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Achieving contextual ambidexterity in R&D organizations: a management control system approach

Research on how managers control R&D activities has tended to focus on the performance measurement systems used to exploit existing knowledge and capabilities. This focus has been at the expense of how broader forms of management control could be used to enable R&D contextual ambidexterity, the capacity to attain appropriate levels of exploitation and exploration behaviors in the same R&D organizational unit. In this paper, we develop a conceptual framework for understanding how different types of control system, guided by different R&D strategic goals, can be used to induce and balance both exploitation and exploration. We illustrate the elements of this framework and their relations using data from biotechnology firms, and then discuss how the framework provides a basis to empirically examine a number of important control relationships and phenomena.

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Achieving contextual ambidexterity in R&D organizations: a management control system approach

  1. 1. Achieving contextualambidexterity in R&Dorganizations: a managementcontrol system approachIan P. McCarthy and Brian R. GordonBeedie School of Business, Simon Fraser University, 500 Granville Street, Vancouver, BC, CanadaV6C 1W6.; Research on how managers control R&D activities has tended to focus on the performance measurement systems used to exploit existing knowledge and capabilities. This focus has been at the expense of how broader forms of management control could be used to enable R&D contextual ambidexterity, the capacity to attain appropriate levels of exploitation and exploration behaviors in the same R&D organizational unit. In this paper, we develop a conceptual framework for understanding how different types of control system, guided by different R&D strategic goals, can be used to induce and balance both exploitation and exploration. We illustrate the elements of this framework and their relations using data from biotechnology firms, and then discuss how the framework provides a basis to empirically examine a number of important control relationships and phenomena.1. Introduction A feature of research on R&D control is that it has largely focused on the design and impactC ontrolling R&D is a challenge. Managers have long struggled to develop effectivecontrol systems for directing and adjusting of performance measurement systems, which are only one type of control system – the diagnostic control system (Otley, 1980; Simons, 1994). AsR&D behaviors and outcomes. Consequently, diagnostic systems are used to evaluate and rewardresearchers have been motivated to examine organizational activities, they tend to induceR&D control from three complementary levels relatively measurable exploitation behaviors thatof analysis: the firm, the market and the inno- ensure current viability, at the expense of the morevation system (Chiesa and Frattini, 2009). This intangible exploration behaviors needed for ensur-has resulted in studies that explore how R&D ing future survival. This bias is counter to theactivities and outputs should be measured (e.g., notion that sustained organizational performanceSouder, 1972; Schumann et al., 1995; Werner requires an organization to effectively balanceand Souder, 1997; Kerssens-van Drongelen and exploitation with exploration (March, 1991), aBilderbeek, 1999; Chiesa and Frattini, 2007); how capability known as ‘organizational ambidexterity’R&D organizations should be designed and man- (Duncan, 1976; Tushman and O’Reilly, 1996).aged (e.g., Tymon and Lovelace, 1986; Whitting- Although sustained organizational performanceton, 1991); and how markets and governments is associated with a firm’s ability to be ambidex-can support R&D (e.g., Moravesik, 1973; Martin trous, it is a capability that is conceptually ambig-and Irvine, 1983). uous and difficult to achieve. On the one hand,240 R&D Management 41, 3, 2011. r 2011 The Authors. R&D Management r 2011 Blackwell Publishing Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA.
  2. 2. Achieving contextual ambidexterity in R&D organizationsambidexterity is viewed as the attainment of a difficult to achieve because the organizational unitsbalance between exploitation and exploration, are disconnected. A second complementary ap-whereby ‘organizations make explicit and implicit proach is ‘contextual ambidexterity’ (Birkinshawchoices between the two’ (March, 1991, p. 71) to and Gibson, 2004; Gibson and Birkinshaw, 2004;attain an ‘optimal mix’ (March, 1991, p. 75). On Raisch and Birkinshaw, 2008). It involves creatingthe other hand, exploitation and exploration are an organizational context – the organizationalconsidered to be mutually enhancing, so that it is stimuli that inspire, guide and reward people topossible for firms to attain high levels of both act in a certain way (Ghoshal and Bartlett, 1997) –(Gupta et al., 2006; Jansen et al., 2006). In our that will allow exploitation and exploration beha-paper we follow the ‘balanced’ view of ambidexter- viors to transpire in the same organizational unit.ity, and assume that R&D managers face decisions We argue that contextual ambidexterity is im-about allocating resources and attention to activ- portant and suited to R&D organizations for atities that can be relatively explorative or relatively least two major reasons. First, the problems ofexploitative in nature. attaining ambidexterity by structural separation Although the classic definition of ambidexterity are compounded for R&D organizations. R&Dprovided by March (1991) would seem to suggest activities are often already structurally separatedthat R&D is exploration, the dilemma of balancing and operationally distinct from other organiza-exploitation and exploration clearly exists in R&D tional activities such as legal, manufacturing ororganizations. Ahuja and Lampert (2001), for sales. Thus, any further partitioning (i.e., separat-example, explain how R&D activities vary across ing the ‘R’ from the ‘D’) increases the problem ofthe exploitation-exploration continuum. They de- integrating and utilizing R&D outputs through-fine R&D exploration as activities and outputs out the organization. This is especially so forthat focus on novel, emerging and pioneering small- to medium-sized organizations, whosetechnologies; they define R&D exploitation as R&D activities are tightly intertwined. Second,activities and outputs concerned with mature, we suggest that contextual ambidexterity is suitedfamiliar and propinquituous technologies. Simi- to the ‘clan control’ typically found in R&Dlarly, McNamara and Baden-Fuller (1999, 2007) organizations (Ouchi, 1979), as it involves usingargue that ambidexterity is fundamentally about ‘processes or systems that enable and encouragedifferent forms of learning, and that R&D orga- individuals to make their own judgments aboutnizations, in common with other types of organi- how to divide their time between conflictingzation, must maintain a balance of short-term demands for alignment and adaptability’ (Gibsonexploitation and long-term exploration to be suc- and Birkinshaw, 2004, p. 211).cessful over time. These characterizations of R&D In this paper we focus on the problem of howexploration and R&D exploitation follow the view to attain contextual ambidexterity in a singlethat ambidexterity is the capability to balance R&D organizational unit. We present and illus-different types of knowledge production (Levinthal trate a conceptual framework that shows howand March, 1993). broader forms of control system, guided by R&D While organizational ambidexterity is a relatively goals, could be used to encourage teams andstraightforward concept to understand, it is not an individuals in R&D organizations to simulta-easy capability to attain. Exploration and exploita- neously pursue both exploitation and exploration.tion have fundamentally different qualities. Exploi- We present our arguments in four major sections.tation is characterized by short-term time horizons, First, we review the R&D management controlefficiency, reliability and refinement, while explora- literature, highlighting the need to move beyondtion involves long-term time horizons, search, ex- exploitation and metric-focused performanceperimentation, innovation and adaptability. To measurement. We identify the importance ofsimultaneously induce and balance these differ- linking the design and use of control systemsences, there are two recognized approaches. One to the R&D goals of the organization. Second,is ‘structural ambidexterity’ (Tushman and O’Re- we develop our conceptual framework by synthe-illy, 1996), which involves splitting exploitation and sizing R&D control concepts with control the-exploration into different organizational units (i.e., ories developed in the fields of accounting andseparate divisions, departments or teams). It is then strategic management. Specifically, we adaptthe task of senior managers to ensure that the Simons’ (1994) ‘levers of control’ framework,respective exploitation and exploration outcomes which consists of four types of control system:of each organizational unit are integrated to create beliefs systems, boundary systems, diagnosticvalue. This integration task, however, can also be systems and interactive systems. We explain howr 2011 The Authors R&D Management 41, 3, 2011 241R&D Management r 2011 Blackwell Publishing Ltd
