Nov. 29, 2021

A transformational CEO builds an ambidextrous organization — but its success is the work of many hands

When the going gets tough, it's not so tough to change
A transformational CEO builds an ambidextrous organization — but its success is the work of many hands

In a recently published study, Haskayne researcher Alain Verbeke, with co-authors Yaotian Pan from the Chinese Academy of Sciences and Wenlong Yuan from the University of Manitoba, has uncovered the complex and overlooked dynamics of established companies whose CEOs are able to unleash entrepreneurial forces; these are the effective transformational CEOs.

The researchers hypothesized that conventional wisdom about how transformational CEOs achieve entrepreneurial success in their firms is incomplete, and they set about testing this hypothesis in the real world. Their chosen subjects were the CEOs, top management teams (TMTs) and middle managers in 145 Chinese firms with at least 15 years in business and turnover of between $2M and $6M CAD.

Managing the paradox of disruption

Gibson and Birkinshaw's (2004) organizational ambidexterity has been accepted as the conceptual framework for corporate entrepreneurialism for more than 15 years. The ambidextrous organization is able to 'rebuild the airplane while still in the air' by giving employees freedom to change behaviour while maintaining consistent operational control. Transformational CEOs can therefore only be transformational in a real sense if they build upon, and improve, this organizational ambidexterity.

Organizational ambidexterity consists of four interrelated elements: discipline, stretch, support and reliability. Discipline means that the established company maintains rules and routines, even as it takes risks. Stretch refers to guidance given to encourage transformational activity. Support is the process of providing necessary resources to innovations and existing operations. Finally, perhaps most importantly from the CEO's standpoint, reliability is defined as the shared belief that learning, especially from failure, is always valued by leadership.

Transformation takes team spirit — and timing

The above is intuitively plausible: transformational CEOs use their ambidextrous organization’s strengths as a springboard to riskier, and potentially game-changing, market opportunities. But what Verbeke, Pan and Yuan discovered is that neither a transformational CEO, nor a discipline-stretch-support-reliability framework being in place, are sufficient to guarantee a successful transformation to corporate entrepreneurialism.

Evidence from the Chinese industry study showed that a transformational CEO and an ambidextrous organization need three more elements to be in place simultaneously to drive entrepreneurship in an established firm: a TMT that has a high degree of collective unity; a relatively high level of structural integration in the organization; and a somewhat threatening competitive environment.

The study found that, if the competitive environment were perceived to be benign, unified TMTs would not be particularly receptive to transformational change. In fact, highly individualistic TMTs might be more entrepreneurial during times of stability. Furthermore, if the organization were already divided up into independently managed units, the impact of the supposed transformational leader and organizational ambidexterity would be weak.

When the going gets tough, it's not so tough to change

Essentially, no matter how transformational the vision of a CEO may be, entrepreneurialism won’t flourish in an established company unless the TMT is unified in its support, there is an integrated organizational structure, and there is a perceived threat that the entire organization will suffer badly if it does not change drastically.

When a corporate board or leadership team asks the question: “How will the new CEO drive an entrepreneurial vision through the organization”, they are falling into a trap. Instead, they should be asking: “How does an entrepreneurial vision become the mindset shared by everyone in the company?' The process of creating receptivity relies on a CEO who recognizes the limitations of individual influence, the importance of organizational ambidexterity, the character of the TMT, and the motivation arising from perceived threats to the business in the marketplace.

Only when leveraging the unity of teams, across an integrated structure, can a transformational CEO show managers and employees that an entrepreneurial, risk-taking mindset is the best way to secure the company's future — and their own — in particular when times are tough.

Full research paper published in Management and Organization Review 17:1, February 2021

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