Organizational behavior in times of COVID-19
In 1991, James March carried out a study that showed that organizations should carry out activities of the opposite nature simultaneously. In his research, he identified that companies should allocate resources to exploit their capabilities and assets and, at the same time, to explore new solutions and innovations in order to stay competitive in dynamic markets. The exploitation of resources and capacities contributes to being able to subsist in the short term, while exploration helps to guarantee the viability of the organization in the long term. The challenge that all companies face today is how to find the optimal balance between these two types of activities of a very different nature and, at the same time, carry it out simultaneously. If they do not exploit their existing resources they do not survive day by day, and if they do not invest in exploring innovative solutions in the future, at some point they will become obsolete. This ability to do both activities simultaneously is called ambidexterity. What is actually happening is that, despite the two activities being opposite in nature, organizations tend to focus their efforts more on one type of activity, even though both are equally important.
The situation generated by the COVID-19 pandemic has forced companies to adapt their business models, to innovate in processes, products, and marketing channels. But what is observed is that each company has maintained certain behaviors regarding this situation. Large organizations have the tendency and need to exploit their assets in order to survive in crisis situations. Small organizations, like startups, have a culture of easily exploring and adapting to new contexts. From the Innova Institute of La Salle-URL, it is considered interesting to analyze the behaviors of organizations during this crisis situation, whether they have been exploitative, exploratory or just an opportunistic behavior to use an advantage during the time the crisis lasts.
This study analyzes by sectors examples that can illustrate these behaviors:
- Opportunistic behavior to survive the crisis: once it ends, companies return to their usual activities.
- Exploitative behavior in crisis situations: resources are exploited in a different way, but there are no fundamental changes in the organization's competencies.
- Exploratory behavior: where the organization's competencies are modified to carry out its activities in a different way or with a different objective.
Tourism industry
The tourism sector has never stood out for its exploration capacity. The great disruptions in the sector have always come from outside hands and have “caught” the sector by surprise. This is the case, for example, of Airbnb. In 2007 a young couple from San Francisco saw the prices of hotels in their city skyrocket and decided to put an air mattress in their living room and rent it as a Bed & Breakfast. One of their clients programmed them a small portal and they invited other friends who also rented beds to register. In two years they were laying more than 700,000 nights and four years after that first air mattress they negotiated more than ten million nights. The corporation currently has more than 6,300 employees and ten subsidiary companies.
The sector has always been good at exploiting business models that have been on the market for hundreds of years. The Bible already narrates how the Virgin Mary and Saint Joseph were denied accommodation because “there was no place in the inn” and in the city of Ur (Mesopotamia), before its destruction in 500 BC, there were already museums with objects of art from different parts of the world.
During COVID-19 the sector has continued to be good at exploiting its assets, and some establishments have been converted into field hospitals, transforming rooms initially designed for clients into rooms designed for patients. This rapid adaptation, and it is an even faster start-up, has been spectacular and has eased the pressure on hospitals by offering quality beds to patients, in contrast to the field hospitals set up by the army in exhibition halls.
Another conversion of the hotels that have been seen during the COVID-19 has been the specialization in health personnel. Hotels, hostels, and other accommodation near hospitals have welcomed the large numbers of health personnel who have mobilized to help. On the other hand, museums, castles, unique houses, and complementary tourist services, have chosen to close during the Covid-19 and focus on keeping the relationship with their clients at a distance.
The sector's ability to be ambidextrous is limited. Surely the ease with which they have obtained their clients for many years, as well as the constant growth in the number of tourists worldwide, has meant that a large part of companies, do not feel the need to explore new business models. However, times are changing and because of COVID-19 and confinement, tourism has decreased by almost 80% in most countries. Can the sector make up for the lost time? Will you be able to create new value propositions and adapt your business model? Time will tell.
