In this article, Bobby Maclay discusses how many businesses were forced to pivot during the pandemic, but pivoting can be about opportunity and not just survival.
If you are looking for an example of a company that has successfully predicted the impact of technology on our lives and adapted its business model to take full advantage, look no further than Netflix. The original film-by-mail business, set up in 1997, was the first to take advantage of the light weight and convenient letterbox size of DVDs. A few years later it moved early on introducing streaming services, betting that the necessary bandwidth would soon become widely available. As it turns out, its business model was also absolutely perfect when millions were confined to their homes for months during a pandemic – but to be fair to Netflix, you’ve got to be in the game to win it.
Pivoting was the emergency option for many businesses during the pandemic. Many food manufacturers, for instance, who found their usual markets closed down had to quickly explore alternative business models, such as partnering with a delivery service to access the takeout market.
In normal circumstances, pivoting the business model to create value requires an element of foresight – an understanding of how and why things are likely to change, and how that will affect the business. Sometimes it’s about survival, but it’s also about opportunity, and creating an efficient, sustainable business that meets both the current and future demands of customers.
In recent years, technological innovation has led companies in many sectors to reassess their business model. According to our latest CEO survey, 77% of leaders plan to increase investment in digital transformation over the next three years, and 44% say this investment will be significant.
But there’s a distinction between genuinely pivoting to create a tech-enabled business, and undertaking a series of incremental changes that introduce technology into the business. The first, done well, increases the value creation potential of the business. The second, bluntly, doesn’t.
A tech-driven pivot is one that brings about genuine business model change – meaning that the introduction of distinctive or innovative technology allows the business to improve customer service, increase wallet share, and/or extend into new markets. It brings about efficiencies in workflow, processes and organisation (such as a restructuring of the supply chain), and most importantly, there is a distinctive outcome, in the form of revenue growth, increased profitability, greater market share, a rise in the share price and so on.
In other words, it redefines the value creation story. And it is a story – when a business pivots, it is signposting how and why it will remain a good investment for the future.
Some of the most successful pivots in recent years have been companies, such as Adobe, that have moved from a direct sales model to offering their goods or services as a subscription model. When done well, these are excellent examples of value creation, in this case enabled by cloud technology, because they are about revenue growth. If the customer is using the product to its full capacity and getting the most they can out of it, they are more likely to remain loyal.
Without an overarching strategic vision, the business is just making a series of incremental changes. The story matters – for the business and for its stakeholders.
More often than not, long term gain will require short term pain. A huge amount of investment will be needed to pivot the business, and there are situations where returns may well suffer for a while. Businesses operating under the pressures of public markets will need to articulate their plan clearly.
Cyber security can have a significant impact on business value across the lifecycle of any investment. Businesses need clarity on the decisions that need to be taken at each stage of the process, helping identify and mitigate risks while maximising the return on investment.
A business model can’t be changed in isolation, and it won’t create value without agility, leadership role modeling the desired future behaviours, adaptation of processes and attracting and retaining the right talent. A tech-enabled business, for example, behaves differently and has very different operational and skills requirements from the established legacy business it was before – it will need a Chief Information Officer, for example, and a well-developed product management function. But it will also help enormously if it thinks like a successful tech company, at every level.
Technology may be the biggest driver of change but it’s by no means the only one. There are many reasons, from environmental factors to changing consumer preferences, why a business model may not be sustainable or resilient over time.
Take, for example, how the business model of a typical petrol station has evolved. Most have already evolved at least once by expanding into retail and catering but as we shift towards electric vehicles, they will have to change once again – and not just in terms of introducing electric vehicle charging technology. Electric vehicles take time to charge, which means that people will need to amuse themselves and look for somewhere to work, play, eat and relax. Locations that fail to offer those services in the long term will struggle to compete.
Successful pivoting depends on strategy and execution, but also on creating a culture that compliments the story that’s being told. It demands an element of trust from investors and other stakeholders that the vision is the right one, and that the change will generate sustainable value and resilience.
“Successful pivoting depends on strategy and execution, but also on the story that’s being told. It demands an element of trust from investors and other stakeholders that the vision is the right one, and that the change will generate sustainable value and resilience.”
Knowing where to start when it comes to Value Creation can be difficult. We use a framework called the value bridge to help our clients visualise and work through the core foundations that will enable them to create value in their business, value that makes the difference, whatever their strategy or situation. Watch our value bridge animation to find out how, together we can help you create value.