A Quantitative Analysis of the Organizational Ambidexterity in Swiss Financial Industry


Doctoral Thesis / Dissertation, 2015
153 Pages, Grade: A

Excerpt

Table of Contents

Abstract

List of Figures

List of Tables

List of Abbreviations

List of Appendices

Chapter 1: Overview
Problem Statement
Purpose of Research
Significance of the Study
Research Design
Research Questions
Assumptions and Limitations
Operational Definitions
Summary

Chapter 2: Literature Review
Organizational Ambidexterity
The Past: The Origins of Organizational Ambidexterity
The Present: Evidence Regarding Organizational Ambidexterity
Achieving Organizational Ambidexterity
Innovation and Organizational Ambidexterity
Theoretical Perspective
Synthesis of Factors Affecting Organizational Ambidexterity

Chapter 3: Research Methodology
Purpose of Research
Research Design
Research Questions and Hypotheses
Operationalization of Variables
Population and Sample Strategy
Research Instrument
Validation and Reliability of the Instrument
Data Collection Procedures
Ethical Considerations
Data Analyses
Demographics of the Participants

Chapter 4: Analysis and Presentation of Results
Research Questions and Hypotheses
Demographic Statistics
Details of Analysis and Results
Summary of Results

Chapter 5: Conclusions and Recommendations
Summary of Results
Discussion of the Results
Conclusions and Practical Recommendations
Recommendations for Further Research

References

Appendices

Abstract

In the context of the contemporary global business environment, the challenges and the level of competition has increased significantly. The organizational entities within the Swiss financial institutes have been negatively impacted by these challenging factors which have emerged due to the global recession. The purpose of this research is to analyze the level of the ambidexterity present within the Swiss financial industry. The overall research question guiding this study is: What are the factors predicting organizational ambidexterity in the Swiss Financial Industry? This quantitative correlation study utilizes a web-based survey to assess the level of organizational ambidexterity in the Swiss Financial Industry. To address the research question, three empirical models were constructed using partial least squares structural equation modeling (PLS-SEM). The models predicted the levels of organizational ambidexterity in the Swiss financial industry (divided into exploratory innovation and exploitative innovation) using nine independent predictors representing holistic business environment factors highlighting management and productivity issues within the Swiss market. These factors included financial stability, adaptability, leadership, exploration, innovation, exploitation, communication, connectedness, and formalization. The empirical models constructed in this study support the concept of a good fit by predicting that a balance between multiple internal and external market attributes lead to organizational ambidexterity. The results yield that apart from communication the remaining factors defined are good predictors of organizational ambidexterity in Swiss Financial Industry.

Keywords: Ambidexterity, Exploration, Exploitation

List of Figures

Figure 1. Real gross value added in the financial sector.

Figure 2. Real gross value added in the financial sector compared with financial peers.

Figure 3. Research Design

Figure 4. Sample Size Calculator

Figure 5. PLS-SEM path diagram to test hypothesis H1.

Figure 6. PLS-SEM path diagram to test hypothesis H2.

Figure 7. PLS-SEM path diagram to test hypothesis H3.

Figure 8. Frequency distribution histograms of the eleven variables

Figure 9. Path diagram of the relationships between Financial Stability, Adaptability, Leadership and Organizational Ambidexterity.

Figure 10. Path diagram of the relationships between Exploitation, Exploration, Innovation and Organizational Ambidexterity.

Figure 11. Path diagram of the relationships between Communication, Connectedness, Formalization and Organizational Ambidexterity.

Figure 12. The PDSA cycle

List of Tables

Table 1 Definition of Variables

Table 2 Demographic Characteristics of Participants in the Pilot Study

Table 3 Internal Consistency Reliability

Table 4 Descriptive Statistics for Variables Operationalized by Compositing Item Scores in Pilot Study

Table 5 Demographic Characteristics of Respondents

Table 6 Descriptive Statistics and Tests for Normality

Table 7 Quality Criteria for Model I

Table 8 Significance of Path Coefficients in Model I

Table 9 Quality Criteria for Model II

Table 10 Significance of Path Coefficients in Model II

Table 11 Quality Criteria for Model III

Table 12 Significance of Path Coefficients in Model III

List of Abbreviations

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List of Appendices

Appendix A: Organizational Ambidexterity Questionnaire (OAQ, Jansen et al, 2005b)

Appendix B: Questionnaire to Measure Financial Stability, Adaptability and Leadership (QR1)

Appendix C: Questionnaire to Measure Innovation, Exploitation, and Exploration (QR2)

Appendix D: Questionnaire to Measure Formalization, Connectedness and Communication QR3)

Appendix E: Demographic Questionnaire

Appendix F: Permission to use Jansen’s (2005b) Instrument

Appendix G: Pilot Study Request

Appendix H: Web-based Survey Questionnaire

Appendix I: Consent Mail for Participation in Final Survey

Dedication

This dissertation is dedicated to my family. First, I would like to dedicate this to my wife Ancy because her consistent encouragement made this possible, as there were times when I was off the path, and her encouragement got me back on track.

I also dedicate this to my three wonderful children Aylin, Ashwyn and Alexin without whom I would not have completed this dissertation as they have given me unconditional love and support especially during the final stages of this dissertation. Their understanding during this process was remarkable and they never stop believing in me.

This dissertation is also dedicated to my wonderful parents who raised me with good work ethics and supported me in all my pursuits. I am grateful to them in insisting me with the motto of lifelong learning.