  3. 3. Ian P. McCarthy and Brian R. Gordonthese four types of control system, guided by to the values, purpose and direction of the organi-R&D strategic goals, can work together to de- zation; (ii) boundary systems that limit strategicallyvelop and harness both exploitation and explora- undesirable activities and outcomes; (iii) diagnostiction in an individual R&D organization. Third, systems that measure activities to ensure they are inalthough studies have recognized that beliefs, accordance with organizational objectives; and (iv)boundary, diagnostic and interactive systems interactive systems that scan for and communicatework together to create different behaviors and strategic information to employees so as to adjustoutcomes (e.g., Widener, 2007; Chiesa et al., the direction of the organization. For each study2009a), significant ambiguity remains in the lit- we also list the type of analysis undertaken, and theerature regarding what these systems actually are. contribution made.That is, what actual rules, policies, procedures, Looking across these studies, we identify fourprocesses, technologies and incentives might themes that characterize much of the existingR&D managers use to create the control asso- research in the area, and provide the motivationciated with each type of control system? In for the conceptual framework that we develop.response, we presented our framework to man- First, existing studies have predominantly focusedagers and scientists employed by small- and on how performance measurement systems (i.e.,medium-sized biotechnology firms. This was not diagnostic control systems) promote the efficiencydone to inductively derive the framework, nor to of behaviors central to R&D exploitation.provide strong empirical support for it. Rather, Although there are some studies that examinewe sought examples to help describe and illustrate broader forms of control, including the effects ofthe framework, to provide some preliminary face process formality (Bart, 1993), project structurevalidity for our arguments, and to exemplify what (Cooper and Kleinschmidt, 1986), professionalthese control systems actually are. Fourth, we rituals (Whittington, 1991) and goal setting activ-discuss some general implications of our concep- ities (Kerssens-van Drongelen and Bilderbeek,tual framework for R&D management, each of 1999; Yawson et al., 2006), there is only one studywhich points to future areas of research. We we know of that has used Simons’ (1994) controlsuggest that our framework provides a basis for framework in an R&D context (see: Chiesa et al.,empirically studying the extent to which multiple 2009a). Furthermore, although Table 1 only listsR&D strategic goals drive the use of different empirical studies (so as to focus and limit ourtypes of control system. We also contend that our review to established R&D control concepts), aframework provides a starting point from which wider reading of the R&D management controlto examine how the use and attention of different literature reveals that diagnostic control has so farmanagement control systems can be altered over dominated prior work on R&D control frame-time so that R&D managers can ‘dynamically’ works (e.g., Chiesa and Masella, 1996; Bremsermanage the exploitation–exploration balance. and Barsky, 2004), taxonomies (e.g., Tymon and Lovelace, 1986) and reviews of R&D measures (e.g., Werner and Souder, 1997; Geisler, 2002;2. R&D management control: moving Garcı´ a-Valderrama and Mulero-Mendigorri, 2005). beyond performance measurement Consequently, the motivation for our paper follows the view that although ‘measuring performance isWhen Freeman (1969, p. 11) argued ‘if we cannot helpful, it is only part of the story’ (Chiesa et al.,measure all of the information generated by R&D 1996, p. 105). In particular, we argue that differentactivities because of a variety of practical diffi- types of control system, guided by R&D strategicculties, this does not mean that it may not be goals, can work together to balance different levelsuseful to measure part of it,’ he spurred a genera- of exploitation and exploration in individual R&Dtion of scholars to understand what constitutes organizations.effective R&D management control, in both in- Second, research on the diagnostic control ofdustrial and government settings. Table 1 presents R&D has traditionally focused on the perfor-a selection of control system studies published in mance measures as opposed to the systems (i.e.,leading R&D management and innovation jour- the rules, procedures and technologies) thatnals. For each study, the table lists the type of managers might use to direct and adjust R&Dcontrol system examined, according to the control behaviors. This measure-based approach treatssystems in Simons’ (1994, 1995a) framework. R&D organizations as ‘black boxes,’ ignoringThese are (i) beliefs systems that are used to their inner workings and the relationships be-inspire employees to engage in activities central tween goals, controls, behaviors and outcomes.242 R&D Management 41, 3, 2011 r 2011 The Authors R&D Management r 2011 Blackwell Publishing Ltd
  4. 4. Achieving contextual ambidexterity in R&D organizationsTable 1. Review of empirical studies within the R&D management control literatureArticle Control Empirical analysis Findings systems examinedSchainblatt Diagnostic Literature and company survey that Systems should differ according to(1982) compared the use of R&D research activities and development productivity measurement systems activities, and overall R&D goalsMartin and Diagnostic Measures for allocating funds to A system of indicators for assessingIrvine (1983) scientific research institutes scientific research progressCooper and Diagnostic; How variations in the structure and A model that explains how controlKleinschmidt boundary stages of the new product efficiency and control reliability(1986) development process influence influence project outcomes innovation outcomesCordero Diagnostic A study the links between firm level A model that combines technical and(1990) R&D investments, productivity and commercial performance and reward allocation specifies how measures vary according to organizational levels and process stagesWhittington Boundary A study of in-house and independent R&D organizations with market(1991) R&D organizations and three types control are more productive than of structural control: market, those with hierarchical and hierarchical and professional professional controlBart (1993) Diagnostic; Interviews with R&D managers in The importance of balancing formal boundary; large companies on the tightness or and informal controls, in line with interactive formality of their control systems R&D goalsHauser and Diagnostic Interviews with CEOs, CTOs and Effective measures depend upon theZettelmeyer researchers at ten research-intensive goals and research intensity of the(1997) organizations on the use of R&D and engineering activity performance measuresMcGrath and Diagnostic Determining R&D effectiveness in Firms with a high R&D effectivenessRomeri (1994) electronics companies by assessing index are more productive, reliable investment versus new product and innovative performanceKerssens-van Diagnostic Literature review, company survey Outlines the importance ofDrongelen and and in-depth interviews to assess use contingency factors and specifiesCook (1997) of R&D measures and system design control system requirements and principles design parametersWerner and Diagnostic Survey to understand measurement Control system design is dependentSouder (1997) philosophy and perceived usefulness on control aims, type of R&D of measurement activity, data availability and costKerssens-van Diagnostic; Survey of performance measurement Explores the importance ofDrongelen and beliefs practices and effectiveness contingency factors and highlightsBilderbeek the importance of feedback and feed-(1999) forward controlGodener and Diagnostic Use and impact of performance Using performance results willSoderquist ¨ measurement on decision-making improve R&D relevance and(2004) and operations coherence, decision-making and employee motivationKarlsson et al. Diagnostic Case study that examines product Systems should be designed to suit(2004) and process development type of R&D activity, control needs and strategic goalsYawson et al. Diagnostic; Case study that examines balanced- Systems can align measurement with(2006) beliefs score card use in a research institute strategic objectives and address capability and utilization issuesChiesa et al. Diagnostic; Case studies that examine how these Beliefs and interactive systems are(2009a) beliefs; systems are employed in different more prominent in the early stages of interactive; phases of the radical innovation the process, while diagnostic systems boundary process are more prominent in the later stages of the processBy focusing on the different types of control provide examples of these systems. This followssystem used, and collecting data from managers other studies of R&D control that focused on theand scientists in biotechnology firms, we aim to actual systems used (e.g., Szakonyi, 1995; Chiesar 2011 The Authors R&D Management 41, 3, 2011 243R&D Management r 2011 Blackwell Publishing Ltd
