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**abstract
replicator organizations compete by transferring their business models and their embedded organizational routines across various geographical sites. Based on empiri-cal results from case-study research, we show how a globally operating replicator firm integrates the logic of ambidexterity into its organization. We explain how artifacts – especially rulebooks – facilitate not only standardized replication, but also innovation. Finally, we emphasize that artifacts such as rules and codified knowledge need to be interpreted through a common frame of reference, one which can serve as a knowledge bridge that enables contextual ambidexterity in replicator organizations.
JeL-Classification: L2.
Keywords: ambidexterity; artifacts; innovation; replication; routines; rules.
1 introduction
Transferring business models with embedded routines constitutes a widespread practice in economic life and is referred to as a replication strategy (Baden-Fuller and Winter (2005); Winter and Szulanski (2001)). Although the formula of growth through replication seems to have gained popularity among organizations with the ambition of achieving rapid growth in a short time, research on replication strategies is still in its infancy. Bradach (1997, 276) notes that the lack of scholarly attention paid to replicators (defined as firms that pursue a
* Wolfgang H. Güttel, Institute of Human Resource and Change Management, Johannes Kepler University Linz, e-mail: [email protected]. Stefan W. Konlechner, Institute of Human Resource and Change Manage-ment, Johannes Kepler University Linz, e-mail: [email protected]. Barbara Müller, Institute of Human Resource and Change Management, Johannes Kepler Universtiy Linz, e-mail: [email protected]. Julia K. Trede, Institute of Marketing and Media, University of Hamburg, e-mail: [email protected]. Mark Lehrer, Sawyer Business School, Suffolk University Boston, e-mail: [email protected].
** We are grateful to Mark Ebers, Barbara Sieben, Jörg Sydow, and Mark Zbaracki, for their insightful comments and suggestions. We also thank the participants of the WK Organization workshop 2011 and the participants of the EGOS 2011 subtheme „(Re-)Assembling Routines“ for their constructive feedback on earlier drafts of this paper. Finally, we thank Wolf-Peter Schwarz and his team for cooperation and support during our research. This research was supported by funds of the Oesterreichische Nationalbank (Anniversary Fund, project number: 13798).
replication strategy, e.g., chain organizations) “may be due to the misperception that they are not unlike other forms of organization”. However, researchers have recently started to focus more generally on the particularities of managing chain organizations and replication strategies (e.g., Baden-Fuller and Winter (2005); Williams (2007)).
Finding the optimal balance between exploitative and exploratory activities is a central concern in all organizations (Levinthal and March (1993); Siggelkow and Rivkin (2006)). Research on how to combine the two learning modes of exploration and exploitation (March (1991)) now centers on the issue of ambidexterity, the simultaneous pursuit of both learning modes (Gupta, Smith, and Shalley (2006); Raisch and Birkinshaw (2008); Simsek et al. (2009)). Despite critical comments on the possibility of simultaneously engaging in exploration and exploitation (e.g., Schreyögg and Sydow (2010)), the concept of ambidexterity attracts increasing attention in organizational research. Even replicator organizations that aim at gaining a competitive advantage by copying themselves faster than competitors can imitate them are dependent on connecting exploratory and exploit-ative activities in the sense of “exploring while exploiting” as opposed to “first exploring, then exploiting”. Therefore, feedback loops and the integration of learning experiences are integral ingredients of the organization’s long-term success (Bradach (1997); Knott (2001)).
In this paper, we ask how replicator organizations leverage strictly defined artifacts such as rulebooks to engineer their learning processes and manage ambidexterity. Based on empirical results from case-study research, we discuss the role of rulebooks as artifacts for facilitating exploitation by suppressing deviations and for enhancing exploration by promoting a common understanding between exploratory and exploitative units, both of which roles are typical requirements for ambidextrous organizations. In their capacity to re-create routines, rulebooks support the precise re-creation of organizational routines as artifacts that indicate the boundaries for deviation from generally accepted rules and procedures. However, our findings show that rules not only allow the exact replication of existing procedures in new markets, but that they also facilitate innovation between headquarters and replicas (i.e., center-periphery) by generating a common language and thus a framework of mutual understanding.