Chapter 1: Overview

Swiss Financial Industries remains a dynamic environment and is challenged by global financial institutions in the recent times. In the context of the contemporary global financial industry, significant challenges have emerged (Lane & Maeland, 2011). In order to cope with the volatile trends in the external environment, banking entities have had to develop a strategic management approach. The enhanced levels of competition seen today have been a consequence of globalization (Domazet, Stošić & Zubović, 2011) and have been encouraged by technological growth and socio-cultural changes (Simsek, Heavey, Veiga & Souder, 2009). This has led many financial institutions to align their internal strengths and weaknesses with the external opportunities and threats, thus presented.

What needs to be highlighted here is the development of a strategic orientation of the financial industry – the continuous improvement and application of change management. The various industries in the current global business environment have been able to highlight the external market threats and hence have been able to develop relevant strategies (Heckl, Moormann & Rosemann, 2010). The financial institutions have however been unable to adapt to the external business environment, due to which there exists an imbalance between the resource exploration and the exploitation process.

In this light, the financial entities have to attend to the needs of every single customer and thus, develop a strategic advantage (Bader, 2008). This enhancement of customer empowerment is not only exclusive to the financial industry; rather it has been adequately experienced within various industries on the global scale. The advances in the field of technology have had a crucial impact on the influence of the customers of the organizational entities.

The concept of organizational ambidexterity has become a crucial component of operational strategies, developed by companies in the current global business environment (Jansen, Simsek & Cao, 2012). This requirement has also been enhanced in the current perspective (Wagner, Grosse-Ruyken & Erhun, 2012). Since the changes in the external business environment are fleeting and too many, it has become imperative to analyse the role of this external environment so that financial institutions develop the capabilities that will ensure they have a competitive advantage (Bodwell & Chermack, 2010).

A significant proportion of contemporary organizational entities within the global financial industry have not been able to effectively develop a strategic management approach, as implemented in the manufacturing sector (O'Reilly & Tushman, 2013). Extensive financial performance data indicates that the Swiss financial markets have not been able to cope with the challenging environment today (Rogan & Mors, 2014) owing to which, overall performances in the Swiss financial market, have deteriorated significantly.

Factors, which have negatively impacted the Swiss market may be identified as shortened product life cycles, lack of sustainable competitive advantage, and the differentiation factors. Swiss financial entities failed to develop versatile strategies to achieve the short-term financial goals and focus on the future perspective (Tahar, Niemeyer & Boutellier, 2011). While the level of the ambidexterity present within an organization is dependent on the balance between the short-term goals and the future orientation, it is critical for organizations to adequately forecast the future challenge and trends, so that appropriate resource allocations may be undertaken as a combative measure (Cantarello, Martini & Nosella, 2012). Such a strategic level of planning, it is felt, may enable financial institutions to cope with the changing global environment while according them sustainable competitive advantage.

Challenges and Recent Developments in the Swiss Financial Industry

Highlighted as one of the largest sectors in the world especially in terms of the relative size of its contribution to the GDP, the Swiss financial industry, is home to two of the largest banks in the present global financial domain that account for more than 43% of the total Swiss banking sector deposits and 18% of the total capital (International Monetary Fund, 2014). It also consists of one of the largest reinsurance companies in the world.

The lack of ambidexterity is significant for it has resulted in deteriorating performances for the Swiss when compared to the majority of their international competitors. The role of the external business environment has increased in the global financial industry, due to which various entities were not able to maintain their competitive positioning (Chang, 2015). The financial institutions required the development of a strategic approach, where they could be able to cope with the volatile changes in the external environment. The inability of the Swiss industry to develop an effective strategy has caused it to diminish its overall levels of performance, as compared to the rest of the international competitors. In the contemporary global financial environment, the most important component of the operational strategy of an organization can be identified as the ability to react to the external market factors.

The period between 2007 and 2009 proved challenging for the Swiss financial industry owing to the subprime crisis, which initiated by the U.S. financial industry adversely impacted the global financial entities leading to one of the largest recessions in recent times. The financial crisis negatively impacted various major financial institutions and the situation worsened in 2008 with the collapse of the American investment bank – The Lehmann Brothers (Swiss Banking, 2010). This weakened the American financial industry and the financial crisis was felt, globally.

Following the year 2008, the subprime financial crisis, which had emerged in the US economy had been successfully transformed into a global phenomenon which had impacted the majority of the international financial markets. This phenomenon also impacted a major economic component of the Swiss industry – the export trade – which fell by a record margin of 12.6% in 2009 (Heckl et al., 2010).

Given how entrenched the Swiss financial and the global business segments were, there was sheer panic within the government institutions which sought to minimize the financial losses prior to the recession (Patel, Terjesen & Li, 2012).

Their funds were predominantly utilized to purchase the defaulted loans of the banks, in order to reduce the risk highlighted in the different balance sheets. Similar initiatives were implemented by other economies globally as financial institutions failed to stem the collapse (Smith & Umans, 2013). In certain countries, including the UK, Germany, and the U.S., various banking institutions were nationalized to prevent a collapse. However, the Swiss being very dependent on the U.S. mortgage backed securities were in trouble. Even with the implementation of large scale financial changes, numerous Swiss financial institutions still had a substantial quantity of troubled assets and the illiquid securities (Sydler, Haefliger & Pruksa, 2014). The global financial recession has highlighted the issues which were present within the Swiss banking industry and the requirement for the organizational ambidexterity.

Problem Statement

The Swiss financial industry is highly diversified, and hence, remains well connected to the global economy. In 2008, though the impact of the global recession had been minimal on the Swiss banking sector, 2009 witnessed significant negative impact sweeping across the Swiss banking entities (Swiss Banking, 2010). This led to deteriorating performances.

Swiss financial entities have lagged behind their European counterparts over the past decade especially since their stagnation in terms of value addition as shown in Figure 1 (Swiss Banking, 2010).

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Figure 1 . Real gross value added in the financial sector.

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Figure 2 . Real gross value added in the financial sector compared with financial peers.

