, this product line is just about profitable, which is quite shocking if you start calculating the cash flow from day one. (Research manager for the Drycap project)

Quite the opposite kind of example is the Handheld Instrument Platform, which was created after the firm started to use the formal process to rein in chaos surrounding the innovation work. Therein, it was important that Vaisala did not attempt to use a disciplined process to subdue chaos, instead choosing to add structure to it. The formal process was allowed to evolve freely, and even chaotically, but at the same time, it was punctuated by periodic reviews where the developers were required to justify their plans in terms of the future exploitation of the process outcomes. The following comment by a research manager for the Handheld Instrument Platform project illustrates how periodic reviews were milestones that added discipline to otherwise chaotic development: All the ideas and solutions; they were all created amidst the tumult. So this project can be described as chaos. . . . There was no well-defined policy, but things proceeded in milestones.

The second distinctive trait of the analysed cases involved synthesizing the knowledge and capabilities of experienced employees with novel perspectives of new employees. In the case of the Handheld Instrument Platform, for example, the same individuals who had developed the earlier handheld instrument generation constituted the core of the development team. Experience helped the project team to focus on issues that needed particular attention and improvement vis-a-vis

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earlier product generations. In addition, approximately half of the development team members were new recruits. They brought in new capabilities and perspectives, such as knowledge on usability and software design, that were needed to overcome the deficiencies identified. The Micro Weather Station project involved another type of reconciliation between experience and inexperience. Specifically, practically all members of the project team were new recruits. This was beneficial, as new employees did not carry a burden that dated back to Vaisala’s earlier, failed attempts to develop a micro weather station. In the 1980s, Vaisala had tried to develop a compact weather station using a radiosonde for measuring parameters and an already-outdated Commodore 64 computer for processing. This effort failed completely, whereupon the organization learned to eschew such endeavours. As a consequence, and despite solid executive support, most of Vaisala’s organization discouraged the Micro Weather Station project. In the following quote, a researcher and project manager for the project describes how the discouragement was manifested. The comment also illustrates how rational and feedback-based contextual ambidexterity prohibited foolish, radical exploration: When I started working in Vaisala, during the first week n individuals from Vaisala’s organization came to tell me that it didn’t make any sense what I was doing, or that ‘it won’t work’ . . . like ‘what on earth are you doing?’ And then there were n employees who said that they had done the same thing before, and it didn’t work. So, it was a battle that I had to go through. And at that point it is very important . . . if I think most of the people in the Research Unit . . . it may fall at that point . . . that they just don’t have the force to fight it through.

The downside of the dominant role of inexperience was that the project team members had little knowledge of relevant technological applications and inadequate project management skills. Due to these shortcomings, the project was delayed at several stages and regularly failed to meet its expectations for exploitation. However, the steering committee that made decisions in business and technology reviews consisted of experienced individuals. Despite the delays and unrealized expectations, they allowed the project to proceed. This flexibility and social support encouraged the project team members to continue their work, as they trusted steering committee members’ experience and discretion. Finally, the analysed projects dealt with the opposing forces of technology push and market pull. Interestingly, the informants considered that the firm had to balance these two forces in order to reach sufficient levels of both exploration and exploitation. The organization embraced technology push as a way to offer new interesting initiatives to customers and to explore new markets. However, letting the market pull the development (i.e. developing products to meet the expressed needs of the customers) was considered important because of its potential to facilitate exploitation. Both technology push and market pull were particularly embraced by the product development process, which involved formal business and technology reviews for assuring that both aspects were sufficiently represented. Product line marketing specialists provided knowledge on market demands, whereas R&D people contributed by proposing technology prospects. The task of project management was to accommodate both of these perspectives. In the following, I discuss the key mechanisms that facilitated balancing and switching between exploration and exploitation.