  5. 5. Ian P. McCarthy and Brian R. Gordonet al., 1996) and emphasized that control is about ment control ideas and advances from the fieldsmore than choosing a set of metrics (Kerssens-van of accounting and strategic management, andDrongelen and Cook, 1997; Kerssens-van Dron- apply these to the domain of R&D control. Ingelen and Bilderbeek, 1999). particular, we explain how the use of the four Third, by definition, research on the diagnostic types of control system proposed by Simonscontrol of R&D tends to highlight what we call a (1994), guided by different R&D strategic goals,specific ‘control orientation.’ This is the extent to can be used to induce and balance the exploita-which individuals and teams conceive and under- tion and exploration behaviors, and the feedbacktake control in an ex post (after-the-event) or ex and feed-forward control orientations necessaryante (before-the-event) manner. Prior research on for attaining contextual ambidexterity.R&D control has tended to focus on the ‘feed-back control orientation,’ which is when after-the-event information (e.g., errors, failures andother unsatisfactory organizational outcomes) is 3.1. Simons’ levers of controlused to direct and adjust organizational beha- In the fields of accounting and strategic manage-viors. This feedback control orientation is central ment, researchers have argued that managementto exploitation as it promotes single-loop learning control involves using a number of different, butand the continuous refinement of organizational inter-related types of system (Ouchi, 1979; Otley,practices and capabilities (Argyris and Schon, ¨ 1980; Eisenhardt, 1985; Marginson, 2002; Turner1978; Kerssens-van Drongelen and Bilderbeek, and Makhija, 2006). To explain how control1999). In contrast, a ‘feed-forward control orien- systems can vary and function, Simons (1994)tation’ involves seeking and receiving before-the- proposed an influential framework of manage-event information about future trends, events and ment control built around what he termed thetheir effects (e.g., changes in regulations, compe- ‘four levers of control’ – beliefs systems, bound-tition and demand). This information is used to ary systems, diagnostic systems and interactiveadjust organizational behaviors so as to prevent systems. Collectively these four types of controlunacceptable outcomes from occurring. It is a system represent the policies, procedures andcontrol orientation that energizes the exploration technologies that influence the cultural norms,and double-loop learning needed for individuals behaviors and outcomes of individuals andand organizations to radically rethink and alter groups. Each type of control system has uniquetheir existing capabilities (Argyris and Schon, ¨ effects but, importantly, they also work in con-1978; Kerssens-van Drongelen and Bilderbeek, junction with one another to manage ‘the inherent1999). Using our conceptual framework, we ex- tensions between (1) unlimited opportunity andplain how different types of control system work limited attention, (2) intended and emergenttogether to generate both feedback and feed- strategy and (3) self-interest and the desire toforward control orientations, which together pro- contribute’ (Simons, 1995a, p. 28). We placevide informational stimuli to induce the behaviors Simons’ (1994) four types of control system asnecessary for contextual ambidexterity. the central element in our conceptual framework Fourth, it is clear from the studies listed in (see Figure 1), and argue that R&D managers,Table 1 that the effectiveness of R&D control is guided by R&D strategic objectives, can usecontingent on a number factors, one of the most Simons’ control systems to shape the organiza-prominent of which is the R&D goals of the tional conditions necessary for contextual ambi-organization (see: Schainblatt, 1982; Bart, 1993; dexterity. We now discuss each type of controlChiesa et al., 2009b). Thus, in the next section of system in more detail.our paper we describe how four R&D goals – Beliefs systems are ‘the explicit set of organiza-growth, innovation, reliability and efficiency – tional definitions that senior managers commu-relate to and drive the use of control systems nicate formally and reinforce systematically toand the attainment of R&D ambidexterity. provide basic values, purpose and direction for the organization’ (Simons, 1995a, p. 34). They help ensure that the attitudes and behaviors of3. A management control framework for individuals are aligned with the R&D strategic R&D contextual ambidexterity goals and the scientific principles that underpin the R&D organization. They provide the ‘positiveIn this section of our paper we develop our energy’ necessary for exploration (Simons,conceptual framework. We synthesize manage- 1995a), and the strategic coherence necessary for244 R&D Management 41, 3, 2011 r 2011 The Authors R&D Management r 2011 Blackwell Publishing Ltd
  6. 6. Achieving contextual ambidexterity in R&D organizationsFigure 1. Relationships between R&D strategic goals, control system type and R&D contextual ambidexterity.R&D employees to search for new knowledge and the systems that define and enforce the limitsopportunities in an autonomous, but focused beyond which employees must not stray. Thismanner. demarcation role of boundary systems helps pre- Interactive systems enable ‘top-level managers vent R&D organizations from over-exploring andto focus on strategic uncertainties, to learn about becoming too stretched. Thus, boundary systemsthreats and opportunities as competitive condi- are central to reliability-based exploitation beha-tions change, and to respond proactively’ (Si- viors, in that they ‘transform unbounded oppor-mons, 1995b, p. 81). These systems are used by tunity space into a focused domain thatR&D managers to scan, ‘explore’ and acquire organizational participants can be encouragedinformation about events and trends in their to exploit’ (Simons, 1995a, p. 41).organization’s external environment (Daft and Diagnostic systems are the ‘feedback systemsWeick, 1984). They also include the communica- used to monitor organizational outcomes andtion processes that R&D managers use for insti- correct deviations from preset standards of per-gating debate with colleagues about the future of formance’ (Simons, 1994, p. 170). If non-confor-the organization. Intra-organizational networks mance is identified this can prompt changes in(Swan et al., 1999), information technology organizational activities and in the other types of(Alavi and Leidner, 2001) and group based pro- control system, to adjust what is done and how itcesses such as brainstorming and sand-pit events is done. As highlighted by our review of the R&D(Cummings, 2004), are all example of interactive control literature, diagnostic systems tend tosystems that managers can use to engage in focus on measuring tangible and exploitationexploration and knowledge sharing. activities, which in turn motivate R&D employees Boundary systems delineate ‘the acceptable to be productive and efficient. Consequently,domain of strategic activity for organizational strong diagnostic systems, if used in conjunctionparticipants’ (Simons, 1995a, p. 39). These are with weak or inappropriate boundary and beliefsr 2011 The Authors R&D Management 41, 3, 2011 245R&D Management r 2011 Blackwell Publishing Ltd
  7. 7. Ian P. McCarthy and Brian R. Gordonsystems, can promote the ‘what you measure, is consistent with Simons’ (1995a) claim that man-what you get’ phenomenon, which can sometimes agers will use beliefs systems to inspire employeeslead to unintended and undesirable consequences. to overcome organizational inertia and grow (i.e., build), or alternatively to focus, be persistent and complete existing projects (i.e., harvest). Conse- quently, we suggest that the nature and use of3.2. R&D strategic goals beliefs system in an R&D organization will beOne of the earliest definitions of a management linked to its growth goal.control system describes it as a collection of Innovation goals define the kinds of outcomessystems that managers use to ‘ensure that re- that R&D organizations seek to produce. At thesources are obtained and used effectively and most general level, this involves specifying theefficiently in the accomplishment of the organisa- velocity, magnitude and application range oftion’s objectives’ (Anthony, 1965, p. 17). Simi- technological change (McCarthy et al., 2010). Inlarly, R&D management scholars have argued an effort to be parsimonious, we focus only on thethat for an R&D management control system to magnitude of change in a technology’s capability,be effective it should be aligned with the R&D and the degree of benefit it brings to the marketstrategic goals of the organization (Schainblatt, (Wheelwright and Clark, 1992; Maine and Garn-1982; Bart, 1993; Chiesa et al., 2009b). sey, 2006). As recently argued by Chiesa et al. We define R&D strategic goals as statements (2009a, p. 419), such innovation differences sig-that motivate R&D organizations to attain a level nificantly influence ‘the adoption of specific man-of proficiency in a specific R&D capability. In agerial approaches, organizational solutions andterms of what these goals might be, we follow operative instruments,’ i.e., the design and use ofstudies that emphasize the importance of R&D appropriate control systems. Furthermore, it isgoals to control system design and use (Schain- argued, as interactive control systems promoteblatt, 1982; Bart, 1993; Karlsson et al., 2004; exploration and learning they are more prominentChiesa et al., 2008). Together these studies sug- in the early stages of the radical innovationgest that R&D goals can vary in terms of how process (Chiesa et al., 2009a). On this basis, wethey