The Swiss financial industry plagued by varied dilemmas – through fallouts of the global financial recession – tried to develop a strategic approach (Swiss Banking, 2010) to balance resource exploration and the exploitation objectives. This balance would allow financial institutions to develop a strategic advantage, and hence, help them cope with the various external market challenges. The Swiss financial industry have been unable to develop the balance between the resource exploitation and exploration objectives and thereby, affected performance considerably (Geib, Reichold, Kolbe & Brenner, 2005).

Given there was a massive requirement for the enhancement of organizational ambidexterity of the Swiss financial institutions, which would allow the sector to enhance its level of national and international competitiveness (Hsu, Lien & Chen, 2013), it became imperative for them to develop the requisite capabilities if they wanted to significantly recover from the negative impact of the recession. This study aims at investigating the levels of organizational ambidexterity, while understanding how ambidexterity can be achieved.

Purpose of Research

The overall purpose of this research is to analyze the levels of the ambidexterity present within the Swiss financial industry but it is deemed that the analysis of the holistic business environment may help highlight the management and productivity issues present within the Swiss market.

Given how a change in the challenges posed by the external business environment have made companies highly responsive to external trends (O’Reilly III & Tushman, 2008), it is felt that this study will help Swiss financial organizations develop the management strategies and policies to increase responsiveness of the external markets. The factors which are impacting the performance of the financial institutions in the Swiss industry would also be highlighted. The overall analysis of the Swiss business environment would help enhance the understanding the dilemmas faced by the financial industry (Yu, Patterson & de Ruyter, 2013).

This study analyzes strategies developed by the financial institutions to enhance their overall performances (Larson, Schnyder, Westerhuis & Wilson, 2011) and examines the role of the managers in this regard. In the context of the contemporary global business environment, managers are critical to the process of change management and the value development in the organization.

Change management is essential and managers have to consistently prepare organizations to react to external market factors by motivating employees and enabling them to enhance their performance levels (Ferreira, Raisch & Klarner, 2014). This study analyzes the implications of different management styles developed within the financial sector, which have impacted performance standards.

By comprehensively analyzing the issues faced by the Swiss financial entities environment, this study would highlight the strategies through which the ambidexterity based objectives can enhance the performances of the entities. The study would also analyze the issues which are faced by the managers in the process of change management and the overall development of the organizational entities.

In the current scenario, the performance of the Swiss financial industry has not been relatively lower than that of their international competitors. Although the majority of the countries were impacted by the global financial recession, they did cope well with the dilemma though they did become highly market sensitive (Rost & Osterloh, 2010). They were able to offer their customers value added experiences which enhanced the levels of ambidexterity and hence, resulted in greater responsiveness to the external market factors.

This research initiative is expected to arm financial managers with relevant information to enhance the overall levels of performances, such that, these managers are better able to bolster organizational ambidexterity, and hence, develop versatile capabilities required to grow today (Rogan & Mors, 2014). The major reason for the declining performance of the Swiss financial sector can be identified as the lack of versatility and the market responsiveness of the entities. This study would critically analyze the benefits of the organizational ambidexterity factors, and the strategies to enhance the overall effectiveness of the financial organizational entities (Theurillat, Corpataux & Crevoisier, 2008). The financial managers present in the Swiss sector would be able to utilize the research findings to make the strategic changes required as per the market factors.

The study is also expected to highlight the challenges associated with the implementation of change management initiatives so as to significantly enhance the performance and the operational activities of the Swiss financial institutes (Boumgarden, Nickerson & Zenger, 2012). Although the main objective of this study is to enhance the levels of the ambidexterity present within the Swiss financial industry, the findings would also help the managers enhance the operational performances of the overall organizational entities present across various industries.

Significance of the Study

This study analyzes the information regarding the core factors which have impacted the performance of the Swiss financial institutions and the results which have had significant implications even as they provide managers a strategic view on challenges so that they can make the requisite changes to beget sustainable competitive advantage. This has positively impacted the overall levels of competition in the Swiss financial industry (Nosella, Cantarello & Filippini, 2012). The findings are expected to not only equip managers in the current scenario with the tools to alleviate short-term dilemmas experienced by organizational entities present in the current Swiss business environment, but also, help these entities develop a view towards sustainable development.

The Swiss financial sector has a value add of nearly CHF 62.8 billion, which constitutes 11.6% of the GDP in 2008 and is also a major contributor to the overall national employment, given it employed more than 196,000 individuals, which was 5.9% of the overall working population (Swiss Banking, 2010). Hence, its issues have been crucial to the country. This research activity is expected to provide a platform for future studies in this area.

Research Design

The quantitative methodology has been used in this study. In order to obtain a wide range of basic knowledge for organizational ambidexterity, the researcher has used a correlation quantitative analysis to examine a sample of employees working in the Swiss financial industry. One of the major benefits of quantitative research initiatives is the acquisition of large scale data, which would help provide sufficient details regarding organizational attributes present within the Swiss financial industry. The data acquired quantitatively is objective in nature for quantitative analysis has a short duration of study and low tolerance of ambiguity (Creswell, 2009).

The research uses quantitative correlational research design to achieve the comprehensive objectives of this study and this is based on studies undertaken on organizational ambidexterity (Jansen et al., 2005b; Junni, Sarala, Taras & Tarba, 2013), innovation (Rodriguez & Hechanova, 2014), financial stability (He & Wong, 2004), leadership (Burton, O’Reilly III & Bidwell, 2012; O’Reilly III & Tushman, 2011), adaptability (Jansen et al., 2012), exploitation and exploration (Geerts, Blindenbach-Driessen & Gemmel, 2010), formalization, connectedness, and communication (Jansen et al., 2005b; Akdogan, Akdogan & Cingoz, 2009). In addition, the literature review has further strengthened the research design.

