No Match Found
If you are looking for an example of a company that successfully predicted the future 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 ideal when millions were confined to their homes for months during a pandemic. Pivoting was the emergency option for many businesses. Many food manufacturers, for example, 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.
"For those that survived the pandemic, the energy and cost of living crisis resulting from Russia’s invasion of Ukraine, tested business model agility again."
Netflix, is now having to adapt yet again by now offering a new streaming option with adverts, introducing a less expensive offering as it fights to keep viewers. Whilst in other industries, energy companies have had to step up investment in renewable generating capacity, new energy technologies and e-mobility infrastructure and strengthening carbon capture capabilities.
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, as well as external factors, has led companies in many sectors to reassess their business model.
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.
But there’s a distinction between genuinely pivoting, versus undertaking a series of incremental changes like introducing technology into a business. The first, done well, increases the value creation potential of the business. The second, bluntly, doesn’t.
A true pivot is one that brings about genuine business model change – allowing a 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 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, 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.
Businesses require clarity on the decisions that need to be taken at each stage of the process, helping identify and mitigate risks while maximising return on investment - for example having an understanding of how cyber security can have a significant impact on business value across the lifecycle of a new technology 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, will behave differently and have 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.
“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.”
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.