specify different types of research activity suggest that R&D organizations in pursuit of(i.e., basic research, applied research, and devel- radical innovation goals would benefit fromopment), innovation activity and outputs (i.e., greater use of interactive control systems; con-incremental and radical), so as to support the versely, R&D organizations in pursuit of moreoverriding business strategy and rules of competi- incremental innovation goals would require lesstion governing the R&D organization. The four use of interactive control systems.R&D strategic goals we use – growth, innovation, Reliability goals indicate the extent to whichreliability and efficiency – are distilled from these the activities of R&D organizations should beprinciples, and from the notion that each of the trustworthy and dependable (Kiella and Golhar,control systems proposed by Simons (1994, 1997). This type of goal has become important,1995a) is individually oriented toward one of with R&D organizations increasingly undertak-these strategic goals. This is indicated by the ing quality improvement programs. Reliabilitygoal-control linkages in Figure 1: growth-beliefs, goals determine the extent to which an R&Dinnovation-interactive, reliability-boundary and organization should be proficient at reachingefficiency-diagnostic. These relationships are not project milestones on time (Cooke-Davies andexclusive, however, and this is indicated by the Arzymanow, 2003), and the propensity of thesingle arrowed line that broadly connects all of organization to engage in post-project assess-the R&D strategic goals with all of the control ments that promote organizational learning (vonsystem types. Zedtwitz, 2002). As these activities involve adher- We define R&D growth goals as the extent to ing to acceptable R&D domains and practices, wewhich an R&D organization seeks to increase or suggest that the degree to which the R&D orga-maintain its organizational size (e.g., number of nization desires high levels of reliability, willemployees, R&D capacity and R&D outputs). determine the extent to which boundary systemsThey indicate the degree to which an R&D are used to ‘establish explicit limits and rulesorganization is concerned with developing its which must be respected’ (Simons, 1994, p. 170).innovative capacity by increasing its project port- Efficiency goals define the extent to which anfolios, the number of R&D employees and other R&D organization focuses on using its resourcesrelated resources (Addison et al., 1976). This is to maximize the production of innovations. As246 R&D Management 41, 3, 2011 r 2011 The Authors R&D Management r 2011 Blackwell Publishing Ltd
  8. 8. Achieving contextual ambidexterity in R&D organizationsdiscussed in our review of the R&D control 4. Framework illustration: the case ofliterature, this particular goal has captured the biotechnology firmsattention of managers and scholars who havefocused on performance measurement systems In this section, we present data to exemplify theand exploitation-related criteria such as R&D elements of our framework in terms of what theyproductivity. Consequently, the attainment of this are (i.e., the actual goals, systems and behaviors),goal is closely linked to diagnostic control systems and what they do (i.e., their effect on otherthat establish targets, and measure activities and elements of the framework and on an R&Doutcomes to help ensure that the other R&D organization). These data are used to illustratestrategic goals are being achieved efficiently. the framework, and make it more connected to R&D reality. Similar approaches have been used to illustrate conceptual frameworks dealing with R&D performance measurement systems (Chiesa3.3. R&D contextual ambidexterity et al., 2008), user innovation (Berthon et al., 2007)We define R&D contextual ambidexterity as the and external technology commercialization (Bian-ability to attain appropriate levels of exploitation chi et al., 2009).and exploration behaviors in the same R&Dorganizational unit. The right-hand element ofour framework indicates how the four control 4.1. Setting and methodologysystems combine to produce the behaviors andcontrol orientations necessary for this ability. We We focused on biotechnology firms, definedsuggest that beliefs systems and interactive sys- broadly as those firms that undertake life-sciencetems jointly produce exploration and a feed-for- research to develop therapeutic products, medicalward control orientation. Beliefs systems provide devices or biotechnology related services. Bio-‘momentum and guidance for opportunity-seek- technology firms are particularly appropriate foring behaviors,’ and interactive systems ‘focus illustrating our framework, for several reasons.organizational attention on strategic uncertainties First, they are often considered to be a proto-and thereby provoke the emergence of initiatives typical example of an R&D organization. Second,and strategies’ (Simons, 1994, p. 172). Together even though researchers have argued that thethese two types of control system promote pro- long-term success of these firms depends onspecting, experimentation and sense-making; all continued exploration (e.g., discovery, productof these are not only central to exploration, but formulation and preclinical trials), and effectivealso promote a feed-forward control orientation exploitation (e.g., clinical trials and the new drugfor anticipating future events and their effects. application stage) (McNamara and Baden-Fuller,Thus, beliefs systems and interactive systems 1999, 2007), we know relatively little about howunderlie the proactive scanning and planning this R&D ambidexterity can be attained. Third,behaviors essential for determining when and the exploitation and exploration activities of thesehow R&D activities should be modified. firms are significantly intertwined with each other. Our framework also suggests that the exploitation This means that biotechnology firms are suited toaspect of R&D contextual ambidexterity is linked to contextual ambidexterity, because it is proble-the joint use and effects of diagnostic and boundary matic to structurally separate these intertwinedsystems. Boundary systems permit discovery and activities. This is especially the case for small- andlearning, but within clearly defined limits of free- medium-sized biotechnology firms as their orga-dom. Diagnostic systems monitor R&D activities nizational size limits any major and viable separa-and outputs, and use this after-the-event informa- tion of resources. Lastly, by focusing only ontion to reward conformance, or to modify processes biotechnology firms, our data are bounded, help-and systems to correct non-conformance. Diagnostic ing to provide a focused illustration of the ele-systems measure activities and outputs so that R&D ments of our framework.managers know when things are going well, or are To collect the data, we took advantage of agoing wrong. This creates a context for making biotechnology management education program,informed decisions about resource allocation and led by one of the authors of this paper. Theprocess redesign. Thus, together diagnostic and learning nature of this university-industry pro-boundary systems induce exploitation as employees gram was useful for our research, as it providedare directed and rewarded to refine and apply respondents with the opportunity and environ-existing knowledge and competences. ment to reflect, analyze and discuss the controlr 2011 The Authors R&D Management 41, 3, 2011 247R&D Management r 2011 Blackwell Publishing Ltd
  9. 9. Ian P. McCarthy and Brian R. GordonTable 2. Companies and RespondentsFirm* Area of biotechnology Age of No. of Role of respondents firm (years) employeesFirm A Research testing services 15 35 Chief Executive Officer, Project ManagerFirm B Research testing services 29 175 Analytical ChemistFirm C Research testing services 40 51 Chief Executive OfficerFirm D Research modeling services 10 38 Senior TechnologistFirm E Research modeling services 5 48 Research Scientist – microbiologyFirm F Research modeling and testing services 18 62 Account ManagerFirm G Research modeling and testing services 7 32 Project ManagerFirm H Research modeling and testing services 23 134 Account ManagerFirm I Discovery and development of medical 17 284 Business Development devices ManagerFirm J Discovery and development of therapeutic 28 120 Research Scientist – drugs toxicologyFirm K Discovery and development of therapeutic 6 50 Quality Assurance Manager, drugs Senior ChemistFirm L Discovery and development of therapeutic 8 70 Senior Research Associate drugsFirm M Discovery and development of therapeutic 17 201 R&D Technologist, Project drugs ManagerFirm N Discovery and development of therapeutic 14 59 Senior Research Associate drugsFirm O Discovery and development of therapeutic 14 67 Research Scientist – oncology drugs*Pseudonyms and basic descriptions of the area of biotechnology areas are used to protect the anonymity of firms and within their firms. From 2006 to 2008 we ment of the framework was defined and explained.collected data from over 40 senior managers and This was followed by a discussion to further clarifyscientists, from 15 different biotechnology firms the function and scope of each element of thewhose organizational size ranged from 35 to 284 framework. Next, we collected data from indivi-employees (see Table 2). With this number of dual respondents using a semi-structured inter-firms, we did not seek to develop