A market survey instrument has been developed in order to identify the factors that assess the level of organizational ambidexterity in Swiss financial industry. For the purpose of the study, one group of questions has been developed to identify organizational ambidexterity. This is the dependent variable. Three groups of questions have been included in order to understand the factors’ financial stability, leadership, adaptability, exploration, exploitation, innovation, formalization, connectedness, and communication. These are the independent variables. Apart from the existing literature review, a validation of the survey has been conducted by a pilot study of ten participants within the sample population.

The research will be a cross-country, web-based survey with employees of the Swiss financial industry. Information regarding financial institutions currently operating in Switzerland has been obtained through websites of FINMA’s ("FINMA,") and the Swiss Bankers Association.

Research Questions

The purpose of this research is to analyze the levels of the ambidexterity present within the Swiss financial industry. The overall research question guiding this study is:

What are the factors predicting organizational ambidexterity in the Swiss financial industry? The overall research question is split into three sub-questions with associated hypotheses.

R1: What are the effects of financial stability, adaptability, and leadership on the level of organizational ambidexterity in Swiss financial institutions?

H1a: Financial stability, adaptability, and/or leadership are significant predictors of organizational ambidexterity.

H10: Financial stability, adaptability, and/or leadership are not significant predictors of organizational ambidexterity.

R2: Does a balance between exploration, innovation, and exploitation based objectives, predict the level of organizational ambidexterity in Swiss financial institutions?

H2a: Exploration, innovation, and exploitation are significant predictors of organizational ambidexterity.

H20: Exploration, innovation, and exploitation are not significant predictors of organizational ambidexterity.

R3: What are the effects of communication, connectedness, and formalization on the level of organizational ambidexterity in Swiss financial institutions?

H3a: Communication, connectedness, and/or formalization are significant predictors of organizational ambidexterity.

H30: Communication, connectedness, and/or formalization are not significant predictors of organizational ambidexterity.

These questions critically analyze the levels of the ambidexterity present among the organizational entities operating in the Swiss financial industry. They also assess the core factors that impact performance levels of these organizations. These hypotheses are relevant to the overall research objectives and help assess the attributes that the Swiss financial institutions have to bolster, in order to become more competitive.

Assumptions and Limitations

The limited scope of study is one of the major limitations of this study. Although a comprehensive analysis is needed on the overall Swiss business environment in order to analyze the contemporary issues faced by the organizational entities, the majority of the research findings will most likely be focused on the Swiss financial sector. The findings of this study will therefore, not be applicable to other industries within the country or the financial sector of other countries.

The results would provide managers with information required to enhance the competitiveness of the entire Swiss financial industry. The research findings would not be directly applicable to the diverse industries and can be identified as a further research area, which would be focused on the impact of organizational ambidexterity on the overall Swiss business environment. The results are also relevant to the findings attained from the Swiss business environment, and hence they also cannot be directly applied to the other regions of the world. The socio-cultural and economic factors present within a region of the world have drastic impacts on the nature of the business environment.

These factors have to be critically analyzed prior to the implementation of an organizational strategy. However, these research findings have predominantly focused on the external market factors present in the Swiss business environment. Developing relevant organizational strategies for other countries necessitates extensive research in the attributes of the core business environment.

In the current perspective, the research findings developed in the study cannot be universally applied to other business environments. Although in the current global business environment, the interconnections among the global business environment has increased drastically; in this research activity the results would be primarily focused on the socio-cultural and economic factors present within the Swiss business environment. Various additional factors will also feature in this research activity in order to enhance its scope and develop global level findings.

Operational Definitions

Organizational ambidexterity. Organizational ambidexterity can be predominantly measured on the basis of two core factors: exploitation and exploration objectives. The exploitation objectives of a company are focused on the enhancement of the organizational performance through the continuation of the established strategy. Here, the organization seeks to bolster exploitation-based objectives that would enhance the levels of: productivity, operational efficiencies, and the implementation and execution capabilities (Junni et al., 2013). The exploitation goals of the organization may accept the status quo, and hence not allow the organization to initiate a transformational change.

The exploration-based perspective of the organization is focused on the ability of the organization to: take risks, innovate, challenge status quo, experiment, and become flexible. This perspective tries to ensure that the organization can consistently innovate and develop sustainable competitive advantage. The dilemma associated with the exploration goals of the organization can be defined as a high level of associated risk and the wastage of resources. The balance developed between these two opposing perspectives is expected to help the organization achieve ambidexterity.

Organizational performance. This is based on various factors including profitability, growth, and innovation. These help Swiss financial companies achieve positive performance-oriented goals. Another important aspect of performance-based factors is the sustainability attribute (Papachroni, Heracleous & Paroutis, 2015). The profitability or the growth attributes of the organization have to be sustainable in nature, and provide the organization with a long-term advantage.

Competitive advantage. In the financial sector, this aspect is focused on organizational creativity and innovation, customer services, product diversity, and cost leadership (Eriksson, 2013). The ability of the organization to provide customers with a single or multiple benefits which are not adequately provided within the industry, would be a core competitive advantage. In the contemporary business environment, the organizations within the Swiss financial industry have to develop a sustainable competitive advantage, in order to cope with the external market challenges.

Versatile capabilities. These refer to a company’s abilities to provide customers with a wide range of products and services. In the current business environment, an organization’s ability to differentiate itself from the rest of the competitive entities is very challenging in nature. It has to develop versatile skills to offer customers a highly personalized and value added experience by focusing on products and the services developed by the organization (Hinings et al., 2004).

Summary

In the context of the contemporary global business environment, the challenges and the overall level of competitiveness of organizations has definitely increased. It is imperative for organizations to balance resource exploitation- and the exploration-objectives to ensure coping with challenges in which are part of the external business environment (Reichold, Kolbe & Brenner, 2004).