Balancing and switching mechanisms Balancing and switching mechanisms enabled embracing paradoxical mindsets within the ambidextrous organizational context. A matrix organizational structure and formal product development

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processes were the most salient of these mechanisms. The matrix organizational structure integrated the knowledge of marketing and R&D personnel while allowing both functions to focus on their main tasks. The main task of marketing was to represent customers in cross-functional product development processes and to provide market insight and information as to business opportunities. In that role, marketing people used market knowledge to pull the development processes. Marketing also acted as a link between salespeople and R&D personnel. R&D professionals translated the customer requirements into technical specifications, but in order to develop the markets, they also pushed new technologies on their own initiative. In this way, the matrix structure facilitated balance through embracing technology push and market pull. A researcher and project manager for the Micro Weather Station illustratively described the relationship between marketing and R&D people in the organizational matrix: The product line marketing conveys customer demands for us to R&D, and we then translate them into technical requirements . . . and of course [we] try to do different technological things that would serve the product line; not necessarily on their initiative, but independently. However, the essential thing is that they [marketing and R&D] are not reporting to one another, but are equal.

As the above quotation indicates, the matrix organization and formal processes were tightly intertwined. In fact, formal processes created the organizational matrix by being the crossfunctional element that connected otherwise separate functions. The formal process implied that the development of each product or product family matched the formal, predefined process that incorporated parallel periods of technology and business development. Similar to Cooper’s (1990) Stage-Gate model, these periods are punctuated by formalized technology and business reviews that aim to ensure that both aspects are leading towards exploitable outcomes. As the formal process presumed an exploitation plan for the process outcomes, it facilitated switching exploration to disciplined exploitation. In other words, Vaisala’s formal process was a vehicle of discipline that advanced the alignment and exploitation of chaotically structured explorative ideas: You couldn’t get far with technology only because there were nasty checklists. . . . What benefit are we offering to the customer? What is our advantage over the competitors? Nasty questions; and you had to find answers to them! . . . And then the technology process was parallel [to the business reviews]. If the business plan didn’t look good, we could terminate the project. (Pekka Ketonen)

Comparing the development processes of Drycap and the other two innovations clearly demonstrates the value of a formal process that switches from exploration to exploitation. When Drycap technology was first developed, Vaisala did not have a formal product development process. Thus, when the inventor of Drycap came up with the idea in the late 1980s, the invention was patented, but its further exploitation was omitted until much later: Somewhat typically . . . Vaisala didn’t start to apply this invention . . . the advantage that we could secure with it was unclear. (Research manager for the Drycap project)

In the mid-1990s, the R&D manager at the time reopened the question of how to exploit Drycap technology. He visited potential customers, discussing possible applications for the technology. However, it took nearly 10 years before Vaisala began to exploit its invention, and even then, the exploitation hinged upon unstructured efforts of an individual R&D manager. Unlike Drycap, the Handheld Instrument and the Micro Weather Station were developed through the formal product

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development process that incorporated both technology and business reviews. In these projects, exploitation had to be considered right from the beginning, as these plans had to be explicated in formal reviews in various phases of processes. In this order, the product developers tried to take the opinions of salespeople into consideration as early as possible, as salespeople have valuable insight into how to exploit products on the market. These efforts facilitated the exploitability of the process outcomes, as they not only increased the awareness of customer needs, but also augmented salespeople’s commitment to products in development. For example, a development manager from the Drycap project elucidates this change that has taken place since the early days of Drycap: If we go back in time enough, it used to be so that the R&D did it, thought it all through, and finished it. And when they then brought it up [saying] that this should be launched, terrible screaming would break out, like ‘What? No! It is like . . . Didn’t you consider this and that at all?’ and the R&D would say, ‘It is too late now, we can’t take that into consideration anymore’ (laughs). I mean now everyone is involved in the early phase and everyone has better changes to influence the development.