rich case studies view. Respondents were first asked to confirmfor inductive theory building, or to provide strong that their firms had an active R&D capability,empirical support for our framework. Instead, we and to provide the following background informa-sought multiple sources of data to help describe tion about their firms: age, size in terms ofand tentatively validate the elements and logic of employee numbers and the area of biotechnologyour framework. the firm focused on. The respondents were then All of the firms were located in Western Canada, asked to comment on the validity of the logic ofand undertook biotechnology related R&D. Ap- the framework in general terms, and to considerproximately half of the sample, Firms A–H, were the extent to which their firms focus on and use theresearch service organizations that undertook R&D different types of control system. This latter pointactivities to develop their portfolio of testing and required the respondents to reflect on the numbermodeling services for drug development and health- of people, rules and processes associated withcare organizations. The other half of our sample, each type of system. Next, the respondents wereFirms I–O, were involved primarily in the discovery asked to give examples of how each element ofand development of drugs or medical devices. All 15 the framework exists, and to exemplify links be-firms were at least three years old and employed tween the different elements of the frameworkmore than 10 people, ensuring that they were likely (see Table 3).1 The aim was to elicit actual exam-to employ some form of formal management con- ples of the goals, the control systems and thetrol system (Davila and Foster, 2007). associated behaviors and control orientations. Given our illustrative aims, the data collection The final stage of data collection involved abegan by presenting our conceptual framework number of follow-up interviews, where respon-(Figure 1) to groups of between five and 10 dents were contacted to either seek further infor-respondents. During these presentations, each ele- mation or to clarify aspects of their answers.248 R&D Management 41, 3, 2011 r 2011 The Authors R&D Management r 2011 Blackwell Publishing Ltd
  10. 10. Achieving contextual ambidexterity in R&D organizationsTable 3. Illustration of Model ElementsModel elements Representative and abbreviated answers*R&D strategic goalsDefine what the goals Growth: We are trying to survive and grow; and so we are totally focused on securingmean to your firm? the next round of investment. We need the money to keep existing people, to recruit new people and buy more equipment (Firm K). When we started out we hoped to build a company big enough to develop multiple drugs on its own, instead, we explored alliances and are finalizing a deal to license the technology (Firm L). Unlike most biotech start-ups, we are a service business that must produce a return on investment now (Firm B) Innovation: We are in the process of getting new approvals for our products, both in terms of serving new regional markets and in terms of new applications for our existing products. We are trying to better target the drugs we have (Firm I). We have this technology, which if it works out, will completely transform the value chain for this testing service (Firm C) Reliability: In this industry we succeed and fail on the quality of our data. If we are not scientifically valid at every stage of the process; then our products will not get approved (Firm O). If we are not reliable we will soon be out of business (Firm G) Efficiency: This is a major driver for us. Our testing services are up against existing rival services that are continuously improving. If our R&D does not deliver desirable enhancements to the tests and models we offer, then in the long run we won’t be able to compete (Firm D). While return on investment is important, we only worry about efficiency when the money starts to run out (Firm J)Describe how each type of Growth and beliefs systems: Originally we were a local company servicing local biotechgoal relates to each type firms; now we are trying to access global markets and work with partners around theof control system? world, and this is clearly reflected in our mission statement and core values. (Firm F). We have grown so we have different types of stakeholders whose interests are communicated to us (Firm H) Innovation and interactive systems: A few years back the CEO started organizing company retreats, where we think about how the organization is evolving – what it might become (Firms J). From an R&D basis we deliver monthly presentations to the chief technology officer so that he knows what we are coming up with (Firm E) Reliability and boundary systems: The trustworthiness of our research is so important that we strongly adhere to good laboratory practice (GLP) (Firm A). Archiving and peer review are common systems in our industry for facilitating boundary-like control in labs (Firm M) Efficiency and diagnostic systems: Our financial officer monitors and measures our cash burn rate (Firm E). Our project managers monitor progress each week in terms of the number of tests, and the quantity of data produced and recorded (Firm K)Management control systemsProvide examples of the Beliefs: Our mission statement is everywhere – it reminds everyone that we aspire to be arules, processes and sustainable business and not just a collection of research projects (Firm N). On the wallstechnologies that your of our labs are framed posters of famous scientists along with motivational messagesfirm has for each type of that encourage us to try and make a difference (Firm I). Like the university recruitmentcontrol system? process each member of my team gets to meet with potential new hires to suss out how well they would fit in (Firm D) Interactive: We use crude technology road-mapping exercises to forecast and communicate technological developments (Firm C). This involves two types of activity. First, our senior scientists and business development managers produce reports that detail relevant trends for our industry. Second, we have strategic planning sessions where we report this information to employees and develop action plans and allocate resources (Firm M). A bit like 3M and Google we are allowed to allocate a percentage of our time to work on pet projects (Firm F) Boundary: Code of Conduct and standard operating procedures (All Firms); employees can call an independent whistle-blowing hotline (Firm H). We adhere to a host of regulatory constraints regarding the disposal of waste and handling of radioactive material (Firm M). The tests, inspections and audits conducted by our quality assurance department, as well as adhering to industry procedures and guidelines e.g., International Laboratory Accreditation Cooperation (Firm B). The FDA requires us to develop and maintain risk management systems to ensure that the benefits of our product outweigh the risks (Firm N). All scientific laboratories must enforce laboratory dress codes (e.g., no shorts, no skirts, no sandals and no open-toed shoes) for safety and reliability reasons (Firm A)r 2011 The Authors R&D Management 41, 3, 2011 249R&D Management r 2011 Blackwell Publishing Ltd
  11. 11. Ian P. McCarthy and Brian R. GordonTable 3. (Contd.)Model elements Representative and abbreviated answers* Diagnostic: Individual scientists have specific objectives, which relate to project milestones that keep the investors happy (Firm K). These are the systems that measure how much work individuals do e.g., tests per day (Firm L). Employee awards would constitute this form of control (Firm G). For our R&D we have budgets and budgetary controls; these dictate who does what and what gets done (Firm F)R&D contextual ambidexterityDescribe how the Exploration (beliefs and interactive): Some of the biggest successes in our industry havedifferent types of control involved companies changing direction with only 6 months of operating cash left. To dosystem work together to this required beliefs and interactive systems capable of helping management to first spotgenerate the exploitation the opportunity and then to steer the company in a new direction (Firm O). Our beliefsand exploration behaviors systems direct what we do and why we do it, while our interactive systems provide thein your firm? freedom and mechanisms to rethink what we do and what we do it (Firm B) Exploitation (diagnostic and boundary): First and foremost we are a service company, and we view innovation and learning as necessary but costly and hard to justify. As a consequence our control systems focus on improving project efficiency and optimizing revenues from existing assets (Firm H). Our boundary and diagnostic systems help us to reassess risk and revise the go/no go guidelines for research activities (Firm O). I feel that the whole drug development process, with all its checks and regulations, creates a high level of consumer protection but also a risk averse product development culture (Firm N).Describe how the Feed-forward control orientation (beliefs and interactive): I would say these systems aredifferent types of control much more open and intangible in nature – they have to be – because we use them to trysystem involve a feedback to make sense of all uncertainty in our industry (Firm I). What typically happens is thatand/or a feed-forward we use the industry forecasts and scenarios to see if we should maintain our currentcontrol orientations in portfolio of projects . . . if a major change is required then that would almost certainlyyour firm? require a change in aspects of our mission statement and project activities (Firm F). We could do with formalizing these systems a lot more. This would help stop all the micro- management we have, and free these guys to see problems coming in time so that we can do something about them (Firm C). Feedback control orientation (diagnostic and boundary): These systems are obviously feedback in nature – they are all about doing checks and tests to see what has happened or should have happened (Firm E). There is a view in my company that we have too many of these systems and they provide so much feedback that we do not know what to do with it (Firm L). Reviews, audits and certifications – these are all industry- recognized ways of obtaining feedback (Firm G).