External market factors have also been seen to greatly influence organizational entities which is why organizations need to develop the capabilities to highlight the trends present in the external business environment, and react effectively. Their ability to make these strategic changes directly impacts their competitive positioning.

The issues faced by the Swiss financial industry in the current business environment are at best deemed an ineffective response to the external market factors. The performance of the Swiss financial industry of late has declined as compared to the other international markets (Gedajlovic, Cao & Zhang, 2012). There is a higher pressure upon the financial sector to enhance the service differentiation factors and provide customers with greater value added experience. The overall level of competition has also increased; hence, financial institutions have to substantially enhance their operational activities (Vaughan & Romero-Frías, 2010). These are the factors which have negatively impacted the overall level of performance present with the Swiss financial industry, and hence have caused the industry to become less productive as compared to the other international markets.

In analyzing the level of the ambidexterity in the Swiss financial industry, this research focuses on factors impacting overall levels of organizational performances. The research activity therefore, consists of both, the primary and the secondary methodologies. The vast amount of information which will be attained in the initial secondary research activity will help develop the questionnaire required for the primary research activity (Heckl et al., 2010).

The utilization of both, the primary and the secondary research activities is essential to the attainment of the relevant information necessary to develop the core findings. The research findings would have a substantial long term positive impact on the overall financial industry of Switzerland. The financial experts and the managers would be able to utilize the data to make the necessary changes required in the current industry. The challenges in the external business environments have increased, due to which the level of the ambidexterity present within the Swiss financial institutions has to be increased adequately (Lin, Ho & Lin, 2012).

Through the analysis of the core factors impacting the operational capabilities of the financial institutions present within the Swiss industry, the study findings would provide the managers with the crucial information required to implement various positive change initiatives. The study would also provide the researchers to conduct future studies related to the findings. As highlighted, the further research activities could be conducted regarding the global implications of the research findings and also the applicability on the various industries.

The study comprehensively analyzes the ambidexterity factors present within the contemporary organizational entities of the Swiss financial institutes. The research finding has a high level of relevance and significance in considering the current competitive positioning of the Swiss financial industry. The study can provide the managers in the financial institutions with the relevant information to make substantial positive changes and hence develop a sustainable growth model within the financial institutions.

Chapter 2, explores various theories pertaining to this study as well as the conclusions reached by other researchers who have investigated firms’ performances. The discussion covers past and present evidence of organizational ambidexterity, theoretical overviews, and the theories behind the relationships between exploitation and exploration.

Chapter 2: Literature Review

The major areas of research have been: financial stability, adaptability, leadership, innovation, communication, connectedness, and formalization to test the theories in this study. In order to gain experience in similar studies, the literature review includes works of Boumgarden et al. (2012), Geerts et al. (2010), Jansen, van den Bosch, and Volberda (2005b), and Snow, Fjeldstad, Lettl, and Miles (2011).

Strategic management emphasizes on the role of the leader in taking responsibility for the formulation and implementation of strategies for the achievement of desired organizational goals and opportunities, while allowing the organization to sustain and enhance its competitive advantage against fierce rivals within the industry (Eisenhardt, Furr & Bingham, 2010). In the 21st century, strategic management has become a necessity for the financial industry. Further, De Geus (2002) suggested that financial organizations must continually work towards the alignment and realignment of resources to survive and thrive in the intensely competitive arena. The delineated tenets can be applied to profit-oriented organizations, like manufacturers (O’Reilly III & Tushman, 2008), consumer products, and health maintenance organizations. Even though, strategic management emphasizes the efficient allocation and use of resources, financial organizations have failed to maintain a delicate balance between exploration and exploitation of resources.

In order to achieve these core objectives, a comprehensive research activity was implemented consisting of research tools, such as, newspaper articles, magazines, government publications, books, financial institutions’ annual reports, and survey initiatives. The term exploration is defined as the process through which an organization develops its core competencies and capabilities, which eventually result in the development of new markets (Raisch, Birkinshaw, Probst & Tushman, 2009). The primary objective of this study is to analyze the challenges faced by the managers in the overall development of the Swiss financial industry. The core findings of this study would help the financial entities present within the Swiss business environment to strategically align their internal strengths and weaknesses along with the external environment opportunities and threats.

The balance between the exploration and the exploitation goals is essential in the development of the organizational level of ambidexterity. The exploitation goals of the organizations enable it to take advantage of the current competitive positioning and hence, achieve a core advantage in the current business environment. Similarly, exploitation refers to the efficient allocation and use of resources for the attainment of short-term performance and profitability without any discrepancies. The exploration and exploitation refers to the process of creating new knowledge in a dynamic environment, while improving the internal business environment of the organization for operational excellence and optimal performance (Michl, Gold & Picot, 2013). This reflects that organizations capable of exploiting current business environments, while exploring future business opportunities are able to attain competitive advantage over others in the industry (Simsek et al., 2009). In order to achieve this advantage, the company not only focuses on its own core competencies, but also on the capabilities of its major competitors (Han & Celly, 2008). This level of analysis helps identify growth and development opportunities for the organization, to determine the exploitation objectives.

The short-term profit driven goals are essential for any organizational entity, and without them, organizations would be unable to sustain their operational activities. Even though long-term planning is an essential component of the overall success of the company, this level of success can only be achieved through profitability and the achievement of short-term operational goals. The long-term objectives of organizations can only be achieved through the completion of the various short-term objectives. The exploitation objectives which are a core component of the organizational capability of ambidexterity, focus on these core objectives of the company (Jansen et al., 2012). The long-term planning and the strategic goals which are developed by the management of the organizations can only be achieved through the attainment the short-term goals. Hence, the exploitative goals are essential for short-term success and long-term organizational sustainability. The managers have to be aware of the external environment factors while developing the exploitative goals (Jansen, George, van den Bosch & Volberda, 2008).

