Europe's competitiveness in the crisis: Organizational ambidexterity as a strategic way out

How the ability to “ambidexterity” between innovation and efficiency can protect European SMEs from losing importance

Europe faces an existential economic challenge that goes far beyond cyclical fluctuations. Labor productivity in the European Union is currently less than 80 percent of the US level, a gap that has been widening continuously since the 1990s. The diagnosis is clear and was impressively documented in September 2024 by the Draghi Report commissioned by the EU Commission: Europe is caught in the so-called mid-tech trap. While in the US, 85 percent of private research and development spending flows into high-tech areas such as artificial intelligence, biotechnology, and digital platforms, Europe concentrates approximately 45 percent of its innovation spending on mid-tech and high-tech industries. The static industrial structure, in which the automotive industry still dominates the rankings of the largest research budgets, is emblematic of this stagnation.

The figures are sobering: Only four of the world's 50 largest technology companies are from the European Union. The EU's total research and development expenditure is between 2.2 and 2.3 percent of gross domestic product, far from its self-imposed three percent target and significantly below the United States' 3.4 percent. The gap in private research investment is particularly severe: European companies invest a mere 1.5 percent of GDP in research and development, only half of what their American competitors spend.

These structural deficits manifest themselves in a vicious circle of low dynamism: Low private investment leads to fewer technological breakthroughs, which dampens productivity growth. Weak productivity growth, in turn, limits income growth and fiscal space, leaving funds for additional investments in education, research, or digitalization in short supply. The lag in digitalization further exacerbates this problem: In Germany and Europe, the digitalization backlog directly leads to productivity deficits and hinders the spread of new technologies. A study by the ifo Institute calculates that simply bringing Germany's public administration to a European-leading level could increase German GDP by approximately €96 billion per year.

The German economy, particularly symptomatic as Europe's largest economy, is struggling with massive digitalization problems. According to a recent Bitkom study, 58 percent of German companies are struggling to successfully manage digitalization. The companies themselves rate their digitalization status as merely satisfactory, with a grade of 3.0. The main obstacles are diverse: data protection requirements, a shortage of skilled workers, a lack of time and financial resources, and excessive bureaucracy dominate the problem landscape.

This alarming finding is underscored by the recommendations of the Draghi Report, which identifies an annual investment requirement of €750 to €800 billion, equivalent to up to five percent of the EU's gross domestic product. By comparison, the additional investments provided by the Marshall Plan between 1948 and 1951 amounted to approximately one to two percent of GDP annually. The required investments thus far exceed even this historic reconstruction program.

Suitable for:

• When innovation meets resistance: The structural dilemma of organizational ambidexterity | Xpert Business

The historical development of the European innovation deficit

The roots of the current crisis reach deep into the economic history of recent decades. In the 1990s, the gap between European and American productivity growth began to widen, a divergence primarily attributable to different investment patterns in new technologies. While the United States invested heavily in information and communication technologies and established a dynamic start-up culture that spawned companies like Microsoft, Apple, Amazon, and later Google and Facebook, Europe remained largely entrenched in traditional industrial structures.

European innovation policy has historically focused on supporting established industries, particularly the automotive and similar sectors. This path dependency has increasingly proven to be a constraint as the digital revolution fundamentally changed the value chain architecture. The fragmentation of the European single market, characterized by differing national consumer protection standards, VAT rates, labeling requirements, and licensing requirements, has also significantly limited the business opportunities of European exporters. Sixty percent of European exporters and 74 percent of leading-edge innovation companies report that market fragmentation within the EU limits their business opportunities.

Europe's financial integration remains lower than at its peak before the 2008 financial crisis, significantly hampering the mobilization of large-scale and riskier financing for innovation. Larger, better integrated capital markets would be crucial for efficiently channeling Europe's considerable savings into growth and innovation. The incomplete Capital Markets Union remains a key structural weakness.

At the same time, a regulatory culture developed in Europe that is increasingly perceived as inhibiting innovation. The bureaucratic burden and the complexity of approval procedures led to the slower adoption of new technologies than in other economic areas. The General Data Protection Regulation, although groundbreaking from a consumer protection perspective, is cited by many companies as one of the biggest obstacles to digitalization.