*Some of the answers have been abbreviated to protect to protect the anonymity of firms and respondents.4.2. Analysis and findings 4.2.1. R&D strategic goals in biotechnology firms In terms of R&D growth goals, our frameworkWe approached our analysis from a broadly and data indicate that this varied largely accord-descriptive perspective, focusing on how the ing to the lifecycle stages of the firm, its marketsdata illustrate the elements and relationships in and its products. This is consistent with strategicour framework. Following guidelines for present- options which characterize the extent to whiching qualitative case data (see Eisenhardt, 1989), firms focus on appropriating returns from stableand the format used by Nag, Corley and Gioia and limited project portfolios (harvest), versus(2007) for their study of strategic change in R&D building capacity to create new knowledge andorganizations, we present our questions and illus- technologies for new products and marketstrative answers in Table 3. This summary infor- (build) (Gupta and Govindarajan, 1984). Firmsmation complements our narrative in the E, G and K, for instance, focused on securing newfollowing sections, where we describe, using ex- sources of investment funding so as to grow R&Damples, the conceptual logic and reality of our capacity, and to develop their early stage technol-proposed framework. It is important to note that ogies. These firms were relatively young, small,even though there were no major contradictory idea-rich, but resource-poor and thus concernedcomments or negative assessments of the frame- with building R&D capacity in a way that thework, this does not constitute empirical support larger and more established firms were not. Thefor the framework. The data are simply used to larger, more mature biotechnology organizationsillustrate the elements of the framework. (e.g., Firms B, H, I and M) were more concerned250 R&D Management 41, 3, 2011 r 2011 The Authors R&D Management r 2011 Blackwell Publishing Ltd
  12. 12. Achieving contextual ambidexterity in R&D organizationswith developing efficient R&D processes to cap- end-use markets, meant that they faced manyture returns from existing resources and projects, technological, regulatory and market uncertainties.and thus their investment intensity in new R&D This required their top-management team to de-projects was much smaller. A respondent from velop and continuously use interactive systems:Firm M, for example, stated that ‘once our ‘We set up committees to collect and report in-company became public the whole nature of our formation on who was doing what in our industry.R&D operations dramatically shifted from creat- This information was internally communicated toing new technologies, to marketing and selling the necessary project teams, so they could commentour approved product line.’ Furthermore, respon- on and help us plan for the opportunities anddents reported that this type of goal was linked to threats that we were facing.’the use of beliefs systems which help create a Reliability goals specify the extent to whichcommon language, a shared understanding and R&D will be conducted in a timely fashion, and instrategic coherence within an R&D organization. accordance with expected standards and codes ofFor instance, the respondent from Firm N re- practice. Our data indicated that this goal isported that ‘when we were first formed we didn’t central to biotechnology firms, with all of thehave a mission statement. We were simply a respondents in our study making statements thatgroup of researchers who did research. Sixteen concurred with the view that ‘the success of anyyears later, however, we have had four or five biotech firm is dependent on producing anddifferent mission statements, with the current one reporting good data, before funding runs out’emphasizing our commitment to provide value to (Firm L). The importance of R&D reliability toshareholders.’ Similarly, the respondent from biotechnology firms is reflected in the demands ofFirm E reported that ‘We all know that the goal their various stakeholders (e.g., patient groups,is to build a company that will be big enough, in investors, collaborators and government agen-terms of talent and promising intellectual prop- cies), who expect biotechnology firms to closelyerty, so as to attract partners or buyers. . . . . . . follow good scientific practice and conform toand in terms of the control system that reminds us recognized rules and guidelines. Consequently, inof this goal – it is communication, communica- terms of the link between reliability goals andtion and more communication.’ control system use, our illustrative data support Innovation goals delineate the kinds of out- the link to boundary systems. All of the respon-comes that R&D organizations seek to produce. dents provided comments similar to those listed inAlthough these goals can vary in a number of Table 3, indicating that reliability requires strongways, we focused solely on the magnitude of and effective boundary systems to reduce the riskchange in a firm’s technology, and the degree of of improper behaviors that might cause a projectbenefit it brings to the market (e.g., incremental or service failure.versus radical) (Wheelwright and Clark, 1992). In The fourth goal in our framework, efficiency,terms of our data, respondents from Firms A and specifies the extent to which R&D organizationsB reported that their R&D focused on incremen- are concerned with productivity and cost effec-tally enhancing their existing service offerings for tiveness as ways to maximize returns on invest-existing customers in the biotechnology and phar- ment. Our data indicate that while efficiency is onmaceutical industries. In contrast, Firm O fo- the whole important to all the biotechnologycused on adapting its existing technologies for firms in our study, it was less significant to thehuman therapeutic disorders for animal care six drug development firms (Firms J, K, L, M, N(farm and pet) markets. Our data also indicated and O), and the one medical device firm (Firm I),that when an innovation goal specified radical than it was to the nine research services firmsinnovations, then this was associated with greater (Firms A, B, C, D, E, F, G and H). The view ofuse of interactive control than if the goal stipu- efficiency held by the drug and medical devicelated incremental innovations. For instance, a firms, is reflected in the statement that the ‘majorrespondent from Firm A reported that his orga- time lag between R&D action and R&D outcome,nization’s focus on refining existing technology typically limits our ability to efficiently controlfor existing customers was largely driven by the our activities, and as a consequence being efficientoccasional project meeting with top managers, is not really a top priority. We just focus on doingintended to ‘boost organizational dialogue’ about good science’ (Firm J). In contrast, the researchhow to improve existing testing services. In the service organizations considered efficiency goalscase of Firm O, their desire to develop radically to be central to their R&D, which must continu-new platform molecular technologies, for different ously produce innovations that help keep theirr 2011 The Authors R&D Management 41, 3, 2011 251R&D Management r 2011 Blackwell Publishing Ltd