Taken together, matrix structures and formal product development processes were mutually reinforcing mechanisms that facilitated the cohesion, promoted switching between exploration and exploitation, and enabled the integration of the paradoxical poles. However, other mechanisms complemented these two and thereby facilitated the balance of and switching between the paradoxical mindsets. In particular, these mechanisms included project management skills, crossfunctional job rotation, physical proximity among the key project team members and a shared customer-oriented culture. Project management skills refer to individuals’ ability to effectively coordinate the efforts of diverse actors and utilize relevant resources in the systematic value creation process. These skills are important because they facilitate the integration of external knowledge and the implementation of formal processes. In Vaisala, project managers were responsible for making sure that both market and technological aspects were adequately represented in the formal process. Project management skills were first needed to coordinate the integration of knowledge from explorative partnerships into the formal process, then to supervise the execution of the formal process and, finally, to organize the exploitation through partnerships. Besides promoting the balance between technological and market aspects, the project management skills added discipline that reined in chaos in the development processes. In that, these skills helped Vaisala to deal with the paradoxical mindsets, thereby facilitating the balance between exploitation and exploration. A development manager from the Drycap project described project management skills and their development in Vaisala: There has been an immense improvement [in project management skills] over the past 10–15 years. . . . [Project management] implies more and more discussions and knowledge sharing, and there are increasingly many [actors involved]. It is quite a challenge for a project manager because now he or she must communicate to all directions, run the whole show. And now a new dimension is that the manufacturers, the partners, are somewhere outside, whereas earlier it was pretty much so that we did everything ourselves in our own production facilities, and then the distance was in a way shorter.

The development process of the Micro Weather Station in particular illustrates the importance of project management skills. During development, the development team had little experience in product development processes and, thus, inadequate project management skills. In practice, the focal actors of the project were either new recruits or researchers who had been involved in developing the sensor elements, but who had little understanding of how to develop commercially

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exploitable products. That was problematic because project management skills generally develop through project management experience. Because of the lack of experience and project management skills, the process ended up being chaotic with little discipline. Therefore, as a sales manager who was involved in the process elucidated, the lack of discipline caused the delay: Product development is much more disciplined; there are the specs and it is systematic work. Research, on the other hand, is freer. And that is probably a major reason why it [the project] . . . fell behind schedule.

Whereas the project management skills were inadequate, the project team’s ability to communicate effectively across functions facilitated the project implementation. Job rotation between different functions – marketing and R&D in particular – played a key role in this. These rotations were feasible as most employees in both functions held an engineering degree and had similar background knowledge and a common frame of reference. Also, as the case of the Micro Weather Station demonstrated, several employees from the Research Unit moved to R&D and continued their work in the formal product development process. Owing to job rotations, the cohesiveness between different functions increased, which strengthened the cross-functional element of the organizational matrix, increased the availability of knowledge, facilitated knowledge sharing within the formal development processes and helped balance marketing and R&D perspectives. Cohesive coordination restrained excessive chaos in the development, while, at the same time, new capabilities and perspectives brought in by the rotated employees complemented existing expertise in different functions. Yet another mechanism that increased cohesiveness in the development process was the physical proximity of its key actors. This very much characterized all the cases analysed and was considered an important factor that contributed to achieving desirable project outcomes. Physical proximity obviously facilitated knowledge sharing among the development team members, but it also enabled an ongoing brainstorming and mutual social support. In practice, the physical proximity implied that the entire team was located in the same office space: We sat there like, I would say that within five metres, if you drew a circle with dividers. . . . If someone’s light bulb went on, everyone could hear it and contribute to it. (Project manager in Handheld Instrument Platform project)

However, the challenge of the matrix organization has been that because there are multiple simultaneous projects, it has been difficult to keep teams physically proximate. Because the development of radically new technologies requires a particularly dedicated focus, an ambidextrous context organized into a matrix form sets limits to the radicalness of the project: We have made attempts to physically co-locate project teams. That is difficult to achieve in a multiproject environment like ours. . . . It’s especially important [to have physically proximate working groups] when we are doing something really new. If we are just building another grey pot, but with some added features here and there, that fits the process easily. (Research manager in Drycap project)

The final mechanism is a shared customer-oriented culture that characterizes marketing and R&D employees alike. This culture eventually arose from the requirement levied on developers to characterize the expected customer value of their activities. Formally reviewed processes no longer allowed the development of products and services without identified markets. In essence, customer orientation implied a combination of market pull and technology push: the former geared towards meeting the customers’ expressed needs, and the latter towards their latent needs.

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A customer-oriented culture had not always been characteristic of Vaisala. For example, in the early 1990s, it was common that marketing and R&D people had very different opinions about the desired product features. However, after Vaisala’s organization became more customer-oriented, these diverging perspectives started to fade. A shared customer-oriented culture facilitated integration and balancing by providing guidance to product development and a shared frame of reference for employees in different functions. The following remark by the Handheld Instrument’s project manager illustrates how R&D people assumed a customer-oriented mindset: We tried to change our way of thinking about that . . . it is so simple that if a user cannot use our product . . . the traditional way for engineers to think is that the user is stupid. But in our new model, the logic is that the device is poorly designed.