Our research on routine replication, rulebooks as artifacts, and ambidexterity contrib-utes to prior scholarship in three ways. First, we shed new light on the configuration of ambidexterity in replicator organizations. Earlier studies suggest that the learning modes of exploration and exploitation in replicator organizations are structurally separated (e.g., Bradach (1997)). However, we show how rules and rulebooks can actually facilitate both standardization and innovation in replica units, thereby avoiding the strict separation of tasks between exploratory and exploitative units. Second, and related to this issue, we examine how rulebooks facilitate innovation, functioning as artifacts that provide a common frame of reference and two-way creative communication between the head-quarters and the replicated units. In previous exploration/exploitation scholarship, many researchers regard rules largely as separation mechanisms (Benner and Tushman (2003); Tushman and O’Reilly (1996)), not as a means to engage exploratory and exploitative units in the mutual pursuit of innovation. Thus, we posit that an organization’s rules can
constitute an important integration mechanism for managing ambidexterity. Finally, we emphasize how a shared understanding of the organization’s objectives and goals comple-ments structural elecomple-ments in the creation of ambidexterity.
The paper is structured as follows: In Section 2 we review the literature on replication and ambidexterity. This review provides a basis for identifying a couple of significant research gaps in prior literature. In Section 3 we describe the methods we use in our empirical research. Section 4 reports our empirical findings. We describe the pathway towards ambi-dexterity in a specific replicator organization and analyze the role of artifacts in creating a common frame of reference that serves to transcend the usual task separation between explorative and exploitative units. In Section 5 we discuss our findings and highlight some limitations of the empirical study as well as avenues for further research.
2 replication: conceptual backgroundand open Questions
In 1982, Nelson and Winter published their classic evolutionary theory of economic change, in which they conceptualize routines as the genes of the organization. According to Nelson and Winter (1982), firms can gain a competitive advantage by replicating these routines. As Winter (1995, 158) puts it: “The normative advice that evolutionary economics derives […] is this: when successful, copy yourself before others copy you.” However, despite its vast economic relevance, only recently has replication, in the sense of transferring discrete organizational practices (Szulanski (1996)) or entire business models, i.e., “replication as strategy” (Winter and Szulanski (2001)), re-emerged as an issue in strategic management. Nonetheless, there are still many blind spots on this map.
2.1 Defining Replication
The issue of replication is strongly connected to the intra-organizational transfer of know-ledge (Kogut and Zander (1992; 1993); Jensen and Szulanski (2004; 2007); Szulanski (1996); Szulanski and Jensen (2004; 2006)). Baden-Fuller and Winter (2005, 8) approach the concept of replication as follows: “Replication is about leveraging knowledge and is successful when ‘broadly equivalent’ outcomes are realized by ‘similar means’.” Given this definition, the researcher can conclude that replication is basically about transferring cause-and-effect relationships that are stored in, and dependent on, specific organizational routines. These underlying routines and rule systems incorporate knowledge that is needed to transfer a successful business model into a new market (as described, for example, by Szulanski (2000)).
What is replicated are routines, which function as path-dependent and context-specific patterns of action. Organizational routines are the main object of replication efforts. However, research on organizational routines is multifaceted. Routines are generally conceptualized as being recurrent, path-dependent (Levinthal and March (1993); Teece, Pisano, and Shuen (1997)) and context-specific (Grant (1991); Madhok (1997)) patterns of action that contribute to organizational stability and to organizational change. (For a
detailed discussion of the concept of organizational routines, see Becker (2004); Parmi-giani and Howard-Grenville (2011); Salvato and Rerup (2011)). In their conceptualization of routines as dual drivers of stability and change, Feldman and Pentland (2003) distin-guish between various elements of routines. Ostensive aspects correspond to the collective understanding of the people performing the routine and therefore can be regarded as the “abstract, generalized idea of the routine, or the routine in principle” (Feldman and Pent-land (2003, 101)). In contrast, performative aspects of a routine refer to “specific actions, by specific people, in specific places and times. It is the routine in practice” (Feldman and Pentland (2003, 101)). These authors also note that artifacts incorporating rules and procedures are visible symbols (e.g., codified knowledge such as how-to manuals) (D’Adderio (2008)). Pentland and Feldman (2008, 241) argue that “artifacts take many different forms, written rules, procedures and forms to the general physical setting (e.g., a factory or an office) (…). In an organizational routine, artifacts are often used to try to ensure the reproduction of particular patterns of action.” This formulation suggests that artifacts are critically important in the (exact) re-creation of routines.