  13. 13. Ian P. McCarthy and Brian R. Gordonservices cutting edge and competitive. This varia- and analyze data on changes in demand, pro-tion in attitudes toward efficiency was also linked ducts, technology, competition and variations in the extent to which firms used Respondents also reported how R&D projectsdiagnostic systems. For instance, the respondent were started, adjusted and stopped using infor-from Firm B stated ‘many of our R&D projects mation from forecasting and assessment systems.are in collaboration with customers who have Forecasting systems provide projections abouttime, quality and cost expectations, . . . . . . and when things will happen (i.e., a drop in theto meet these we have numerous budget and demand for existing products and services, orproject monitoring systems.’ the approval of a new regulation or competitive product), while assessment systems provide esti-4.2.2. Management control systems in biotechnol- mations of the impact of these changes on theogy firms organization and its R&D portfolio. Such inter-The most common examples of beliefs systems active systems are also ‘interactive’ in the senseidentified by our respondents were the company that the managers use the information they un-reports, mission statements and website pages cover ‘to continuously and directly involve them-that each firm used to articulate the research selves in the decisions and behavior of theirvision and values of the organization. For drug subordinates’ (Chiesa et al., 2009a, p. 421). Fordevelopment firms, beliefs systems typically fo- instance, respondents reported the use of planningcused on installing in employees the noble vision sessions ‘to distribute strategic information to em-of serving patients, saving lives and eliminating ployees, and then work with them to develop actionpain and suffering, while being guided by research plans and allocate resources for existing and newvalues such as respect, ethics, and team work. In projects’ (Firm I). Respondents also reported thatcontrast while the research service firms we sur- project and organizational based interactive sys-veyed had similar statements about research va- tems are used by managers and their teams tolues, their visions focused more on being the best speculate on future R&D scenarios, and to ensureor first choice service provider in their market. that the foci and aims of the other types of controlOther types of beliefs systems reported by our system are adjusted as R&D strategic goals shift.respondents included the company recruitment Furthermore, all of the firms in our study hadprocess that ‘seeks to attract and recruit talent scientific advisory committees that provided advicewith attitudes and skills that are consistent with that could alter the strategies for planned, pipelineour research values’ (Firm K), and the training and approved R&D projects. These committeesprocess, which ‘develops people in the ‘company dictated the direction of exploration and the scopeway’ by continually communicating our goals and of feed-forward control, necessary for R&D con-achievements to all staff’ (Firm O). Respondents textual ambidexterity.also reported the use of intra-company challenges Boundary systems act ‘like an organization’sand socialization events to promote fun and brakes’ (Simons, 1995b, p. 84). They restrain andcreative thinking, and to build organizational guide employees so that the firm does not experi-coherence. Also in some cases the architecture ence an accident, i.e., a failure and crisis. Forand decor of company buildings, along with the biotechnology firms the systems are typically builtpictures on the walls of corridors and labora- into a firm’s laboratory practices, project manage-tories, were all designed to inspire employees with ment methods and resource allocation decisioncreative, funky and free-thinking values. All of making processes. For instance, many respon-these examples of beliefs systems are intended to dents reported that their firms had ‘a Code offocus and energize employees in a way that is Conduct that all our employees must be certifiednecessary for the exploration and feed-forward to’ (Firm D) and that ‘product approval is de-control aspect of R&D contextual ambidexterity. pendent on us producing, analyzing and archiving In terms of interactive systems, our framework risk data to ensure that the benefits of ourand data indicate that these include R&D specific planned drug outweigh the risks’ (Firm L). Theresystems such as technology road-mapping (Phaal are also non-firm specific boundary systems,et al., 2006) and real options methods (Barnett, which for biotechnology firms included regional2005), all of which help companies understand the and national laws, and regulations from institu-effects of emerging technologies. There are also tions such as the US Food and Drug Adminis-more general strategic scanning and monitoring tration and the European Medicines (e.g., market research, competitor analy- Furthermore, there are certification regimes suchsis and technology benchmarking) that collect as Good Laboratory Practices, which are ‘pri-252 R&D Management 41, 3, 2011 r 2011 The Authors R&D Management r 2011 Blackwell Publishing Ltd
  14. 14. Achieving contextual ambidexterity in R&D organizationsmarily intended to guarantee safe animal and situation in which his biotechnology firm wastoxicology testing, yet also help to ensure that unable to make sufficient progress toward devel-laboratory results are internally peer-reviewed. oping its sole technology for a specific therapeuticThis helps to limit the risk of producing results disorder, and thus was struggling to attractthat are wrong, fabricated or massaged’ (Firm K). further investment. With only a few months ofIn summary, as R&D researchers enjoy relatively funding remaining, the company identified ahigh levels of job autonomy, boundary systems completely different disease, with a much greaterare used to avoid or mitigate unsafe or unethical market value, which could be treated using theirbehaviors, or actions that constitute scientific core platform technology. The discovery of thismisconduct. These systems counter the effects of opportunity is credited to the Chief Scientificdiagnostic systems, and are most likely to produce Officer ‘The fact is – his job was to continuouslythe risk averse behaviors associated with exploi- search for, evaluate and share new technologicaltation and the checking of conformance that goes opportunities with the board and project teams.with feedback control. He was our interactive control system – charged In terms of diagnostic systems, our frame- with worrying about our future.’work and data indicate that these include project Similarly, in terms of control orientation – theplanning systems for target drug approval dates, extent to which control is ex post (after the event)budget systems for project costs, laboratory man- or ex ante (before the event) in nature – ouragement information systems for recording and framework and data suggest that beliefs systemsanalyzing sample tests, and clinical trial systems and interactive systems work together to promotefor measuring the performance or efficacy of a a feed-forward control orientation. This followsdrug. Such systems are progress-focused. Man- the original thinking of Simons (1995a, p. 108)agers, boards and regulatory agencies identify who argued that interactive systems promoteresearch project goals, review progress and arrange ‘reforecasting of future states based on revisedpost-project reviews to identify lessons and correc- current information’; however, for this to occur,tive actions. In terms of R&D output, both the the projections must be focused and appropriatedrug development firms and the modeling and to the needs of the organization. Thus, beliefstesting service firms in our study used a number systems work with interactive systems to ensureof corporate level diagnostic systems. These mea- that information is sought and used in a way thatsured the production of scientific papers, returns promotes prediction and change that are relevantfrom R&D collaborations, the creation and ap- to the organization. These systems are feed-for-proval of patents and the revenue from new service ward in nature because they help managers totechnologies, licensed patents and approved pro- anticipate or forecast events and trends beforeducts. Thus, by their very nature, diagnostic con- they occur, allowing them to proactively redirecttrol systems are central to exploitation behaviors in organizational values and activities. For instance,that they provide feedback, or after-the-event in- one respondent reported ‘we know that the pa-formation, that is used to adjust and improve the tents on our products and our competitors’ pro-performance of existing processes. ducts will expire someday, and even though we cannot be certain what the impact will be when4.2.3. Contextual ambidexterity in biotechnology these expiries occur, we still monitor, forecast andfirms develop scenarios so that we are prepared forIn terms of exploration, our framework and data these events’ (Firm I).indicate that beliefs systems and interactive sys- In terms of exploitation, our framework andtems work together to generate search and dis- data suggest this is attained by boundary systemscovery that are relevant and adaptable. Beliefs and diagnostic systems working in such as the mission statement, the recruit- Boundary systems moderate exploration beha-ment process, employee training and the company viors, induced by beliefs systems and interactiverhetoric and symbols, are all used to focus and systems, by defining and restricting the searchguide employees to search for and create new space and activities that can be undertaken (Si-competences and knowledge. In combination, mons, 1995a; Widener, 2007). They reign ininteractive systems such as technology road-map- employee freedoms to counter the autonomyping, market forecasting and impact assessments and inspiration that drive the exploration forare used to maintain or adjust the specific direc- new knowledge. Diagnostic systems also countertion of this exploration activity over time. For exploration, by using relatively short-term effi-example, a respondent from Firm K described a ciency measures to refine and extend existingr 2011 The Authors R&D Management 41, 3, 2011 253R&D Management r 2011 Blackwell Publishing Ltd