Discussion Structural and contextual ambidexterity models have disputed the appropriate separation between exploration and exploitation. This study aimed to synthesize both models’ perspectives. To this end, the article investigated how a firm can create ambidexterity by combining structurally separate interorganizational partnerships and an ambidextrous organizational context. The Vaisala case study supports the contention that structurally separate interorganizational partnerships play especially salient roles in maximizing the distinct benefits of exploration and exploitation. Also, the study implied that firms that use interorganizational partnerships need an ambidextrous organizational context to adapt explorative knowledge and transform it into something that enables its exploitation. With respect to interorganizational exploration, partners are often better able to radically explore new technologies than a firm, with all of its resource constraints and risk aversion. In the case of Vaisala, many explorative partners were public research organizations. This has two main benefits. First, these institutions conduct basic research that has the potential to produce great inventions, such as the Humicap technology in Vaisala’s case. Because this kind of basic research is generally unprofitable, individual firms are often unable or unwilling to pursue it on their own. Second, because public organizations are not commercially motivated, the disputes over the commercial exploitation of innovations are less likely to occur. This is important because, as Faems et al. (2007) contend, the perceived risk of competition from a partner organization diminishes interfirm knowledge transfer and collaboration. On a different note, the case of the Handheld Instrument showed that users can take the place of research partners when radical technological exploration is not the crux of the project. This finding adds to the extant ambidexterity literature, which has largely ignored the role of users and customers. Exploitative partnering, in turn, has directed Vaisala towards establishing relationships with firms that are highly efficient and eminently reliable. Most of these relationships were established with contract manufacturers that produce, assemble and deliver the products. In addition, Vaisala used smaller-scale exploitative partnering for R&D, thus exploiting external parties’ development skills in terms of peripheral product development activities, such as software and product design. Using partnerships to maximize exploitation also proved very effective because it freed up capital from manufacturing, which then enabled larger investments in the firm’s actual competence areas. Because Vaisala aimed to improve its efficiency through exploitative partnerships, this aim also determined the nature of these relationships. Coordinating exploitative relationships can be described as contract-based, which contrasts with the cohesive attributes of explorative relationships, namely trust and respect. The firm favours weak ties in its exploitative relationships because