Automotive industry
A very clear example that evidence these behaviors is the automotive sector. The large automobile manufacturing companies, with a large workforce, have been some of the companies that have suffered the most because of the crisis, as demand has decreased considerably and their supply chains, which came from other countries and continents, have been interrupted. In this situation, they have seen the possibility of exploiting idle capacities for the production of artificial respirators. For example, SEAT was able to adapt its car manufacturing line to respirators in seven days, adapting its equipment and components to make a product that is totally different from cars. This ability to exploit its resources in the short term contributed to alleviating the health crisis of lack of respirators; and on the other hand, to generate extra income for the company. Thanks to SEAT's effort and exploitation capacity, around 300 respirators per day have been manufactured, representing 75% of national production.
Likewise, all the large companies in the sector are dedicating a large number of resources to the exploration of new car models, whether hybrid or electric, with lower emissions of polluting gases. The reflection that derives from this, is how they will be able to continue the exploration of new models of electric cars, with their source of monthly income so reduced, which comes from the exploitation of current models. Or, on the other hand, has it been opportunistic behavior? Once the crisis of the lack of respirators is over, car manufacturing companies will return to manufacturing cars and not respirators, but their high operating capacity has allowed them to take advantage of this opportunity.
The automotive sector is a good example to explain that, in crisis situations, companies tend to do what they do best. In this case, exploit its enormous capabilities and resources in a very fast and efficient way.
Food and catering industry
The food industry is characterized by the variety of activities required by each of the links in its chain and the particularities that may occur in them, both in food production, industrialization or preparation, or sale for consumption, with the main emphasis on exploitation.
This is how planting and harvesting food, as this is a necessary product for survival and in high demand, pressures that the few exploratory tasks are quickly implemented, as has been the case with transgenic foods, which, although its exploration was criticized for the potential negative effects on the human body, its ability to calm hunger in vulnerable regions of the planet is stronger and promotes rapid exploitation.
Regarding the control of cultivation and distribution logistics, exploration capabilities are seen, especially after the boom in platforms and the development of marketplaces, with the inclusion of a line of food in spaces such as Alibaba in developed countries, or the creation of platforms to eliminate supply centers and intermediaries in South American producing countries such as Comproagro and Fruvi for local markets in Colombia. Or for international markets, whose growth has faced resistance to change from traditional producers, but which, given the situation led by COVID-19, have opportunistically linked to initiatives aforementioned digital media, which in PostCOVID will allow them to keep both types of marketing.
Similarly, the restaurant industry is characterized by its emphasis on exploitation, where the initiatives that emerge tend to be quickly capitalized on offers for the market, through new dishes, healthy food, foods that respond to communities and lifestyles. alternatives. However, these changes tend to be small in production, orienting exploration towards its main value proposition: “the diner's experience” at the consumption site. Faced with the challenges of confinement, this link has also been altered, migrating to home-sales processes through digital distribution platforms such as Glovo, Rappi or Uber Eats or transforming its market towards the institutional one to prevent economic losses from being greater. However, this transformation will be temporary, although it is expected that a large number of restaurants will retain their participation in these distribution platforms, their operation will return to the sale of experiences as the main competitive advantage.
Finally, the link in the industry is perhaps the one with the greatest capacity for exploration, where new ways of producing, packaging and adding benefits to functional foods are constantly being investigated, and where many of the proposals must await tests and guarantees of quality and safety before going to market. Furthermore, if we add to this the natural fear of consumers and the restrictions that the economic effect of confinement will entail, it will probably take even longer to move to exploitation in this chain link.
Pharmaceutical industry
When it comes to the pharmaceutical industry, its greatest challenge is not opting for an exploitative modality or an exploratory modality, but rather in determining the optimal balance in the allocation of resources to configure this ambidexterity and the pressure of offering results that give value to the market and to the firm. This industry, like many related to health, must carry out rigorous testing procedures before launching a new product to the market, due to the high impact on the lives of the people who have its services; and this implies long periods of development. But even so, they must maintain their exploratory character, almost as a commandment, given the high mutation that viruses and diseases register in this globalized world.
In this sense, we have the so mentioned issue of vaccines in our current reality with COVID-19, for which, despite the fact that it could be said that international and private organizations have made millionaire investments in this aspect, it is hoped that they can give a palliative solution in a record period, not less than two years from the announcement of the pandemic and allowing several shortcuts, not authorized in other contexts. But even so, a race against time is carried out and it must be decided whether to resort to compounds of new chemical entities (NCE) or to derivatives of existing chemical entities (Non-NCE). The latter with their expected favorable impact on times and costs as it has partly validated materials.
