Circumventing The Bias. A case study of a company's capital budgeting process and its link to achieving organizational ambidexterity

Abstract: This study utilizes in-depth interviews to examine the capital budgeting process of a multinational company, in order to understand its approach to organizational ambidexterity. When faced with a harsh economic environment and tougher financial demands, it is crucial for firms to exploit profitable capabilities in the short-run, but also to explore future highly uncertain opportunities. A problem that firms face is the fact that capital budgeting, the main tool for choosing which investments to undertake, is biased towards short-term investments, theoretically making it hard to accept explorative investments. This single-case study reveals a prevalent short-term financial bias in the company's capital budgeting practice, aligning with existing literature. However, applying the Exploration-Exploitation framework by Lavie et al. (2010), the company is believed to mitigate this bias through two modes of balance; organizational separation and contextual ambidexterity, pushing explorative investments towards acceptance. This study contributes to the capital budgeting literature, which is predominantly quantitative, by highlighting the interplay between capital budgeting and organizational ambidexterity qualitatively, a topic largely unexplored by previous literature.