2.2 How Replication takes place
The replication of organizational routines as a business strategy has become an important issue in contemporary management research (see, e.g., Winter and Szulanski (2001), Baden-Fuller and Winter (2005), Williams (2007)). A major advantage of applying repli-cation strategies derives from the sheer speed of diffusing plants or outlets. However, one can distinguish different approaches towards replication as strategy.
One approach is called “template-based”. A template is a central working example, one that can guide the replication process (Nelson and Winter (1982)). Sticking closely to a template reduces the risk of failure through causal ambiguity (Jensen and Szulanski (2004; 2007)). Winter and Szulanski (2001) argue that successful template-based repli-cation efforts depend on two distinct steps. In the first step, exploration, organizations create a business model and discover the most important aspects of this business model, i.e. organizations need to answer the question of what creates value for the customer. In the second step, exploitation, the organization uses its dynamic capabilities to clone itself via replication (Winter (2003)). Template-based replication strategies rely heavily on the extensive use of artifacts to reproduce organizational routines and ensure conformity. Identifying a second, different approach, Baden-Fuller and Winter (2005, 4) argue that organizations can also rely on principles to achieve replication. They summarize the central difference between both approaches by stating: “The guidance provided by ‘principles’ has the flavor ‘Let me explain why this works and the reasons why I do it this way and then try to make it work yourself – I will comment on any mistake I see.’ The ‘templates’ approach is suggested by ‘Watch very carefully how I do this; then copy what I do and try hard to copy exactly – but don’t ask me why.’ Although the distinction between alternative replication strategies has important implications for replicator organizations, there is little actual research on the consequences of applying these different strategies.
2.3 ReplicationanD ambiDexteRity
When we examine replication and ambidexterity, we find that replicator organizations confront the dual challenge of exploiting the existing business model efficiently and developing new knowledge that will enable the corporation to remain competitive in the long run (March (1991); Levinthal and March (1993)). Thus, replicator organizations must transfer their business models into new markets, suppress unintended change at the replicas, but also simultaneously create one or more learning arenas for further developing the business model. In general, replicators deal with the learning challenge by adapting ambidextrous organizational designs that separate exploration from exploitation organi-zationally (Bradach (1997; 1998); Gilbert (2006); Tushman and O’Reilly (1996)). The creation of organizationally separate new learning arenas is a means of adjusting the firm’s balance towards greater exploration. The creation of separate learning arenas is termed structural ambidexterity, which is achieved by segregating exploration and exploitation units (Jansen, van den Bosch, and Volberda (2005); O’Reilly and Tushman (1996); Filip-pini, Güttel, and Nosella (2011)). The top-management team governs and integrates both learning domains (Smith and Tushman (2005)). In contrast, contextual ambidexterity is achieved by creating an organizational context in which employees autonomously decide how much time and effort they want to invest in exploratory and exploitative activities (Gibson and Birkinshaw (2004); Güttel and Konlechner (2009)).
2.4 ReseaRcH gaps
When we examine research gaps, we find that several questions concerning the conditions and pre-conditions of contextual ambidexterity, especially concerning replicator organiza-tions, remain unclear. A review of the literature on replication strategies suggests that some aspects of learning have largely been excluded from the discussion (Combs, Michael, and Castrogiovanni (2004)). The question of how ongoing learning is achieved after the orga-nization has completed its initial stage of innovation/exploration and entered the stage of efficient exploitation via replication remains unanswered (cf., Winter and Szulanski (2001, 742)). Yet this under-investigated question represents a vast research area of practical and theoretical interest.