The coronavirus pandemic that began in 2020 acted as a catalyst that ruthlessly exposed the digital deficits of European companies. Companies with advanced digital transformation demonstrated increased resilience and, in some cases, even achieved growth, while companies lagging behind digitally suffered massively from the lockdowns. This crisis experience made it clear that digitalization is not an option, but a matter of survival.

The theoretical foundation: Organizational ambidexterity as a management concept

In this context of structural weakness and impending marginalization, a management concept that has been discussed in organizational research since the 1990s is gaining central importance: organizational ambidexterity. The term, which literally means "two-handedness," was introduced into the organizational context by Robert Duncan in 1976 and describes a company's ability to simultaneously exploit its current core business while also exploring new areas.

The theoretical basis is the distinction between exploitation and exploration, which management researcher James March formulated in 1991 in his groundbreaking work on organizational learning capability. Exploitation refers to the utilization and optimization of existing capabilities, processes, and business models. Companies refine their production processes, increase efficiency, reduce costs, and maximize the return on their established offerings. These activities deliver reliable, predictable, and short-term profitable results. Exploration, on the other hand, involves the search for new opportunities, experimenting with innovative approaches, and developing entirely new business areas. These activities are risky, uncertain, and only deliver returns in the long term, if at all.

The fundamental problem lies in the inherent asymmetry between the two approaches. Exploitation generates quick, measurable successes, while exploration initially consumes resources without guaranteed return. Adaptive management systems optimized for short-term success systematically reinforce exploitation at the expense of exploration. Budgeting processes favor projects with a calculable return on investment. Executives are rewarded for quarterly results, not for long-term decisions. Teams focus on what works instead of what could work. This self-reinforcing dynamic leads to a gradual loss of innovation capability that only becomes apparent when it is already too late.

Harvard professors Michael Tushman and Charles O'Reilly systematically developed the concept of organizational ambidexterity and identified three basic implementation forms. Structural ambidexterity involves the creation of separate organizational units for exploration and exploitation. The company establishes separate areas with different structures, processes, cultures, and leadership systems, which are then systematically integrated to leverage synergies. Contextual ambidexterity enables employees and teams to switch between exploratory and exploitative modes depending on the situation and task at hand, with the organizational framework creating the necessary freedom. Sequential or temporal ambidexterity describes the alternation between phases of exploration and exploitation, for example, during restructuring or product life cycles.

Research by O'Reilly and Tushman, which examined 15 companies attempting to expand their organizational ambidexterity over two decades, produced clear results: The most successful companies were those whose leadership developed a clear vision and shared identity, in which exploitation and exploration played equal roles. The ability of the leadership team to manage the tensions between the past and the future proved to be a crucial success factor. In 90 percent of cases, new management is needed to successfully implement ambidextrous concepts, as most long-standing leaders are unable to manage the tensions within the team.

Another key finding of the research concerns the importance of corporate identity. The company's identity is even more essential than its strategy, Tushman emphasizes in the interview. An overarching identity that holds both contradictory modes together enables diverse and internally contradictory cultures to exist as parts of a single, meaningful purpose. This shared identity acts as an emotional anchor and North Star, navigating the organization through the tensions of ambidexterity.

The empirical evidence: success and failure in practice

The practical implementation of organizational ambidexterity presents a diverse picture of spectacular successes and dramatic failures. These success stories impressively illustrate the potential of systematically combining exploitation and exploration.

The prime example of contextual ambidexterity is the American corporation 3M, which introduced the so-called 15 percent rule back in 1948. This rule encourages employees to devote 15 percent of their working time to the further development and pursuit of innovative ideas that they find particularly exciting. In consultation with their line manager, employees are given the opportunity to try new things, think creatively, and challenge the status quo. Thanks to this rule, numerous innovations have been created, including multilayer optical film, Cubitron abrasive grains, Emphaze AEX hybrid reconditioner, and the world-famous Post-it Notes. The company aims to generate one-third of its revenue from new inventions from the previous five years and holds more than 25,000 patents. The 15 percent rule has proven to be a successful recipe for generating new ideas and cleverly combines exploration with the efficient operation of the core business.