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with this strategy it can always seek the best available price and quality from a large pool of potential collaborators. Moreover, weak ties are less costly to maintain and dissolve more easily. In terms of using interorganizational partnerships in the creation of ambidexterity, the Vaisala case showed that a firm’s internal capabilities and external networking are closely intertwined, as the absorptive capacity perspective suggests. Respectively, the findings are at odds with Holmqvist’s (2004) suggestion that interorganizational-level exploration (exploitation) would augment exploitation (exploration) at the firm level. For example, because Vaisala in the early 1990s lacked internal knowledge of how to exploit its knowledge and align its operations, it was incapable of arranging these activities through its external partners as well. The firm did not see the value of being efficient because that was something it was not used to doing. Instead, before the crisis, Vaisala was characterized by a tremendous involvement in exploration partnerships, which further augmented the already dominating explorative culture in the firm. These findings contribute to the extant research on interorganizational ambidexterity (Im and Rai, 2008; Lavie and Rosenkopf, 2006; Lin et al., 2007) by noting that an ambidextrous organizational context is an important antecedent of a firm’s ability to capture the benefits resulting from both explorative and exploitative partnerships. However, even though the ambidextrous organizational context supported absorptive capacity, it had evident boundaries regarding radical exploration. After surviving its crisis, Vaisala learned that despite its ambidextrous context, the exploitative logic started to drive out radical exploration, as suggested by Benner and Tushman (2003) and March (2006). Interestingly, the structurally separate Research Unit played a key role in fostering exploration activities and thereby generating absorptive capacity. The Research Unit pursued radically explorative activities by providing researchers with resources and freedom that were not subject to the firm’s control and coordination. This structural separation also demonstrated how difficult it is to preserve balance between exploration and exploitation. In fact, a dedicated function for conducting radical exploration and cooperation with exploration partners may be a feasible solution, at least in science-driven firms. The findings suggest that an ambidextrous context rests essentially on internal integration and balancing mechanisms. First, a composition of strong (thick lines in Figure 4) and weak ties (fine lines) to exploration partners, weak ties to exploitation partners and absorptive capacity helped Vaisala to integrate partnership resources with the ambidextrous organizational context. Strong ties in strategic explorative partnerships increased trust and reduced opportunism, thus facilitating integration and knowledge sharing (Ahuja, 2000). Weak ties to other exploration partners created diversity and extended the network (Kang et al., 2007). Moreover, weak ties were suitable in exploitation partnerships as they are economical, require less management (Gilsing and Nooteboom, 2006; Hansen, 1999), and enable a firm to change partners flexibly. Finally, absorptive capacity played an important role in integrating partnership resources with the ambidextrous organizational context. Namely, the integration of explorative partnerships required related internal knowledge, which especially emphasizes a firm’s ability to assimilate and apply external knowledge. In exploitation partnerships, it generally sufficed that different partners had a shared frame of reference that enabled recognizing and valuing relevant external knowledge. Second, embracing the importance of both paradoxical poles in activities that related to exploration and exploitation supported the ambidextrous balance within Vaisala’s organizational context. This study found that particularly the opposing poles of chaos and discipline, inexperienced and experienced employees and technology push and market pull contributed to the balance between exploration and exploitation. Taken together, these three continuums can be considered to represent organizational processes, employee capabilities and value creation, respectively. Therefore, when these three are in balance, a firm’s exploration and exploitation are in balance in all major respects.

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Strategic Organization 8(4) Integrating and balancing exploration and exploitation Integrating partnership resources and the ambidextrous context • strong ties to strategic exploration partners • weak ties to other explorative actors • weak ties to exploitation partners • related internal knowledge (i.e. absorptive capacity) • shared frame of reference

Research unit

VAISALA

ambidextrous organization context

Embracing the paradoxes of exploration and exploitation • chaos ↔ discipline • in experienced ↔ experienced employees • technology push ↔ market pull

Maximizing exploitation Interorganizational exploitation partners

Interorganizational exploration partners

Maximizing exploration

Balancing and switching mechanisms • matrix organizational structure • formal development process • project management skills • job rotation • physical proximity • shared customer-oriented culture

Figure 4.  Creating ambidexterity through interorganizational partnerships

Third, specific balancing and switching mechanisms facilitated adaptability and alignment activities within the ambidextrous organizational context. The matrix organizational structure and formal processes through which the firm manages the development of its product innovations lay the foundation for integrating and switching between exploration and exploitation. Together these mechanisms create an ambidextrous context in which marketing and R&D people can cultivate their function-specific knowledge while collaborating in cross-functional innovation processes that tie together both perspectives and focus on producing exploitable outcomes. Project management skills, job rotation, physical proximity and a shared customer-oriented culture are mechanisms that collectively improve collaboration and shared perceptions between the functions and facilitate switching from exploration to exploitation. Figure 4 summarizes the findings of this study. A key implication is that internal ambidexterity and external collaboration are not substitutes for one another but are complementary (cf. Powell et al., 1996; Rothaermel and Alexandre, 2009). In addition to structurally separate partnerships and contextually ambidextrous organizational context, the findings show that a firm can also have specialized organizational units, such as the Research Unit in the Vaisala case. Thus, the findings add to ambidexterity discussions demonstrating that interorganizational partnerships, ambidextrous organization context and structurally separate organizational units can collectively drive

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ambidexterity. Thus far, studies have only speculated that different antecedents of ambidexterity might complement one another (Raisch and Birkinshaw, 2008; Simsek, 2009). Vaisala’s ambidextrous organizational context exists between explorative and exploitative partners, where it arbitrates and balances knowledge and resources between different partnerships. In this, the bridging position between explorative, mostly science-driven organizations, and exploitative manufacturing and supply partners provides Vaisala with an exclusive opportunity to generate rents. This observation is compatible with the arguments of social network scholars who claim that the rent accrues to the firm occupying a structural hole (Burt, 1992). This study demonstrates in particular that this rent can materialize in the form of organizational ambidexterity.