Building on our literature review, we identify two basic research gaps. First, despite a few exceptions (Bradach (1997; 1998); Sorenson and Sørensen (2001)), there is a lack of in-depth analysis of the interplay between innovation (exploration) and replication (exploitation). In contrast, we will examine how replicators learn, how they create learning contexts, and how they use artifacts to promote innovative efforts throughout all repli-cated units (replicas) on the one hand while simultaneously suppressing undesired change on the other.
Second, empirical research shows that artifacts play a major role in the functioning of replication strategies (Darr and Argote (1995); Bradach (1997)). The rapid expansion of replicators such as McDonalds, Starbucks, or H&M is mainly due to the existence of elaborated artifacts, which reduce the firm’s dependence on tacit knowledge and on
the high levels of background knowledge that employees would otherwise be required to possess (e.g., Argote (1999); Darr and Argote (1995)). However, one question that remains open is how artifacts serve as means to achieve ambidexterity, especially contextual ambidexterity. We suggest that rule-based artifacts such as rulebooks can contribute to contextual ambidexterity via the creation of a common, rich framework of understanding and communication.
3 methodological approach 3.1 case stuDy ReseaRcH
To answer our research question we draw on the results of an in-depth single case study (Eisenhardt and Graebner (2007); Siggelkow (2007)). Case-based research is especially applicable when the boundaries between the phenomenon under study (e.g., learning processes) and its broader contexts (e.g., the organizational context) are somewhat unclear and in need of explorative clarification. The analytic goal thus becomes one of relating a narrow range of phenomena to a broader context covered by a more macro-level of theory (Yin (1993); Eisenhardt and Graebner (2007)).
3.2 case selection
We selected the jeweler Ehinger-Schwarz, a globally operating jeweler-replicator organi-zation, with headquarters in Ulm, Germany, to examine the multifaceted role of rules for replication and innovation. Founded in 1969, Ehinger-Schwarz has introduced and patented innovations such as modular and extendable jewelry to the market, thus creating its own market niche. The founder/CEO has received several prizes for creativity. Due to the popularity of the business model, in 2003 Ehinger-Schwarz increased the pace of replication via franchising. Today, Ehinger-Schwarz operates 35 mono-stores (owned jewelry shops and full franchise shops), 81 shop-in-shops and more than 300 partners and display outlets all across Europe, the U.S., and Asia. The turnover in 2006 came to € 20M. Shop-in-shops are partner jewelers who offer Ehinger-Schwarz products as one element of their assortment. Partners are chosen carefully for their ability to convey the specifics of Ehinger-Schwarz jewelry. Because Ehinger-Schwarz provides all furniture and decoration, the visual appearance of Ehinger-Schwarz counters is similar in all shop-in-shops. Ehinger-Schwarz combines the learning modes of exploration and exploitation on a high level. On the one hand, the organization is innovative and open to experimentation and variation. It offers individualized products that are uniquely customized for clients, along with standardized module jewelry. On the other hand, like most replicator organizations, Ehinger-Schwarz acts to ensure uniformity and to replicate its business model as precisely as possible. Bradach (1997) focuses exclusively on structural aspects of ambidexterity, but here, we focus on how artifacts can stimulate the creation of a context in replicator organizations, thus creating a background that is based on a common frame of reference and that facilitates ambidexterity.
3.3 Data collection
To triangulate data collection, we combined semistructured interviews with the collec-tion of secondary material and two weeks of participant observacollec-tion (one week at the headquarters where the R&D unit is also located and one week at a shop in northern Germany). We collected data between 2008 and 2011, encompassing both interviews and analysis of important company documents. To detect typical behavior and organiza-tional rules (Girtler (2002)), we conducted observations at two different units. During the two weeks of observation we gained insights into organizational processes and routines, the everyday work of the CEO and a branch manager, the ways in which management handled official meetings, customer pitches, knowledge transfer between different areas/ departments, and strategic challenges. In addition to various conversations with colleagues during the participant observation, we carried out nine qualitative interviews with the founder/CEO (three interviews in December 2008, September 2009, and May 2011), the CFO, heads of departments, branch managers, and employees. The semistructured interviews lasted between 90 minutes and two hours. We recorded and transcribed all interviews for further analysis.
