All organizations operate along some point on the exploit/explore continuum. At the exploit end, organizations work to identify and implement the most cost-effective ways to carry out existing tasks, spread these methods throughout the organization and keep the focus on incremental (or continuous) improvements.

On the explore side, the organization competes in new or changing markets. The key strengths here are experimentation, autonomy and disruptive innovation.

Ambidexterity allows an organization to find the mix of exploit and explore that lets them maintain the efficiency they need for short-term success while still permitting enough exploration and flexibility to ensure long-term survival.

It isn't a new topic: The concept of ambidexterity was formalized by Harvard professor Michael Tushman and Stanford professor Charles O'Reilly in 1996. More recently, Harvard Professor and Filene Fellow Dennis Campbell addressed the credit union implications of ambidexterity in the research report "Structures for Innovation."

Structural Vs. Contextual Ambidexterity

Ambidexterity falls into two main categories. Structural ambidexterity physically separates the currently profitable core businesses (the exploiters) from the next-stage ventures (the explorers).

This method is often used by bigger, deep-pocketed organizations that can afford to set up separate teams. Google is a well-known example. In 2015 Google restructured itself as a holding company (Alphabet) comprised of two elements: Google, which focuses on proven, profitable exploit businesses (its search engine, YouTube, the Android operations system for smartphones and Gmail), and X, which explores new opportunities, often outside the realm of Google's core offerings.

Contextual ambidexterity allows each department to determine their own right mix of exploitation and exploration. A good example of this is Haier, a Chinese company that's the world's largest appliance maker.

Haier has gained a reputation for innovative, high-quality products and exceptional customer service. To deliver these, the company uses contextual ambidexterity. Haier put its 70,000 employees into 2,000 self-managed teams – veritable "mini-companies" that both exploit and explore and can adjust the mix when needed.

Why CUs Struggle With Ambidexterity

Ambidexterity presents a variety of challenges for most credit unions. It can be harder for credit unions to play on the "explore" end of the spectrum. They don't have the ability to freely raise capital, which makes it challenging to fund innovation, and it's less common for credit unions to have the tolerance for risk that true push-the-envelope exploration demands. Plus, regulations limit credit unions' ability to develop new, deeply disruptive products.

Controls (both financial and regulatory) and the importance of service continuity limit the ability to use contextual ambidexterity and most credit unions lack the scale to pull off structural ambidexterity (the same teams will be called on to exploit and explore simultaneously).

Use a CUSO to Move the Needle

Credit unions have a key strength that can aid their successful use of ambidexterity: Their propensity to collaborate, especially through CUSOs. Credit unions have long used CUSOs to leverage skills and dollars to exploit mature markets. CUSOs also provide an exceptional platform for credit unions to separate their core business from next-stage ventures – that is, to practice structural ambidexterity in a way they can't afford on their own.

Through CUSOs, credit unions can experiment with different processes and cultures, which is especially valuable if they want to investigate going after a new market. CUSOs also let credit unions offer a broader range of products, which is critical to staying competitive, and improve their ability to leverage technology to increase channel options and performance.

Last but not least, CUSOs allow credit unions to take advantage of their unique propensity to collaborate. Because CUSOs are often owned by multiple credit unions, they're a great way to pool resources and insights and drive superior solutions.

Achieving effective ambidexterity is challenging for all credit unions, but critical in today's dynamic marketplace. CUSOs leverage credit unions' long history of collaboration and are a path worth considering.

How One CUSO Delivers Structural Ambidexterity

PSCU, a Florida-based CUSO established in 1977, recently launched what it calls its Member Experience Center. The Center is open to employees of all PSCU owner credit unions and, according to President/CEO Chuck Fagan, is designed to "… create a collaborative and educational environment where credit unions and employees can come to learn, work and innovate together."

Although the Center is in its early days – it launched in March 2017 – it's a promising concept and one worth keeping an eye on.

How One FI Tackles Ambidexterity

Although financial institutions don't have the same scope for innovation and exploration tech and manufacturing companies might, they can still take advantage of ambidexterity. Handeslbanken, a Swedish bank, found that radically decentralizing its management allowed it to test how to best meet the needs of local customers. The bank has no centralized strategic plans, sales targets or marketing budgets and all data is tracked and disseminated at the branch level.

This approach generates a high level of transparency, promotes information sharing and encourages branch managers to improve performance through collaboration. It's also led to excellent customer service, extraordinary longer-term financial performance, low loan delinquencies (just 10% that of its European peers) and returns on equity that have exceeded those of similar organizations for more than four decades.

When 'Safe' Isn't

Hitting the sweet spot between exploit and explore isn't easy for most organizations. It might feel "safe" to stick with the familiar, but experience has proved it's anything but. For instance, Kodak didn't effectively capitalize on the digital technology it invented in the 1970s and went from being one of the world's most powerful companies to a shadow of its former self, according to the Harvard Business Review. Xerox PARC invented the computer mouse, but didn't leverage its advantage; it took a more farsighted Apple to make the most of the technology, The New Yorker reported.

Andrew Downin is Managing Director, Research for Filene Research Institute. He can be reached at 608-661-3746 or [email protected].