Google adapted this model with its 20 percent time, which allowed employees to work on their own projects one day a week. This initiative gave rise to some of Google's most successful products: Gmail, the email system now used worldwide; Google News, the news aggregator; and AdSense, the advertising program that now accounts for about a quarter of total revenue. The 20 percent time allowed Google to be more creative and innovative while simultaneously optimizing its highly profitable core business of search engines and advertising. However, the subsequent partial scaling back of this program also highlights the challenges: Under CEO Larry Page, the strategic direction was more strongly focused on a few promising projects, which limited freelance project work.

An example of successful structural ambidexterity in the media sector is USA Today under CEO Tom Curley in 2000. Curley worked on expanding the traditional newspaper business while simultaneously building a viable organization for USAToday.com as an online news portal. After initial difficulties, Curley learned how to staff his leadership team and how to get them to value both the print version of the newspaper and the online platform. The separation of the divisions was important, as was the targeted integration through a team that could handle both.

Harvard Business School offers a current example of structural ambidexterity in education. The dean continues to build a business school rooted in the past, where students and faculty continue to come to campus for face-to-face learning and teaching. At the same time, he is developing a digital component called HBX, where future students may never come to campus and where course content is delivered digitally. The commitment to developing leaders who make a difference in the world serves as the overarching identity that binds both modes together.

The success stories are juxtaposed with dramatic failures that illustrate the dangers of a lack of ambidexterity. Kodak has become synonymous with the failure of established companies in the face of technological disruption. The irony is that Kodak invented the first digital camera in 1975 but did not pursue the technology further for fear of cannibalizing the lucrative film business. In the 1990s, CEO George Fisher invested more than two billion US dollars in research and development for digital imaging and acquired the photo-sharing website Ofoto in 2001. Despite these extensive investments and early recognition of digital change, Kodak ultimately failed and filed for bankruptcy in 2012. Research shows that Kodak's failure was not primarily due to inertia, but rather to the difficulty of striking the right balance between high aspirations and uncertainty surrounding the new technology and an illusion of the resilience of the film business. Frequent CEO changes and disparate strategies prevented Kodak from building a coherent ambidextrous organization.

Nokia and BlackBerry suffered similar fates in the smartphone market. Nokia, at one point the global market leader with a 40 percent market share, failed to make the transition to touchscreen smartphones, falling below three percent market share. Research shows that Nokia deliberately decided in 2007 to ignore its new competitor, the iPhone, and continue with its established business model. BlackBerry, with its enterprise-focused business model and distinctive QWERTY keyboard, was hesitant to adapt to touchscreen technology and consumer demands. From 85 million subscribers at its peak, its user base shrank to fewer than 25 million. Both companies failed to pursue exploration and exploitation simultaneously and transform their business models in a timely manner.

An instructive example of the political failure of ambidextrous strategies is the case of the French advertising group Havas. The CEO pursued a proactive ambidextrous strategy by seeking to run traditional advertisements while also engaging the audience in campaign development. He wanted to design advertising both internally and externally with the audience, the crowd. The CEO structurally separated the new division from the traditional company and initiated various forms of targeted integration. The strategy and structure were conceptually sound, but influencers within the traditional division blocked the CEO's plans politically. The management team's inability to manage the tensions between the past and the future led to the failure of the ambidextrous design.

Benefit from Xpert.Digital's extensive, fivefold expertise in a comprehensive service package | R&D, XR, PR & Digital Visibility Optimization - Image: Xpert.Digital

Xpert.Digital has in-depth knowledge of various industries. This allows us to develop tailor-made strategies that are tailored precisely to the requirements and challenges of your specific market segment. By continually analyzing market trends and following industry developments, we can act with foresight and offer innovative solutions. Through the combination of experience and knowledge, we generate added value and give our customers a decisive competitive advantage.