In May 2011, we returned for a one-day meeting at the Ehinger-Schwarz headquarters in Ulm with the founder/CEO. He explained the responsibilities of different departments at the headquarters, the main business processes, and specific production technologies. He also showed us the new headquarters building, the former famous Hochschule für Gestaltung (Ulm School of Design), to which Ehinger-Schwarz moved in 2011. To better understand their processes and gain further insights into their organizational culture, we were also able to talk with the heads of design, sales, and mechanical engineering as well as with the CFO, to discuss remaining questions concerning Ehinger-Schwarz. Furthermore, we analyzed reports and other internal documents, in particular, the 346-page employees’ manual (Handbuch: HB 11-2006 edition, referred to as the handbook or rulebook below) in which all procedures, requirements, and definitions are described. This handbook serves as a central artifact in this replicator organization.
3.4 Data analysis
The constant comparison with theory (Eisenhardt and Graebner (2007)) and a presenta-tion and discussion of preliminary results at the headquarters helped ensure validity and reliability. Consistent with Eisenhardt’s recommendations (1989), the research team spent considerable time as a group, sharing impressions and data in order to achieve a consen-sual view of exploratory and exploitative learning modes and organizational routines. In sum, we conducted qualitative content analysis (Miles and Huberman (1994)) with the aim of reconstructing typical organizational patterns of behavior, communication, and decision-making. We performed this analysis with reference to the routine-replication and ambidexterity literature. Doing so enabled us to answer the question of how this replicator organization engineers its learning processes to create ambidexterity.
4 case-study results
Ehinger-Schwarz’s business model builds on codified artifacts that facilitate both exploit-ative and exploratory learning. In this firm, codification plays a major role in facilitating replication. The 346-page handbook (HB, 11-2006 edition), combined with training programs, provides clear definitions of procedures, guidelines, phrases, etc. that standardize communication within Ehinger-Schwarz. Figure 1 illustrates how this system works.
Figure 1: Rules, knowledge, and the learning environment at Ehinger-Schwarz
Artifacts
Codified rules (if then) � Operational procedures
� Innovation procedures
� Interaction procedures
� Training procedures
Learning Environment
Common frame of reference � Exploring new opportunities
� Exploiting existing knowledge � Reconfiguring modules Codified knowledge � Jewelry language (vocabulary) � Rich understanding of jewelry tradition
� Strategy and culture
4.1 coDifieD Rules as aRtifacts
Ehinger-Schwarz started as a family business and most of the core values, which were primarily coined by the founder, are still in place and represent the firm’s guiding prin-ciples. The handbook’s introductory sentence runs “Who stops learning, stops getting better!” (HB 12). In addition to documenting many basic firm and industry facts, it formulates structures, strategies, and culture. The codified rules are particularly evident in topic sections such as corporate behavior (HB 51-56), selling (HB 73-90), employees (HB 217-250), logistics (HB 251-286), and leadership and organization (HB 287-300). The handbook also includes standard replication rules about shop design, clothing, and decoration (HB 31-50).
In the section on leadership and organization, the operational procedures (how to place orders, how to fill in specific formulas, etc.) are clearly defined. The section entitled “meta-morphosis” (HB 155-171) lays out the rules that are necessary to create novelties and to reconfigure existing modules. Longer stories of success and failure in core modules (e.g., the patented “Charlotte” module) explain the module’s history and describe how
salesper-sons in the shops should deal with the customers’ demands and ideas in creating a unique jewel. Consequently, some of the ways in which Ehinger-Schwarz generates innovation are predefined through formalized rules (innovation procedures).
The handbook also contains rules for employee selection, socialization, and training, ulti-mately allowing the salesperson to act as a unique jeweler. As will be discussed at greater length below, handbook-based formal training broadens the employees’ level of back-ground knowledge about the jewelry business.