It is important to highlight that the initiatives implemented by the Swiss government to support the financial sector were short-term solutions to help them cope with the challenging external business environment. The Swiss financial industry was unable to highlight the external environment change factors and make the relevant strategic responses. It was at this time that strategic management emerged in the financial sector to ensure an alignment of internal strategies and external factors. This initiative was seen as providing the customers the much needed value added experience (Lin et al., 2012).

The role of customers has also changed in the current global business environment. Customers today have a wide range of demands like convenience and autonomy. The strategic orientation of the financial institutions directly impacts service differentiation and the overall competitive positioning (Rogan & Mors, 2014). There are multidimensional pressures present on the Swiss financial institution to not only reduce the operational costs but also provide the customers with a highly personalized level of financial services. The phenomenon of globalization having impacted the demands made by the customers has witnessed Swiss financial institutions forging international operations so having to develop strategies to attract the global customer.

This is a major change from the traditional financial industry where customers had limited financial options. In this perspective, financial institutions could develop standardized services through which they could maintain their share of the global consumer market (Banalieva & Athanassiou, 2010). The customers did not have the option to select from the various competitive financial institutions, however, this situation has changed drastically and today, financial entities develop versatile capabilities to differentiate themselves from competition.

The financial institutions have to ensure that they can develop a balance between the resource exploration and the exploitation objectives. This balance would allow the financial institutions to develop a strategic advantage, and hence help them cope with the various external market challenges (Birkinshaw & Gupta, 2013). The organizational ambidexterity has become a crucial component of the operational strategies developed within the financial industry. The financial institutions present within the Swiss industry have been unable to develop the balance between the resource exploitation and the exploration objectives (Cantarello et al., 2012). This is the major reason for the diminishing performances of the Swiss financial sector as compared to other international markets. There is a massive requirement present for the enhancement of organizational ambidexterity for the Swiss financial institutions, which would allow the sector to enhance its level of national and international competitiveness. Even though the Swiss financial industry has been able to significantly recover from the negative impacts of the global financial resources, due to which the assistance for the regulatory authorities was required, there is still a significant capability development requirement present for the sector.

The financial entities present within the Swiss market, have to enhance the levels of organizational ambidexterity factors, in order to ensure that they can have a positive impact the overall performance standards (Lin, 2012). These are the strategic initiatives required by the Swiss financial industry which would help alleviate the challenges which have emerged in the contemporary external environment, and hence develop a sustainable growth model. The financial institutions have to cope with the emerging trends such as globalization, higher levels of competition and service differentiations factors. The balance which is created among the resource exploitation and the exploration objectives would help the financial institutions better cope with the challenges which have emerge in the current global financial environment.

The exploration goals of the organization are more strategic in nature and are developed in the long term scenario. The exploitation objectives of the company are based on the achievement of the short term goals and the opportunities which are present in the current business environment (Chang, 2015). The exploration goals are focused on the ability of the company to not only exploit the current resources and the competitive positioning of the organization, rather also develop new business opportunities and the growth areas for the organization. The role of the exploration objectives for the organizations has increased in the context of the contemporary global business environment (Heckl et al., 2010). The high level of competition which is present in the business sector has caused the organizations to focus on the innovation and the creativity attributes of the offered products and services. Through the development of the most innovative products the companies are able to attract the consumers and offer them a value added experience (Adler & Heckscher, 2013). The constant investment in the research and development capabilities of the organizations, help them achieve the exploration objectives. The exploration objectives cause the organizations to develop a competitive positioning in the global business environment, which would be sustainable in nature (Patel et al., 2012).

The competitive advantage which is achieved through the exploitation goals of the organizations are not sustainable in nature and hence are only focused on the short term advantage archived by the company. The resource exploration goals allow the manager to focus on the long term viability and the profitability of the organization, rather than only the short term objectives (Gedajlovic et al., 2012). Although it is crucial for the organizations to focus on the short term profit driven goals of the company, this activity however should not be the most important aspect of the organizational planning process.

The role of the external business environment has a major impact on the development of the level of ambidexterity among the organizations (Goossen, Bazzazian and Phelps, 2012). Both of the resource utilization strategies have a major impact on the overall performance of the company, and hence the managers have to develop an effective balance between the two core activities exploration and exploitation (Goossen et al., 2012). The organizations require the strategic capability of exploiting the current resources and hence achieving the short term goals, while also focusing on the long term strategic growth objectives.

The managers of the organizations, however, have to play a pivotal role in the balancing of these two core objectives. The managers cannot be predominantly influenced by either of the two strategies, which would have a detrimental impact on the organization (Alexiev et al., 2010). In the long term perspective the company is not only focused on attaining the competitive advantage which is developed by the organization, rather the creation of the new business opportunities. Through the innovation and the creativity function the organizations can develop new capabilities that would help the organizations develop the sustainable level of competitive advantage in the future scenario (Smith & Umans, 2013). However, the managers should identify the balance between the resource exploitative and the exploration goals of the organizations in order to achieve a sustainable level of business growth model.

This intense competition is the resultant of shortened product life cycles, lack of differentiation and competitive advantage, and rapid technological advancement across the globe (Swiss Banking, 2010). The organizational ambidexterity is a complex concept and has several definitions. However, the essence of each definition is to pursue two diverse goals: exploration and exploitation. For the very reason, the definition proposed by Lubatkin et al. (2006) will be used to define organizational ambidexterity. According to Lubatkin et al. (2006), ambidexterity refers to the organization’s capability of exploiting its existing core competencies to explore new opportunities in the market for the attainment of competitive advantage and operational excellence. In the era of globalization, the competition in the financial industry has intensified across the globe.