More about it here:

• Use the 5x expertise of Xpert.Digital in one package - starting at just €500/month

The present: European companies between efficiency trap and pressure to innovate

The current situation of European companies is characterized by a fundamental tension. On the one hand, global competitive pressure, shrinking margins, and economic uncertainty require a consistent focus on efficiency and cost optimization in the core business. On the other hand, rapid technological development, particularly in the areas of artificial intelligence, digitalization, and sustainable technologies, compels the continuous exploration of new business areas and business models.

Empirical data shows that European companies are failing to adequately manage this balance. According to the DIHK Digitalization Survey 2023, companies rate their level of digitalization with a grade of 3.0, indicating mediocre progress. The main motives for digitalization efforts are flexible working, quality improvement, and cost savings, but the promotion of innovation or the development of new business models are significantly less common. This indicates a dominance of exploitation over exploration.

For 69 percent of medium-sized companies, business growth is the most important motivation for digitalization measures. Companies that were able to accelerate their digital transformation demonstrated increased resilience during the pandemic and, in some cases, even experienced growth. Early adopters of digital transformation are twice as likely to achieve their business goals. These findings underscore the importance of exploratory activities for long-term business success.

At the same time, the obstacles underscore the difficulty of implementation. The biggest challenges include a lack of time, the high complexity of digital transformation, and legal uncertainties that hinder effective data utilization. 58 percent of companies struggle to successfully manage digitalization. Competition for resources between core business and innovation projects, increased coordination and communication efforts, and high demands on leadership skills and change management represent key barriers.

A specific challenge for European companies is the fragmented market structure. Sixty percent of European exporting companies and 74 percent of leading-edge innovation companies report that market fragmentation within the EU due to differing national standards limits their business opportunities. This significantly complicates the scaling of exploratory business models. European companies cannot fully utilize the European single market to achieve the necessary scale to remain globally competitive.

The automotive industry provides a prime example of this dilemma. Managers face the challenge of simultaneously addressing the traditional, driver-driven car with a combustion engine and the autonomous car without an engine. The European automotive industry contributes seven percent to the EU's GDP, generates approximately €170 billion in exports, and employs around 13.8 million people. However, the transition to electromobility and software-defined vehicles represents an existential transformation. McKinsey estimates that, in the most disruptive scenario, €440 billion of GDP, roughly one-third of the industry, is at risk by 2035. European automakers' investments remain heavily focused on traditional technologies, while non-European players are forging ahead with battery technology, software integration, and autonomous driving.

Medium-sized enterprises and SMEs face specific challenges in implementing ambidexterity. With 2.5 million small and medium-sized enterprises (SMEs) accounting for approximately 42 percent of gross value added in Germany, this sector is of key importance. Research on ambidexterity in Austrian SMEs shows that many focus primarily on efficiency while neglecting innovation activities. A study of European SMEs found that all foreign-based SMEs use contextual ambidexterity, while German SMEs tend to use structural ambidexterity. This suggests that SMEs with smaller company sizes and smaller workforces cannot spin off a separate business unit with an innovation laboratory.

Suitable for:

• Ambidexterity and Exploration Marketing | Marketing at a Turning Point: How to Finally Combine Optimization and Innovation (Beta)

Comparative analysis: Different paths to ambidextrous organization

A comparative analysis of different countries, regions, and company types reveals different strategies and success patterns in the implementation of organizational ambidexterity. These differences are not only of a technical and organizational nature, but are deeply rooted in cultural, institutional, and economic structural peculiarities.

The United States has developed a distinct culture of structural ambidexterity, built on a robust ecosystem of venture capital, risk capital, and a strong startup culture. Large technology companies like Google, Amazon, and Microsoft systematically separate exploratory from exploitative units. Google not only established the 20 percent time model but also founded the holding company Alphabet, which allows highly speculative projects like Waymo for autonomous driving or Verily for health technology to be structurally separated from the core search engine and advertising businesses. Microsoft, under CEO Satya Nadella, fundamentally transformed its corporate culture by developing exploratory cloud services like Azure in parallel with its exploitative Windows and Office businesses. The cultural acceptance of failure—Google's motto "fail well"—enables riskier exploratory ventures.