Employees must also learn the firm’s idiosyncratic “jewelry language”, enabling what Ehinger-Schwarz calls “creative expression” and “mutual understanding” throughout the firm. Thus, the vocabulary acts as the verbalization of firm-specific knowledge. While rules restrict variation in some domains, e.g., by specifying operational procedures, they also serve to facilitate mutual understanding in other domains, e.g., by determining the terminology and “grammar” of the firm’s specific business idiom. By specifying rules for innovation, variation is actually increased. The rules enable employees to articulate new customer ideas and thoughts by applying the rules of the firm’s jewelry vocabulary. The handbook specifies rules concerning the interaction of employees with customers, with one another, and with the headquarters (interaction procedures). Employees are trained for the role of a designer who is responsible for applying jewelry-innovation procedures correctly and who serves as a mediator between the outlying retail shops and headquarters in Ulm (training procedures). Designer-employees gain deep insights into how Ehinger-Schwarz processes materials and how they create jewelry. Consequently, employees who have direct contact with customers serve as what the firm calls “idea mediators”. Such salespeople interact closely with customers to articulate specific ideas about the jewel’s design. The CEO explains that “customers’ ideas and complaints are our most important source of innovation”. Detailed explanations in the handbook stipulate how employees are to describe ideas and complaints that the design center at the headquarters in Ulm can then translate into new products, technologies, or modules. For example, salespeople can adapt the conventional paper-based order bag by ticking the field “prototype” or “model” (HB 267-275). The order bag allows a precise description of ideas or complaints by using the specific jewelry vocabulary of Ehinger-Schwarz. Thus, the firm’s jewelry vocabulary is an idiosyncratic code that has been developed to enable the quick and accurate transfer of customers’ wishes to the design center. Obviously, employees need high levels of back-ground knowledge to be able to carry out such a role, and artifacts play a central role in creating this background knowledge. Based on the descriptions from the peripheral shops, the design unit at the headquarters browses through their 10,000 jewelry modules or sometimes creates new unique jewelry to meet idiosyncratic customer expectations. 4.2 coDifieD knowleDgeas aRtifact
Replicators must not only provide rules for recreating the business model at a new site, they must also ensure that employees at replica stores have the background knowledge (Baden-Fuller and Winter (2005)) necessary for understanding the business model and for
construing rules according to the replicator’s suggestions. A goldsmith explained: “When you know more about the whole and what it is all about, you can explain it way better. It is great that the management provides insights into how everything works.” The interac-tion between rules and knowledge, both those documented in the handbook and those learned in on- and off-the-job training, serves as a self-reinforcing mechanism to deepen the understanding of rules and to promote absorption of knowledge about the specific jewelry tradition of Ehinger-Schwarz. Furthermore, the CEO regularly visits both his owned shops and the franchise shops to “... preach the jewelry philosophy, but also to learn from customers and from salespersons about new ideas.”
The corporate design section in the handbook (HB 34-37) provides a general intro-duction into the jewelry world of forms at Ehinger-Schwarz. The CEO explained the philosophy of Ehinger-Schwarz by referring to the use of such forms. He perceives these principles as constituting the basic approach to connect individual customer expectations to Ehinger-Schwarz’s jewels. The credo in the handbook (HB 37) states that “the develop-ment of a picturesque language is the precondition for formulated rules of design”. The development of a specific and unique Ehinger-Schwarz jewel is based on the combination of “animated lines” (HB 36), “forms”, and “colors” (HB 34-35). Animated lines express “emotions such as angst, pain, aggression, chaos, power, bravery, and pleasure” (HB 36). Stylistic order (HB 36) results from the application of these rules, which constitute the core of the Ehinger-Schwarz’s jewelry idiom. Figure 2 shows a graphic of the applica-tion of the jewelry language (forms, lines, etc.), which is translated into the letters and numbers that govern the development process between shops, headquarters, and produc-tion sites where existing jewelry modules can be reconfigured and – if necessary – new ones developed.