  15. 15. Ian P. McCarthy and Brian R. Gordoncompetencies. These systems typically focus on tegic goals influence the attention placed onand require exploitation related outcomes that are different types of control system. As the use of‘positive, proximate and predictable’ in nature multiple control systems can require considerable(March, 1991, p. 85). These combined effects of managerial attention, management should prior-boundary systems and diagnostic systems were itize where to focus their attention and resourcesexemplified by the statement that ‘we use bound- (Marginson, 2002; Widener, 2007). Also, as dif-ary control in conjunction with our project per- ferent goals can have different and sometimesformance systems to examine and check that conflicting implications for organizational beha-everything is going according to plan. We don’t vior, the use of different control systems couldlike surprises and nor do our customers’ (Firm E). help to manage any potential conflicts presentedThis type of control counters the instability, by multiple goals. This can be examined by survey-uncertainty and serendipity often associated ing employees, to assess the extent to which theirwith R&D exploration. R&D organization is guided by different goals, and In terms of control orientation, our framework the number of people hours associated with eachand data suggest that boundary and diagnostic type of control system (Chiesa and Frattini, 2007).systems in biotechnology firms jointly promote a Second, with our framework and illustrativefeedback control orientation. Diagnostic systems data, we claim that beliefs and interactive systemsare used to monitor, review and test, so as to provide a feed-forward control orientation thatensure things are on track in terms of ‘what’ is generates or enhances exploration, whereasbeing done. If they are not, then other control boundary and diagnostic controls provide a feed-systems and activities can be adjusted accordingly. back control orientation that generates or en-Managers also use this after-the-event information hances exploitation. While we consider this toto motivate and reward the behaviors of indivi- be true, all frameworks are simplified representa-duals, teams and organizations. In contrast, tions of reality (Box, 1979). Consequently, weboundary systems specify and check ‘how’ things suggest that our framework provides a startingare done, in accordance with pre-defined standards point for unpacking the complexities of the con-and regulations. These systems also provide error- trol-behavior relationship. For example, it is notbased feedback control, i.e., any deviation from just the combination of control systems used thatspecified practices leads to corrective action and if matters, but also the substantive content of thethese deviations persist, then stronger more influ- controls – what is dictated, discussed, projected,ential boundary systems are installed. For in- measured, monitored and evaluated. Thus, know-stance, one of the respondents from Firm M ing that an organization is using a certain type ofreported that ‘if biotechnology firms experience control system provides a first-order level insightone major incident or repeated minor incidents of into the control-behavior relationship. The nextscientific misconduct, then this typically leads to a level is to understand the effectiveness of thecorrective action where guidelines and checks for different rules, procedures, technologies and in-laboratory practice are tightened up.’ centives that R&D managers use in conjunction with each type of control system. Third, researchers could explore how control5. Implications and future research systems could be used to attain low or high levels opportunities of balanced ambidexterity (Cao et al., 2009). Low balanced ambidexterity is when a firm’s level ofThe central contribution of our paper is the exploitation is significantly lower than that ofdevelopment and illustration of an R&D manage- exploration, and vice versa; while high balancedment control framework for attaining contextual ambidexterity is when a firm has similar moderateambidexterity in R&D organizations. We now levels of both exploration and exploitation. Bydiscuss several implications of the framework, of emphasizing different control system combina-relevance to both management practice and fu- tions, it could be possible for R&D managers toture empirical research. attain, at specific periods in time, different mixes First, our framework posits that there is a of this exploitation-exploration balance.strong (though not exclusive) relationship be- A fourth implication of our framework con-tween individual R&D goals and the use of cerns the influence of other contingency factorsdifferent types of control system. An important such as the size, age and life-cycle of the R&Dimplication of this is the need to empirically organization, and its industry conditions, on theexamine to what extent the different R&D stra- use of different management control systems.254 R&D Management 41, 3, 2011 r 2011 The Authors R&D Management r 2011 Blackwell Publishing Ltd
  16. 16. Achieving contextual ambidexterity in R&D organizationsAlthough the focus of our paper was on under- call ‘capability toggling’, and Thomas et al. (2005)standing how different types of control system, call ‘irregular oscillation,’ where the balancing ofguided by different R&D strategic goals, can be exploitation-exploration tensions is much likeused to induce contextual ambidexterity, the riding a bike – it requires a continuous andillustrative empirical evidence we present hints irregular shifting of control system use over the role of these factors. For instance, someorganizations (e.g., Firms E, G and K) wererelatively young and small, and concerned with 6. Conclusiongoals and controls that sought to build R&Dcapacity in a way that the larger and more In this paper, we introduced a framework thatestablished firms were not (e.g., Firms B, H, I shows how four types of control system, eachand M). Thus, the framework we present could be guided by an R&D goal, combine to induce themodified by other researchers to explore how such behaviors, outcomes and control orientationsantecedents drive the use and outcomes of R&D (feedback versus feed-forward) necessary for con-control systems. textual ambidexterity. We illustrated these frame- A fifth implication of our framework concerns work elements and their linkages, using data fromhow R&D managers might use control systems to biotechnology firms, so as to clarify what these‘dynamically’ shift, over time, the exploitation- elements are and what they do. While this helps toexploration balance. The balanced viewed of make the framework more useful and meaningfulambidexterity (March, 1991; Cao et al., 2009) is to scholars and practitioners, this illustration mightlargely ‘static’ in nature, in that it refers to an also suggest that R&D control is a straightforwardoptimal mix of exploitation and exploration at a task. However, this is not the case. An inherentpoint in time. However, as discussed above, R&D challenge to understanding and practicing effectivecontrol is driven and constrained by environmen- R&D management control is the fact that it istal antecedents such as the size, age and life cycle concerned with controlling the production ofof the R&D organization, as well as by changes in knowledge, something that is inherently unobser-industry conditions such as demand, competitors, vable. As knowledge increasingly redefines thetechnologies, products and regulation. As each of wealth of nations, firms and individuals, the chal-these conditions has a distinct velocity (a rate and lenges and benefits of effective R&D control willdirection of change (McCarthy et al., 2010)), – an continue to capture the attention of scholars andoptimum mix of exploitation-exploration at one managers. Thus, we hope that our framework willpoint in time is likely to become unsuitable as motivate researchers to further examine howindustry conditions change over time. This makes broader forms of control, guided by R&D objec-the balancing of exploitation and exploration a tives and other environmental factors, act as orga-dynamic problem. This is tentatively supported nizational levers for balancing different forms ofby our data where respondents explained how the knowledge production over time.balance of exploitation and exploration alteredover time as a firm advanced through its life cycle,or changed the focus of its R&D activities (see: AcknowledgementsTable 3, the R&D contextual ambidexterity sec-tion). For instance, the respondent from Firm O We are grateful to two anonymous reviewers forexplained how different beliefs and interactive their helpful and constructive comments. Thesystems were required to shift the balance toward development of this paper also benefited fromexploration so as to help take the company in a comments from Danny Breznitz, Elicia Maine,new direction. The importance of this implication Jane McCarthy, Karen Ruckman, Christos Tsi-has been highlighted by scholars who suggest that nopoulos and participants at the R&D Manage-‘given the dynamism of markets and organiza- ment Conference 2008. We also acknowledgetions, it is important to develop theories that research funding from Canada’s Social Sciencecombine static elements with more dynamic per- and Humanities Research Council.ceptions of ambidexterity’ (Raisch et al., 2009, p.686). Thus, we suggest that our framework can beused to explore how R&D managers use different Referencescontrol systems to dynamically shift the balanceor mix between exploitation and exploration over Addison, L.E., Litchfield, J.W. and Hansen, J.V. (1976)time. This follows what McCarthy et al. (2006) Managing growth and change in an R&D organiza-r 2011 The Authors R&D Management 41, 3, 2011 255R&D Management r 2011 Blackwell Publishing Ltd
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