China pursues a state-led approach to promoting ambidexterity, characterized by massive public investment in future technologies and close integration between state and private actors. Chinese companies are aggressively investing in high-tech fields such as artificial intelligence, quantum technology, and biotechnology, while simultaneously scaling up existing business models with high efficiency. The Chinese government supports this duality through industrial policy programs that promote both the scaling of established industries and the development of disruptive technologies.

Germany and Central Europe present a mixed picture. Large German companies like Siemens are attempting to establish ambidextrous structures by creating dedicated units for transformative innovation. Siemens Digital Industries has established separate business units for future-oriented innovation, aimed at identifying and exploring high-potential areas. The challenge of ambidexterity—the balance between optimizing the core business and exploring new business areas—is seen as one of the most challenging. Nevertheless, investment patterns show that German companies remain heavily focused on mid-tech areas such as the automotive industry, while underinvesting in high-tech sectors such as software and digital platforms.

German SMEs, traditionally considered the backbone of the economy, struggle to implement ambidexterity due to limited resources. SMEs tend toward contextual ambidexterity, in which employees switch between exploitation and exploration depending on the situation, as they lack the resources to establish separate structural units. A case study of a German SME in the service sector demonstrates how organizational ambidexterity was successfully implemented by installing a think tank for idea generation, establishing a task force for strategic innovation management with extensive special rights and new work opportunities, and dividing the organization into three main areas: IT solutions, core business expansion, and sustainability. The result was a complete mindset shift throughout the company, an 11 percentage point increase in customer satisfaction, and an extension of the average contract term by three months.

Scandinavian countries are characterized by a distinct culture of contextual ambidexterity, based on flat hierarchies, high employee participation, and a strong training culture. Nordic companies integrate exploratory activities more closely into their regular work organization, rather than creating separate structures. This is made possible by high investments in lifelong learning and a culture of trust and empowerment.

East Asian companies, particularly those from Japan and South Korea, often pursue a form of temporal ambidexterity, alternating phases of intensive optimization and efficiency improvement with phases of strategic realignment and exploration. Toyota is an example of this approach, with its culture of continuous learning and Kaizen philosophy for exploitation, as well as strategic initiatives such as the development of Prius hybrid technology for exploration.

The comparative analysis reveals that successful ambidextrous organizations, regardless of the chosen form, share certain common characteristics: a clear, inspiring vision and identity that binds both modes together; a leadership team capable of dealing with contradictions and paradoxes; sufficient resources for exploratory activities; mechanisms for the targeted integration between exploitation and exploration; and a culture that values ​​both efficiency and risk-taking and experimentation.

Critical review: limits, risks and unresolved tensions

Despite the attractiveness of the concept of organizational ambidexterity, critical reflection on its limitations, risks, and structural contradictions is essential. The implementation of ambidextrous structures is associated with considerable challenges, which are sometimes underestimated in academic discussion and practical application.

A fundamental problem lies in the resource competition between exploitation and exploration. Both activities compete for the same limited resources: budget, managerial attention, talent, and time. In economically challenging times or when under pressure to succeed in the short term, organizations systematically tend to shift resources from exploratory to exploitative activities, as the latter promises faster and more secure returns. This tendency is reinforced by existing incentive systems that typically reward short-term financial metrics. The structural asymmetry between the quick, measurable successes of exploitation and the uncertain, long-term returns of exploration leads to a systematic disadvantage for exploratory activities.

The requirement for a structural separation of exploitation and exploration can also lead to organizational fragmentation, silo mentality, and coordination problems. The exploratory unit may develop a culture and working practices that deviate so significantly from the core business that the subsequent integration of new products or business models into the overall organization fails. The example of the failed SAP project for SMEs illustrates this problem: The cross-functional teams integrated into the core business were subjected to the rules, demands, and cultural influences of the core business. The unit was viewed as a distraction and competition to the existing business model; creative freedom and resources were correspondingly limited, and the project failed.

Another critical problem concerns the political dynamics within organizations. The establishment of ambidextrous structures alters existing power structures and threatens established interest groups. The failure of the Havas project exemplifies how traditional influencers can politically block ambidextrous projects, even when the strategy and structure are conceptually sound. In 90 percent of cases, new management is needed to implement ambidextrous concepts because long-standing leaders are unable to manage tensions within the team. This implies massive transition costs and potential disruptions in continuity.