Ehinger-Schwarz numbers and catalogues all jewelry modules. Its archive contains over 10,000 pieces; about 600 to 800 of them are used regularly. Ehinger-Schwarz documents its pieces in case-binders with detailed descriptions, based on the firm’s idiosyncratic “jewelry language”. There is also a large locker that contains an assortment of the modules’ imprints, which the CEO calls “our treasure”. The archive is reportedly the cornerstone of the rapid organizational growth and Ehinger-Schwarz’ success over time. The CEO notes that “without this archive, the whole revolutionary, rapid development of the “Charlotte” (Ehinger-Schwarz’ first brand in modular jewelry) would not have been possible.” All of the models are catalogued and assigned towards various “styles”. Differentiating between various designs and creating a common understanding about the nature of those styles is perceived as a pivotal element in creating a strong culture and communicating the firm’s core values (strategy and culture). The handbook states: “Our ideal is to perceive our customer as human beings with several facets, to meet their individual needs and demands, and to make individualized recommendations. Therefore, we need a broad range of styles and themes. For over 30 years, the differentiation of various styles enables us to perform successfully as venders of jewelry and ideas” (HB 105). By defining procedures, the hand-book clearly states how to do this.
The handbook also provides a rich understanding of the jewelry tradition of Ehinger-Schwarz. In the section on jewelry basics (HB 17-30), Ehinger-Schwarz unveils its under-standing of jewels from the vision (HB 18), ideals, aims, and rules, as well as resulting base principles (HB 19-21). The subsequent section outlines Ehinger-Schwarz’s history (HB 22-24) and contains the clarification of “What is jewelry?” (HB 25-26). In the section on “assortment” (HB: 103-216) Ehinger-Schwarz describes the history and its current interpretation of “basics” (HB 103-112), “design order” (HB 113-154), “ideas for meta-morphoses” (HB 155-172), and “material knowledge” (HB 173-216). All parts of the “assortment” section provide deep insights into materials, combinations, history of forms, and options for combinations. The handbook gives narrative examples. A story of how families spent their holidays in 1952 in the Alps in an alpine hut called “Schlangenburg” (“snake castle”) tells about how to combine ideas, forms, and colors inspired by snakes encountered in nature. This narrative explains how natural forms are related to oxidation and how controlled oxidation, combined with random processes of oxidation, provides the basis for designing an individual jewel (HB 114-115). Employees receive further insights during the training sessions in which the CEO explains to new employees the strategic approach of Ehinger-Schwarz to customers.
4.3 using aRtifactsto cReatea common fRameof RefeRence
As we noted at the beginning of this paper, replicators use formal rules, procedures, methods, descriptions, etc., to reproduce their business model in a new market. However, each replicator has its own idiosyncratic way of mixing the ingredients of its replication recipe. Ehinger-Schwarz has a long history of exploratory “learning from others”. The firm often uses external influences to improve the organization and its performance. The creation of an own market niche for modular jewelry – most prominent in the “Charlotte” system – is probably the company’s most far-reaching innovation thus far. During our visit in May 2011, the CEO explained how knowledge from brain research, from chaos theory, or simply from analyzing the microstructure of mushrooms could influence future jewelry design. At the design center, Ehinger-Schwarz employees developed the 2012 collection by investigating the structures and colors of vegetables, fruits, and mushrooms in order to identify novel combinations.
In the past, Ehinger-Schwarz has adapted methods from prosthetic dentistry to improve the modeling of new objects. Insights gained from these observations paved the way towards developing a radically new technique for modeling wax, which ultimately led to an enormous increase in productivity. Insights from the operating principles of black-smiths helped to improve the way the surface of the jewelry is processed. Ehinger-Schwarz constantly expects from its employees to be attentive to any new idea in their operational business, in particular during customer interaction, to advance both products and produc-tion processes.
Finally, a central innovation of Ehinger-Schwarz lies in the integration of the customer as creator of his/her own jewelry and the integration of the customer into processes of exploration. In sum, employees act within a context, one which requires them to alternate
between explorative and exploitative activities. Meanwhile, the role of the top manage-ment team is to keep up the knowledge flow, to determine the boundaries of the know-ledge gateways and to seize upon new ideas, which are constantly generated within the whole organization. In short, the top management team governs the context for change and the strategic development of the organization.
