Banking on Ambidexterity: A Longitudinal Study of Ambidexterity, Volatility and Performance

While some argue that organizations should concentrate on only one direction in order to avoid risking mediocrity in their exploration and exploitation activities, recent literature has indicated that ambidexterity can positively affect organizational performance. The scant respondent-dependent and cross-sectional studies advanced in support of the relationship between organizational ambidexterity and performance render inconclusive the actual value of ambidexterity. Further uncertainty stems from the lack of knowledge of the antecedents of ambidexterity. In this paper, we address both the theoretical and the empirical uncertainties surrounding ambidexterity. We provide a theoretical framework that links volatility in organizational engagement in exploration and exploitation, ambidexterity and firm performance. We argue that such volatility hampers the learning required for the attainment of ambidexterity, rendering the organization unable to reap the benefits of simultaneously executing exploration and exploitation. We further argue that ambidexterity in turn mediates the relationship between volatility and firm performance. A longitudinal analysis of 467 bank-year observations collected from the Norwegian banking industry over the period 1995 to 2003 provides strong empirical support for our theoretical model.