The demand for an overarching identity that binds both modes together may seem conceptually elegant, but is often difficult to implement in practice. Identity formation is a lengthy, fragile process that cannot simply be brought about by management decrees. Furthermore, overly abstract or general identity formulations such as "keeping plants healthy" at Ciba may have an integrative effect, but may offer too little concrete guidance for operational decisions.

Small and medium-sized enterprises face specific challenges in implementing ambidexterity. The structural variant is often unfeasible due to limited resources. Contextual ambidexterity, however, requires an exceptionally high degree of flexibility and competence from managers and employees, who must switch between completely different modes depending on the situation. This overwhelms many organizations. Temporal ambidexterity carries the risk that companies either remain in the exploitation phase for too long and miss disruptive developments, or move to the exploration phase too early and jeopardize existing returns.

A structural problem concerns the measurement and evaluation of ambidextrous performance. While exploitative activities are easily captured by conventional metrics such as revenue, profit, productivity, and market share, exploratory activities largely elude such measurement. How do you evaluate the success of exploratory projects that may not bear fruit for five or ten years or may even fail? The uncertainty and long-term nature of exploratory returns make rational resource allocation between the two modes difficult.

The normative premise that all companies must explore and exploit simultaneously also deserves critical scrutiny. There may be contexts in which a temporary focus makes more sense. Startups, for example, are naturally exploration-dominated and must first learn to exploit once they scale. Mature companies in stable markets might be well advised to focus primarily on efficiency and externalize exploration through acquisitions, partnerships, or investments in startups.

Finally, the question arises whether the concept of organizational ambidexterity is not partly an idealized description of what successful companies do anyway, without necessarily deriving prescriptive recommendations for other organizations. The causality between ambidexterity and corporate success is not clear: Perhaps successful companies are ambidextrous because they are successful and therefore have the resources for exploration, not the other way around.

Our EU and Germany expertise in business development, sales and marketing - Image: Xpert.Digital

Industry focus: B2B, digitalization (from AI to XR), mechanical engineering, logistics, renewable energies and industry

More about it here:

• Xpert Business Hub

A topic hub with insights and expertise:

• Knowledge platform on the global and regional economy, innovation and industry-specific trends
• Collection of analyses, impulses and background information from our focus areas
• A place for expertise and information on current developments in business and technology
• Topic hub for companies that want to learn about markets, digitalization and industry innovations

Perspectives and scenarios: Europe's future between upswing and decline

The future development of the European economy will depend significantly on whether and how organizational ambidexterity can be implemented across the board. Various scenarios can be outlined, depending on fundamental assumptions about political decisions, corporate strategies, and technological developments.

The optimistic scenario, which can be described as the European Rebirth, assumes that the recommendations of the Draghi Report will be largely implemented. The EU will invest 750 to 800 billion euros annually in innovation, digitalization, and the ecological transition. The Capital Markets Union will be completed, so that European savings will be efficiently channeled into riskier, innovative companies. The internal market will be deepened, fragmentation will be reduced, and regulatory hurdles for innovative companies will be systematically reduced. In this scenario, European companies will establish ambidextrous structures across the board: Large corporations will create dedicated innovation units with special rights and a high degree of autonomy, linked to their core business through targeted integration mechanisms. SMEs will use digital platforms, partnerships, and alliances to pursue exploratory activities despite limited resources. The automotive industry will succeed in its transformation to electromobility and software-defined vehicles, with European manufacturers combining their traditional strengths in engineering and quality with new digital competencies. By 2035, Europe will once again be competitive in future technologies such as artificial intelligence, quantum computing, and biotechnology. Labor productivity will approach US levels, and Europe will establish itself as a leading region for sustainable technologies and the circular economy. However, this scenario assumes that far-reaching structural reforms are successful, political will is sustained, and companies are willing to sacrifice short-term returns for long-term transformations.