Conclusion The present article contributes to ambidexterity discussions by presenting an interorganizational model that unites the key insights from previous contextual and structural perspectives. Here, the interorganizational model moves the discussion beyond the usual dispute of whether separation between exploration and exploitation activities is needed. Similar to Andriopoulos and Lewis (2009) and Jansen et al. (2009), this article argues that both separation and integration are essential. In particular, this study shows that separation is needed to conduct radical exploration and exploitation, and interorganizational partnerships are a fitting instrument for this. These findings underline the importance of firms’ extroversion in finding and utilizing appropriate outside partners. In contrast, inward-focused organizations can run out of both creative ideas and resources that contribute to exploration and exploitation. However, as with other forms of ambidexterity, a firm’s internal ability to integrate and balance exploration and exploitation is critically important in the interorganizational model. Being extroverted and making use of external partners is an insufficient condition for ambidexterity because it is not the network but the firm that balances exploration and exploitation. As a consequence, the present article concludes that interorganizational ambidexterity requires organizational ambiversion – simultaneous extraversion and introversion. As such, firms should be extroverted in seeking resources and ideas outside the firm while at the same time being introverted in balancing exploration and exploitation within the firm. In that sense, as Raisch et al. (2009) proclaimed, managers not only face the challenge of balancing exploitation and exploration but also the challenge of integrating external and internal knowledge. In line with Grandori and Furnari (2008), one of the interorganizational perspective’s advantages over purely structural and contextual models might be that it consists of more varied organizational attributes. Specifically, the organization’s ambidextrous context is characterized by bureaucratic elements (e.g. formal processes), exploitative partnering has many market-based elements (e.g. low-cost, transactional relationships) and explorative partnering builds largely on communitarian elements (e.g. trusting, long-term relationships). As Grandori and Furnari (2008) report, an effective organization designed for efficiency and innovation should be composed of varied rather than of uniform organizational attributes. Whereas this study offers clear implications and contributions to existing ambidexterity literature, it is not free from limitations. In particular, as this study employed an in-depth case study, researchers should be cautious when generalizing these findings to firms in dissimilar industries or to firms with completely different partnership compositions. As this early enquiry into interorganizational ambidexterity used in-depth case analyses to identify the key variables and their relationships, future researchers will be able to conduct studies on a wider scale. In general, future studies

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should test and extend the arguments presented in this article. Moreover, in line with most studies on ambidexterity (Raisch et al., 2009), I only focused on the simultaneous pursuit of exploitation and exploration. Indeed, whereas the Vaisala case indicated that exploration and exploitation evolved and transformed over time, a closer inspection of these dynamics was outside the scope of this study. Therefore, one specific avenue for further research is to examine the temporal cycling and dynamics between exploitation and exploration (e.g. Brown and Eisenhardt, 1997; Gersick, 1991). Furthermore, interorganizational partnerships are important for ambidexterity, but too little is known about how different industry, institutional and organizational contexts affect their utilization. Therefore, future studies should continue to explore these questions.

Appendix: Descriptions of embedded innovation cases Embedded case 1: Drycap dew point sensor technology Dating back to a late 1980s auto-calibration innovation, Drycap expanded Vaisala’s measurement range from humid surroundings to the other end of the spectrum, namely dew point. Dew point measurement is used, for example, in industrial dryer applications, where the dryness of compressed air is crucial. What made Vaisala’s measurement system different from competitors’ products were the polymer sensor and auto-calibration technologies. The dominant technology in dew point measurement was – and still is – analogue. The weakness of analogue technology lies in its instability and drifting, which cause data to become increasingly unreliable over time. Therefore, the transmitters have to be recalibrated approximately once a year, and to do that, they have to be taken out of service. With polymer sensor technology, auto-calibration removes the need for costly recalibrations. However, the challenge with polymer technology is the difficulty of extending the measurement range to sufficiently low temperatures. When the first Drycap product was launched in 1997, it could only accurately measure temperatures of –40ºC and above, while key competitors had products that could measure down to –80ºC and –100ºC. The ability to operate accurately in cold environments is crucial, because temperatures in compressed air systems are extremely low. In the year 2000, Vaisala finally succeeded in developing new materials that could extend down to –60ºC. Only after this milestone did the sales of Drycap products start to grow significantly. Eventually, in 2007, the –80ºC threshold was reached. Each step towards colder temperatures has opened up new, previously unreachable markets.