As a result, the tension for financial organizations operating in Switzerland to successfully compete in the present, while preparing for the future has widened to a significant extent. The major underlying problem in Swiss Financial Industry in becoming an ambidextrous organization is to determine a delicate balance between the exploration and exploitation. However, extensive attention on the exploitation may be harmful for a financial institution in the future. This reflects that a financial institution focusing upon exploitation might prevent it from understanding the dynamic changes in the market (Burgess, Strauss, Currie & Wood, 2015). Taking into consideration that financial institution only focuses upon exploitation, the study aims to investigate the level of organizational ambidexterity in the Swiss Financial Industry, while understanding the ways through which ambidexterity can be achieved.

Organizational Ambidexterity

Organizational adaptability offered with agility which enabled quicker response to emergent opportunities and avoid stagnancy in the market. Over the last decade, organizations have had to focus on synchronizing their goals and objectives to meet the shifts in the competitive business landscape. However, simply adapting to the change is not enough for operational excellence and success.

Therefore, financial companies have had to focus upon the creativity and innovation to excel at the exploitation and exploration of opportunities to reduce the costs associated with operations (Andriopoulos & Lewis, 2009). Considering this, it has been indicated that organizational ambidexterity has allowed organizations to achieve their desired short-term objectives, along with long-term goals of enhanced performance and productivity, followed by the achievement of organizational excellence and efficacy (O’Reilly III and Tushman, 2008).

Exploitation can be defined as the refinement and selection of innovative processes to be implemented and executed for the attainment of long-term performance objectives. Since organizations are continually in search of strategies to enhance stability, the concept of exploration and exploitation has been utilized by organizations to leverage current competencies and to exploit emerging opportunities in the market (Lavie, Stettner & Tushman, 2010). The term exploration emphasizes upon risk-taking approaches through which an organization bring dramatic changes for the discovery of creative and innovative ways through which an organization can enhance its operations (Gupta, Smith, and Shalley, 2006). Exploitation refers to the selection and reuse of existing operations to ensure short-term performance, whereas exploration refers to the learning process of planned experimentation to enhance organization’s competitiveness (O’Reilly III and Tushman, 2008). Taking this into consideration, exploration, and exploitation are essential ingredients for financial institutions operating in Switzerland due to the lack of differentiation and competitive advantage (O'Reilly & Tushman, 2013).

Organizational ambidexterity refers to the ability of organizations to simultaneously deal with demand factors including adaptability and alignment, flexibility and efficiency (House and Price, 2009), responsiveness and integration (Goossen et al., 2012), revolutionary and evolutionary change (Danneels, 2010) and radical and incremental innovation (Bryce, Dyer & Furr, 2007). The level of ambidexterity achieved by the organizations is essential to the business success achieved by these entities in the current global business environment. The level of competition in the overall business environment has increased drastically and the empowerment of the customers has also enhanced.

The customers no longer are the passive stakeholder in the consumption process, rather they have now developed the capabilities to impact the decision making processes of the organizations. The advance in the field of communication technology has allowed the customers to develop a high level of interaction with the organizations, and hence also influence the decisions of the management (Hsu et al., 2013). The managers now have to ensure that they can highlight the external market factors and the personalized requirements of the customers, prior to the development of the new business ideas. Hence, in order to cope with challenges present in the current global business environment, the companies have to develop a sustainable growth strategy.

The organizational level of ambidexterity is focused on the ability of the organizations to become highly responsive to the external market factors. The managers have a crucial role in this strategic process, as they have to perform versatile tasks. The process of change management is a crucial component operational activity in the current business environment (Jansen et al., 2012). The managers have to ensure that they can highlight the trends in the external business environment, and effectively implement the change management process. The ability of the organizations to react to the external market terms would have a direct impact on its short and the long term success.

The change management process implemented by the management can occur through two distinct strategies such as incremental and the transformational strategies. The incremental change process is dependent on the ability of the company to critically analyze the overall operational process flows and make the changes within the various organizational activities (Hensmans & Johnson, 2007). Transformational change provides the organization with a core strategic advantage which enables the company to directly impact current performance. However, it is not focused on the long-term incremental change process, rather, it is attained through the revolutionary change process. The competitive advantage provided by the transformational change process, however, is not highly sustainable in nature and so, it is relative to the incremental change process (Yu et al., 2013). Both, however, play critical roles in the development of ambidexterity among the organizational entities.

Organizational ambidexterity can be predominantly measured on the basis of two core factors: exploitation and exploration objectives. The exploitation objectives of the company are focused on the enhancement of the organizational performance through the continuation of the established strategy (Eggers & Singh, 2009). Against this backdrop, organizations seek to bolster the exploitation-based objectives to enhance the levels of productivity, operational efficiency, and execution capabilities. The foremost goal of an organization – under exploitation –is to acknowledge the status quo, where transformational changes are rejected to ensure that the organization remains competitive within the market.

The exploration-based perspective of the organization, contrastingly, is focused on the ability of the organization to: take risks, innovate, challenge status quo, experiment, and become flexible. More importantly, the emphasis on exploration activities has often always been to ensure consistency in terms of innovation, which eventually results in the enhancement of competitive advantage (Bueschgens, Bausch & Balkin, 2013). The dilemma associated with the exploration goals of the organization can be defined as the highest level of associated risk and the wastage of resources (Junni et al., 2013). The next section elaborates the historical and the current trends in organizational ambidexterity and the different forms of ambidexterity.

The Past: The Origins of Organizational Ambidexterity

Organizations operating in an unstable or turbulent environment have prioritized the development of ‘organic systems’ over mechanistic management systems. The organic systems are characterized by less reliance on specialization and formalization, followed by minimal defined tasks and responsibilities.