The pessimistic scenario, European Decline, assumes that the necessary reforms will fail due to national egoism, political cowardice, and conflicting interests. The investment gap will persist or even widen. European companies remain trapped in the mid-tech trap and continue to concentrate their investments on shrinking or stagnating sectors such as the conventional automotive industry. The fragmentation of the internal market is exacerbated by renationalization tendencies. Bureaucracy and regulatory uncertainty continue to hamper innovation. In this scenario, most attempts to establish organizational ambidexterity fail due to a lack of resources, political resistance within organizations, and a lack of leadership skills. The European automotive industry will experience massive declines in importance as Asian and American competitors dominate in electromobility, autonomous driving, and digital services. The €440 billion GDP that McKinsey considers to be at risk will be lost. Europe is evolving into an economic museum, culturally rich but economically marginalized. Productivity growth remains weak, living standards are stagnating or declining, and Europe's geopolitical importance is diminishing. Young talent is emigrating to the US or Asia, where more dynamic innovation ecosystems offer better career opportunities.

The middle scenario, Europe's fragmentation, assumes heterogeneous development. Some regions and countries, particularly in Northern Europe, manage to successfully establish ambidextrous structures and remain competitive in future technologies. Scandinavian countries, the Netherlands, and possibly Germany manage to reform their innovation systems, and large companies such as Siemens, SAP, and some automobile manufacturers successfully transform themselves. Other regions, particularly in Southern Europe, lag behind and are characterized by structural problems, a lack of investment, and political instability. European integration weakens as disparities in competitiveness and prosperity become too great. The internal market continues to fragment, and differing regulatory systems hamper cross-border business. Europe develops into a patchwork of innovative islands and stagnating regions, without a coherent common strategy.

A disruption scenario, which can be described as a technological shock, would occur if fundamental technological breakthroughs, for example in artificial intelligence, quantum computing, or biotechnology, radically change the competitive landscape. If these breakthroughs occur primarily outside Europe and European companies are unable to adapt quickly, this could lead to a rapid loss of importance. Conversely, if Europe succeeds in becoming a global leader in sustainable technologies, the hydrogen economy, or the circular economy, it could establish a new comparative advantage that compensates for structural deficits in other areas.

The most likely outcome lies somewhere between the medium and the optimistic scenarios. The warnings of the Draghi Report and the growing awareness of the competitiveness crisis have led to a certain political mobilization effect. With the Competitiveness Compass, the EU Commission has presented a strategic framework focused on innovation, decarbonization, and reducing dependencies. Concrete measures such as the Clean Industrial Deal, the Start-up and Scale-up Strategy, and initiatives such as AI Continent and Apply AI demonstrate that the EU is taking its innovation gap seriously. The question is whether implementation is fast and consistent enough. European history shows that the continent is certainly capable of far-reaching reforms in times of crisis, but these often follow a delay and lengthy negotiations. However, time is working against Europe: every additional year that the investment gap persists widens the gap with the USA and China.

Suitable for:

• Innovation laboratories or intrapreneurship: Outsourcing new developments to a company-based startup – other options?

Strategic consequences: Imperatives for action for politics, companies and society

The analysis of organizational ambidexterity as a solution to the competitive crisis of European companies leads to concrete strategic implications for various groups of actors.

This gives political decision-makers a clear mandate for action. Completion of the Capital Markets Union must be given top priority in order to efficiently channel Europe's considerable savings into growth and innovation. The fragmentation of the internal market must be overcome through harmonization of standards, reduction of bureaucratic hurdles, and simplification of regulations. Massive public and private investment in research and development is required, with a greater focus on high-tech sectors and breakthrough innovations. Promoting company start-ups and improving the framework conditions for venture capital are key to creating a more dynamic innovation ecosystem. Education policy must focus on continuous training and the development of digital skills to overcome skills gaps. Industrial policy measures should specifically promote key technologies such as semiconductors, artificial intelligence, and sustainable technologies without resorting to protectionist dirigism. The balance between necessary regulation for consumer protection and data protection on the one hand and an innovation-friendly framework on the other must be readjusted.