Such is the case of Grifols, a multinational company, of Catalan origin, dedicated to the pharmaceutical and hospital sector, with extensive experience in the production of plasma derivatives. The company has put a large part of its assets to develop using its knowledge and research in plasma, a treatment for COVID-19, and also to manufacture a large-scale diagnostic test for the virus, more effective than currently used. The terms and the magnitude of its developments show a great capacity to exploit its assets. In an industry dominated by exploratory developments, we find examples of how organizations can exploit their knowledge in a very effective and large-scale way.
Entertainment and service industry
In periods of crisis like the current one, startups have a great capacity to explore new markets and adapt to the changes they impose. These changes can only be opportunistic and meet the demand of the moment, or they can also be perpetuated after the crisis. On the other hand, either due to the lack of resources or its initial objective (to be sold after it grows), the possibility of exploiting a startup is no longer developed or thought.
An example of exploration is the startup My Work Up, located in La Salle Technova, the innovation park of La Salle Campus Barcelona-URL, that offered a platform for staff management for events and/or promotions, from the recruitment, hiring, training, and reporting of the action of the hostesses and promoters, where the entire process was done in a 100% digital way. But in the beginning and during the pandemic, the face-to-face events were canceled and their income disappeared. To survive, in just three weeks the startup investigated internal capabilities, market expertise, and market needs, and through the management of nearly 20 tools and the human capital of its database, implemented a project that could Solve a problem with confinement: parents who needed to concentrate on their telework, but who were interrupted by their small children who could not follow the activities from their schools on their own.
The education sector
COVID-19 forced educational institutions to migrate part of their activities to the digital channel to continue with their curriculum. This decision surely responds to opportunistic behavior because they were not prepared. Furthermore, education must not stop. For example, in Peru, private and public schools and colleges had to adapt to new methodologies with digital, radio, and television as protagonists. This is because Peru has very poor connectivity throughout the country. To this, we must add the lack of equipment in some homes, in addition to the bandwidth that is hired. It should be noted that the regulatory body requires telecommunications operators to guarantee the 40% speed they hire.
It is clear that not everything is connectivity, teachers who are trained in new methodologies are needed to enable them to meet the learning objectives at each level. All of this needs to be seen by teachers, students, and parents as an opportunity to rethink education. Online training is here to stay, therefore, educational institutions must incorporate exploration into innovation as part of the transformation required to give sustainability to their organization, their sector, and the country.
In such competitive and volatile environments, organizations have to develop the capacities necessary both to exploit their resources and competencies and to explore new solutions, innovations, or markets. This ability to do both activities simultaneously is known as ambidexterity. As a result of the situation generated by the COVID-19 pandemic, it is observed how organizations show different behaviors regarding the crisis, some evidence opportunistic behaviors, others take advantage of their exploratory or exploitative capacity. The Innova Institute of La Salle-URL has made a reflection with examples from different sectors, on how the behaviors of organizations have been in the face of this crisis situation.
Although both activities, both exploitation, and exploration, are important for the present and future of companies, we see that they tend to carry out those that they know how to do best. On the one hand, large organizations, such as Grifols or SEAT, in record times have been able to adapt their capacities to exploit their assets in an efficient way. On the other hand, we see how the startup MyWorkUp has changed its business model, showing clearly exploratory behavior in order to adapt to these circumstances. In the tourism sector, the world's largest company (Airbnb) has grown thanks to the exploratory nature of a new business model, although almost the entire sector continues to maintain an exploitative behavior. These examples indicate how important each of the two activities is and, in turn, the ability to do both simultaneously, to be ambidextrous.
To conclude, we invite reflection: What is the optimal balance that we must develop in each of our companies in the "new normal"?
This was written collaboratively by: Francesc Miralles, Fàtima Canseco López, Montse Peñarroya Farell, Alessandra Giglio Hirtenkauf, Juan Nihoul, Sergio Cuervo Guzmán, Carina Rapetti and Sanabria John.