Embedded case 2: Handheld Instrument Platform One virtue of Vaisala’s dew point measurement technology is the aforementioned auto-calibration. Another advantage came from inventing a probe that can be stuck directly into the compression process without the need to run down the process. Placing the probe into the process is a faster and more convenient way to collect data than the older approach, under which gas was collected via tubes into a large measurement device. This innovation eventually enabled the development of a handheld dew point instrument where the probe and display units are two separate devices. Since the display unit is generically compatible with various probes (e.g. dew point, carbon monoxide, humidity), a customer does not have to pay for overlapping technologies or combine data from various instruments. The very idea of the handheld instrument technology was to create a platform to take advantage of various probes that Vaisala had already been producing. The first product under this platform

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was launched in 2001. It was not particularly novel in terms of technology because both the innovation of inserting the probe into the process and the concept of a handheld device had already been used in Humicap products. Instead, the innovation was the modularity – for the first time, Vaisala had a product that integrated multiple types of measurement. Modularity led to a swift launch of several incrementally new products that added value to existing customer segments. Moreover, it significantly shortened product development cycles and production costs.

Embedded case 3: Micro Weather Station In the mid-1990s, CEO Pekka Ketonen commissioned his employees to create a Micro Weather Station, giving fairly loose directions: All right, guys, it would be nice to have a weather station the size of a beer can.

Later, other requirements were added: the device had to be inexpensive, moving parts were not allowed and it needed to be virtually maintenance-free. The starting point for the Micro Weather Station was Ketonen’s belief that since Vaisala already had the best sensors as well as access to the market and to marketing channels, it would be beneficial to integrate a number of its existing sensor products to create something valuable. As never before in Vaisala’s history, a substantial effort was made to understand which measuring capabilities potential customers would want the Micro Weather Station to have. Following this examination, the device was designed to incorporate four sensors that would measure the following six parameters: wind speed and direction, rainfall, barometric pressure, temperature and relative humidity. The first big challenge was that Vaisala had no technology to measure wind or rainfall. In 1999, Vaisala acquired the Californian firm Handar to gain access to its ultrasound wind measurement technology. However, acquiring a rainfall sensor firm was not possible, as no such technology existed. Therefore, Vaisala’s Research Unit, in collaboration with University of Helsinki’s Department of Physics, developed a completely new acoustic sensor to measure rainfall. In 1996, Vaisala’s Research Unit, independent of other organization units, began to examine technological specifications for the Micro Weather Station. This process lasted for four years, until 2000, when the research phase ended and the formal product development process began. A central challenge, which eventually caused a delay to the formal process, was how to integrate all four sensors into a beer-can size device. The Micro Weather Station was finally launched in 2004 and is mostly sold to weather station integrators, farmers, wind turbine operators and marine applications. To this day, competitors have not been successful in developing a similar device without violating Vaisala’s patents. Acknowledgements The author wishes to thank coeditor Ann Langley, three anonymous reviewers and Professor Juha Laurila for their thoughtful and constructive feedback, suggestions and valuable advice. Financial support from the Foundation for Economic Education and the Finnish Funding Agency for Technology and Innovation (InnoNets project) is gratefully acknowledged.

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Author biography Olli-Pekka Kauppila is a PhD candidate in organization and management at Aalto University’s School of Economics. He received his Master of Science degree from Turku School of Economics at the University of Turku. Olli-Pekka’s current research interests include organizational ambidexterity, interorganizational relationships and alliance capabilities. His recent work has appeared in Industrial Marketing Management. The present article was prepared while Olli-Pekka was a visiting scholar at the Robert H. Smith School of Business at the University of Maryland. Address: Aalto University, School of Economics, Department of Marketing and Management, PO Box 21250, FI-00076 Aalto, Finland. [email: [email protected]]