Exploitation refers to control, reduction of variance, efficiency, and certainty, while the concept of exploration refers to discovery, innovation, autonomy, and search (Andriopoulos & Lewis, 2009). However, organizations have failed to achieve this equilibrium because of the bias in favor of exploitation to ensure their survival and success in the short-term. By nature, exploration has been argued to be inefficient and has been associated with failure because of bad ideas. A fundamental challenge that firms face is the exploitation of current capabilities, skills, and resources, and the allocation and provision of sufficient exploration to overcome obsolescence in terms of technologies and markets.

Considering the idea that the adoption of different structures is significant for exploration and exploitation, it has been suggested that organizations can achieve long-term survival by accommodating both. Several underpinning theories have been found including absorptive capacity (Rothaermel & Alexandre, 2009), organizational learning (Kang & Snell, 2009), and dynamic capabilities (Helfat et al., 2009; O’Reilly & Tushman, 2008). Unfortunately, it has been indicated that the increased interest of researchers has resulted in the creation of uncertainty in the definition of organizational ambidexterity. As a result, the potential to resolve the uncertainty and tension between exploitation and exploration in organizational ambidexterity has increased.

The Present: Evidence Regarding Organizational Ambidexterity

The effects of ambidexterity on the success and failure of businesses have been documented at the individual, project, strategic business unit, and organizational levels though it has been argued that organizational ambidexterity can be inefficient and may be imitated by competitors.

In particular, the research findings of Geerts et al. (2010) indicate that companies operating in different sectors and having different business needs may have adopted different activities of exploration and exploitation, enabling the organizations to achieve the desired levels of organizational ambidexterity. On the contrary, the study of Goossen, Bazzazian and Phelps (2012) considered 500 companies. After 10 years of study, the researchers were able to deduce that organizations with enhanced technological capabilities were provided opportunities by internal conditions to take greater advantage from ambidexterity.

In addition, several studies have indicated the antecedents of organizational ambidexterity and its importance in an environment of uncertainty (Jansen et al., 2005a; Goossen et al., 2012; Tempelaar & van de Vrande, 2012; Yang & Atuahene-Gima, 2007). This has only resulted in an increase in organization competitiveness (Geerts et al., 2010) especially where there are more assets to bolster oneself with (Goossen et al., 2012; Tempelaar & van de Vrande, 2012).

The study by Jansen et al. (2005a) confirms that there is an increase in organizational ambidexterity through the combination of formalization and connectedness. Formalization is referred to as the degree to which rules define roles, authority relations, communications, norms and sanctions, and procedures (Jaworski & Kohli, 1993). Organizations adopt best practices so as to make them more efficient to exploit and accelerate their diffusion through formalization (Jansen et al., 2005a). The degree of formal and informal direct contact among employees in organization is defined as connectedness (Jaworski & Kohli, 1993).

Cumulatively, delineated studies have suggested a conclusion which are: a) positive correlations exist between ambidextrous organizations and their performance; b) ambidexterity is more beneficial in an uncertain environment, when the resource allocation is sufficient in large rather than small organizations; c) organizational ambidexterity can be achieved at a cost that has been indicated in the findings of Geerts et al. (2010). In this regard, Uotila et al. (2008) argued that 80% of the organizations failed to create equilibrium between exploration and exploitation. In particular, either the companies over-emphasized exploitation or under-emphasized exploration that eventually resulted in the failure to survive and thrive in the intensely competitive marketplace.

Further, studies by Danneels (2010) and Laplume and Dass (2012) indicate ambidextrous organizations by researching individual companies. For instance, Danneels (2010) indicated the failure of Olivetti and Smith-Corona to create a balance between exploration and exploitation. On the other hand, the study of Laplume and Dass (2012) uncovered the success story of a company that was able to achieve several forms of ambidexterity, the result of a remarkable balance between exploration and exploitation for the achievement of ambidexterity.

Achieving Organizational Ambidexterity

Organizations aiming to accommodate the alignment conflicts for the achievement of efficiency and innovation must re-engineer their structures over time in a sequential manner (Ferrary, 2011). However, the use of sequential ambidexterity might not allow them to achieve the desired levels of ambidexterity; therefore companies should focus upon exploring and exploiting in a simultaneous manner.

Sequential ambidexterity. It is the realignment of organizational structure in accordance with the changing environmental conditions. Since companies operate in a highly uncertain environment, several organizations have adapted different processes and structures in the face of change for the achievement of desired goals and objectives (Kauppila, 2010).

Further, O’Reilly III & Tushman (2011) indicate that firms realign their processes and structures sequentially, rather than radically. The concept of rhythmic switching is thought to result in the development of optimal balance between the activities associated with exploration and exploitation within an organization. Boumgarden et al. (2012) refer to this process as vacillation, where firms are provided opportunities to switch between formal structures. The examples of Hewlett-Packard and Ford have been used by researchers to clarify the concept of vacillation. Sequential changes and structural reengineering promote temporary decentralization, which enables organizational engagement in exploration and exploitation.

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Details

Title
A Quantitative Analysis of the Organizational Ambidexterity in Swiss Financial Industry
College
Swiss Management Center University
Grade
A
Author
Year
2015
Pages
153
Catalog Number
V353605
ISBN (eBook)
9783668400160
ISBN (Book)
9783668400177
File size
3758 KB
Language
English
Tags
Ambidexterity, Exploration, Exploitation, Swiss, Financial Industry, Switzerland, Quantitative Analysis, PLS-SEM
Quote paper
Thomas Zachariah (Author), 2015, A Quantitative Analysis of the Organizational Ambidexterity in Swiss Financial Industry, Munich, GRIN Verlag, https://www.grin.com/document/353605

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