5 discussionand conclusion
Most chain organizations that operate by replicating their business models gain competi-tive advantage by copying their organizational routines faster than competitors are able to imitate them (Winter (1995)). Artifacts support the re-creation of organizational routines at geographically dispersed locations by indicating the boundaries for deviation from generally accepted rules and procedures. However, using artifacts does more than prevent deviation. In the case of Ehinger-Schwarz, artifacts also serve as a vital requirement for stimulating innovation. By providing a common language and a shared frame of refer-ence, artifacts facilitate the creation of a mutual understanding between exploratory and exploitative domains, which is necessary to respond quickly to customer demands and market changes.
In this paper we show how replicator organizations use artifacts to engineer their learning processes and thus achieve a coupling of diverse learning modes. Based on an in-depth case study at a large international Germany-based jeweler, we show how artifacts create a shared frame of reference to enable more than mere structural separation as a way to achieve ambidexterity in replicator organizations (e.g., Bradach (1997; 1998)). In this paper we saw how the replication strategy of Ehinger-Schwarz combines exploratory and exploitative learning. We essentially fulfilled Raisch and Birkinshaw’s (2008, 399) injunc-tion to examine “... how different antecedents interact and complement one another in a firm’s pursuit of organizational ambidexterity”.
The success of integrating exploratory and exploitative learning depends in our case on the rule system and on the background knowledge of employees. The case study sheds light on the dual role of artifacts such as rulebooks, in which rules and codified knowl-edge are set forth to re-create routines. This differs from conditions of low levels of back-ground knowledge, where firms need to stick to established templates (Szulanski and Jensen (2004; 2006)). Our case corresponds more to the argument of Baden-Fuller and Winter (2005) that high levels of background knowledge enable organizations to pursue a principles-based strategy, where deviation from templates within pre-defined bound-aries is possible. Hence, we view templates and principles not as alternatives, but rather as complementary approaches towards replication, more as poles of a continuum instead of exclusive alternatives.
Further, we showed how rules and knowledge as artifacts facilitate innovation by enabling a common understanding between exploratory and exploitative units, in contrast to previous perceptions of rules as separation mechanisms (Benner and Tushman (2003); Tushman and O’Reilly (1996)). Our case revealed how rules can couple exploratory and
exploitative modes to facilitate innovation. Our focus on artifacts complements already known integration mechanisms such as cross-functional teams or senior team social inte-gration proposed by Jansen et al. (2009) for ambidexterity. Our case study results show that rules provide procedures, tools for communication and interaction, and a specific vocabulary (definitions of various components of jewels and customer wishes), ultimately serving as a means for enabling the quick development of novel solutions in response to customer demands. Speedy interaction and transfer of knowledge between shops, head-quarters, and production units is based on a standardized jewelry language and codified rules for reconfiguring existing jewelry modules or for creating new ones. We emphasize that artifacts need to be interpreted through a common frame of reference (Pentland and Feldman (2005)) in which the principles of shared expectations provide enough under-standing to regulate interaction between the exploratory and exploitative units. Addition-ally, our results enable further insights into the role of rules for combination of specialists’ knowledge (for a detailed discussion see Kieser and Koch (2008)).
Codified rules and knowledge serve as a basis for background knowledge and knowledge transfer. High levels of background knowledge enlarge the employee’s absorptive capacity (Cohen and Levinthal (1990); Zahra and George (2002)), because salespersons are able to discover novel ideas during customer interaction or while observing the jewelry business. Therefore, we can conclude that artifacts such as codified knowledge and tightly defined rules need not only restrict behavior and limit innovation, but under certain conditions can also act as enabling forces for identifying new ideas and for guiding subsequent inno-vation within the firm. Consequently, our findings enrich the debate on how firms can create contextual ambidexterity.
At the same time, we are aware of the limitations of this approach. The selected case did not authorize rigorous comparison of different types of replicator organizations in different industries. Thus, we cannot contrast our findings with failed replicators. Further-more, Ehinger-Schwarz makes extensive use of artifacts and templates. Future research could investigate the ambidextrous learning in differently organized replicator firms that are more loosely structured and therefore primarily governed on the basis of principles. Further research could also investigate how organizations can use ambidexterity to secure openness in decision-making and to prevent the firm from becoming a victim to core rigidities (Leonard-Barton (1992)) and competency-traps, or how ambidexterity could serve as an escape from such vicious cycles.
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