Investing to power your Wise Pivot
June 14, 2018
June 14, 2018
Who’s thriving, in the age of constant disruption?
Look no further than Nike, whose long-term growth plan involves a massive transformation to accelerate product innovations, double its speed to market and strengthen its customer’s retail and online experience. Or Merck KGaA, the pharmaceutical and chemical giant, which for the past decade has not only restructured its business but has also expanded into new industry segments – to the tune of US$21 billion in new acquisitions – to deliver unprecedented growth and strong margins in recent years.
These companies are just a handful of organizations that are investing in the future – to purposefully prepare their business for change. They do so by directing available investment capacity towards scalable new businesses, while continuing to transform and grow their core business. But striking the right balance can be challenging.
33%
of companies we analyzed (out of 1,500) have adopted an aggressive investment strategy, focused on future opportunities.
55%
of companies we analyzed (out of 1,500) have adopted a cautious investment strategy, focused on their core business.
The Wise Pivot calls for a new investment strategy. That strategy starts by assessing an organization’s investment capacity (resources available to invest) and investment velocity (the speed at which the company has been embracing new business activities). The Wise Pivot is also dependent on having the confident and right mindset that puts leadership – specifically the CFO – at the heart of the decision-making table, to strike a holistic, effective interplay between investments in old and new business activities.
Some companies only begin to transform as a reactive response to disruption. Pivoting wisely, though, means keeping an eye on the timing to shift investments and activities to new businesses:
To capitalize on these opportunities, a company’s investment strategy needs to flex - as pivoting wisely takes years – between maintaining a strong, profitable business that can meet shareholder expectations while also creating options for future growth.
"The risks are high. Over-investing in new areas to stimulate innovation can mean overstretching financial capacities, while moving too slowly can make companies obsolete."
– OMAR ABBOSH, Group Chief Executive – Communications, Media & Technology
The path that any given company should pursue depends on its position, as well as the opportunity that triggers action. Here are four different “starting” scenarios to consider, each reflecting a different level of investment capacity and appetite to make decisive moves:
Adopted an aggressive investment strategy supported by high investment capacity, to create future growth options ahead of peers.
What's next? How to scale new businesses at speed?
Adopted an aggressive investment strategy, but appetite to invest in future growth is limited by investment capacity.
What's next? Which alternative funding sources can help increase investment capacity?
Adopted a cautious investment strategy,
despite high investment capacity, focusing on
maintaining current business.
What's next? Which new markets to attack leveraging the strong current business?
Adopted a cautious investment strategy, need to replenish investment capacity or find new growth opportunities within limits.
What's next? How to reform the current business to replenish investment capacity?
It is imperative to bring the right mindset to the decision-making table. Who better to include than the CFO, whose position and expertise are uniquely suited to helping a company strike a balance between investments in old and new business activities?
Here’s how CFOs can support the CEO:
Recognizing a winning idea is not easy—but committing to it with multi-year investments in innovation, acquisition of new assets and new skills is even harder. Why? New businesses, particularly those that are powered by emerging technologies, often take longer to build and scale but offer potential rewards later.
What CFOs can do:
As companies pursue new growth opportunities, they should be proactive about seeking synergies across the core and new businesses—in terms of products, channels, customers, operational efficiencies, and talent.
What CFOs can do:
Leveraging partnerships across ecosystems within and beyond industry boundaries can enable a company to exploit and scale new, often riskier opportunities much faster than they would be able to otherwise.
What CFOs can do:
In today’s world, stability in business is not the end game. Opportunity comes from learning to pivot wisely. That pivot will be different for each company, while success relies on the same factors: the willingness of business leaders, especially CFOs, to commit to new businesses, be transparent about synergies and collaborate. Companies that follow the traditional finance route will be hard pressed to get to the New—but by making a Wise Pivot, they can seize the opportunity to lead in the New.
We leveraged our diagnostic model to evaluate the investment and financial activities of companies undertaking a Wise Pivot. The model assesses the pivot intensity of companies over a five-year period, using two measures:
1500
non-financial services companies
14
Industries
The research includes separate analysis that stems from a global online survey (see “Make your Wise Pivot to the New”).
About the Authors
How leading companies invest and innovate to harness the power of disruption.
45 minute read
10 minute read
Here's your 10-minute primer
No tweets to display