For business leaders, especially in established large companies, the message is clear: Ambidexterity is not an option, but a condition for survival. The structural separation of exploitation and exploration with targeted integration must be consistently implemented. This requires the establishment of dedicated innovation units with sufficient autonomy, their own budgets, and protection against the dominance of the core business. At the same time, mechanisms for targeted integration must be established to leverage synergies and enable the transfer of successful exploratory projects to the entire organization. The development of an overarching corporate identity that binds both modes together and legitimizes them is crucial. Management teams must be trained in the ability to deal with contradictions and paradoxes. In many cases, this will require a partial or complete replacement of the leadership team. Incentive systems must be designed to reward both short-term exploitative successes and long-term exploratory value creation. The culture must value efficiency and discipline as well as risk-taking, experimentation, and tolerance for mistakes. Partnerships, joint ventures and cooperations can help gain access to new technologies and markets without having to build all competencies internally.

Specific recommendations for action emerge for medium-sized companies. Since structural ambidexterity is often not feasible due to limited resources, the focus should be on contextual ambidexterity or strategic partnerships. The targeted creation of freedom for employees, modeled on 3M's 15 percent rule or Google's 20 percent time, enables exploratory activities without massive structural restructuring. Participation in innovation networks, clusters, and platforms can create access to technologies, knowledge, and partners. Digitalization should not be viewed primarily as a cost-cutting program, but as an enabler of new business models. Systematic further training of the workforce in digital skills and agile working methods is crucial. Investments in research and development should be maintained or even increased despite short-term pressure to achieve results.

Investors and capital providers need to take a longer-term perspective and support exploratory investments, even if they don't deliver short-term returns. The development of valuation metrics that capture companies' ambidextrous capabilities could help distinguish future-proof from backward-looking organizations. Venture capital and private equity should increasingly flow into European innovation projects, which in turn requires attractive framework conditions and an efficient exit infrastructure.

For educational institutions, this means that curricula must be more strongly focused on developing ambidexterity competencies. Leaders must learn to deal with contradictions, manage diverse cultures, and productively utilize strategic paradoxes. The integration of design thinking, agile management, and traditional management disciplines into training is necessary.

For society as a whole, this presents the challenge of implementing a cultural shift that values ​​both performance and efficiency, as well as innovation and risk-taking. A culture that exclusively negatively connotes failure will stifle the spirit of experimentation necessary for exploration. The Silicon Valley motto "fail fast, fail often" doesn't need to be adopted exactly, but a more constructive culture of failure would be beneficial.

The key insight is that organizational ambidexterity is not a panacea that can simply be adopted, but rather a sophisticated, context-dependent management concept whose successful implementation requires fundamental changes in leadership, culture, structure, and incentive systems. European companies and policymakers face a choice: Either the transformation to an ambidextrous organization succeeds across the board, or Europe will fall further behind in the global innovation race and gradually lose its economic importance. The decision made in the coming years will shape the continent's future for decades. The clock is ticking, because every year that passes without decisive action increases the gap to the more dynamic economic regions of North America and Asia. Organizational ambidexterity offers a promising conceptual framework for this transformation, but its success depends on consistent implementation by courageous leaders, far-sighted politicians, and an open-minded society.

☑️ Our business language is English or German

☑️ NEW: Correspondence in your national language!

Konrad Wolfenstein

I would be happy to serve you and my team as a personal advisor.

You can contact me by filling out the contact form or simply call me on +49 89 89 674 804 (Munich) . My email address is: wolfenstein ∂ xpert.digital

I'm looking forward to our joint project.

☑️ SME support in strategy, consulting, planning and implementation

☑️ Creation or realignment of the digital strategy and digitalization

☑️ Expansion and optimization of international sales processes

☑️ Global & Digital B2B trading platforms

☑️ Pioneer Business Development / Marketing / PR / Trade Fairs

Our global industry and business expertise in business development, sales and marketing - Image: Xpert.Digital

Industry focus: B2B, digitalization (from AI to XR), mechanical engineering, logistics, renewable energies and industry

More about it here:

• Xpert Business Hub

A topic hub with insights and expertise:

• Knowledge platform on the global and regional economy, innovation and industry-specific trends
• Collection of analyses, impulses and background information from our focus areas
• A place for expertise and information on current developments in business and technology
• Topic hub for companies that want to learn about markets, digitalization and industry innovations