Three preconditions to pivoting wisely

June 14, 2018

RESEARCH REPORT

In brief

An enterprise that wants to thrive needs to be in a permanent state of change—constantly revitalizing its existing business while scaling new business opportunities.
In reality, however, most companies are shifting to new businesses very slowly.
Just 6 percent of companies we studied are embracing new businesses on their own terms.
We reveal the three preconditions that help organizations embrace new businesses decisively to achieve higher performance.

Most business leaders know their organizations can't stand still. Companies that thrive in an age of unprecedented disruption need to exist in a state of permanent change, deliberately innovating to revitalize their legacy businesses while scaling new opportunities for the future. Striking that balance isn’t easy—it takes a new approach to organizational change. We call this approach ‘Rotating to the New’. In reality, most companies are rotating to new businesses very slowly – namely only 6 percent.

Those who embrace the future are rotating with confidence into new markets and it's paying off. Take CVS Health, a leading US healthcare company with a long history of pursuing growth strategies and building new businesses alongside its strong core pharmacy business. Established as a discount health and beauty store in 1963, CVS added in-store pharmacy departments four years later. The company pursued a steady transition of its business model in subsequent years, which accelerated in 2006, with the acquisition of MinuteClinic, the pioneer of in-store health clinics. This move created a highly innovative network of in-store walk-in clinics offering affordable non-urgent, acute health care with extended hours. At present, CVS Health is one of the US’ largest healthcare providers, with over 9,800 retail pharmacy locations.

So how do you prepare to pivot wisely? Start by being investment ready, innovating by design, and blending the old and the new.

A deliberate approach towards change. Meet the Rotation Masters.

Companies that compete confidently in the digital age are those that are constantly reinventing themselves. This leading group of companies—Rotation Masters—said that more than 75 percent of their revenues now come from business activities begun in the past three years. And they have self-reported the strongest financial performances in that time.

"Leading companies rotate to the New successfully not in spite of their legacy businesses, but because they strengthen them to release the resources needed to scale new business activities."

– OMAR ABBOSH, Chief Strategy Officer, Accenture

A Wise Pivot reaps rewards

Organizations need to adopt a new approach to organizational change. Transforming and growing their existing business, while scaling new businesses, with help from the right investment strategy are critical to enabling a Wise Pivot to the New. Looking at our Rotation Masters, the rewards are clear—64 percent achieved double-digit growth (above 10 percent) in sales, while 57 percent achieved the same growth results in EBITD.

Companies that embrace new businesses decisively enjoy stronger performance

Bar chart showing companies that invest in new businesses enjoy stronger performance.

Three preconditions to reinvent your organization

Be investment ready

Understand the level of investment needed for change. More than two-thirds of Rotation Masters have enough investment capacity to scale new businesses while reinvigorating their existing core business.
Free up investment capacity. Make transformative choices (e.g., decisive corporate restructuring; strategic cost reduction) to create capacity to invest in new businesses activities, at the right time.

What can you do today? Revitalize your core. Because a strong core business helps fuel investment for a shift to new businesses.

Innovate by design

Foster innovation. Identify and bring to life the best ideas by structuring the organization to innovate by design with dedicated function, leadership and investment.
Innovate to transform. Combine internal and external innovation capabilities—such as prioritizing crowdsourcing, encouraging the use of innovation centers, as well as research and development capabilities—and look to pilot and test product ideas with end users.

What can you do today? Practice innovation deliberately. Apply innovation to transform the legacy business today, while identifying and scaling new business opportunities for tomorrow.

Blend the old and the new

Revitalize legacy with the new. Reshape legacy culture and ways of working by bringing in new businesses with fresh new capabilities. Sixty percent of Rotation Masters consider the potential to leverage new business in order to reshape the culture of legacy business (compared to 28 percent of others).
Collaboration is key. Tap into the power of external networks, such as collaborative partnerships and joint ventures to innovate with speed.

What can you do today? Take a holistic approach to the New. Have a clear expansion strategy for new businesses while creating synergies with the legacy business and external networks.

Are you prepared to pivot?

The desire to move swiftly into new businesses over the next three years is high. However, scaling new opportunities while revitalizing your legacy business demands a climate of innovation and ability to remain in a permanent state of change. Get ready to reinvent your organization—on your own terms.

About the research

We conducted a global online survey in April to May 2017 across 11 industries: Automotive, Banking, Chemicals, Consumer Goods & Services, Energy, High Tech, Insurance, Pharmaceuticals, Retail, Telecommunications, and Utilities. We examined how large companies prepare to respond to disruptive change, both in terms of transforming their well-established legacy business, and expanding into new, scalable businesses.

1440

C-level executives from companies with revenues exceeding US$500 million.

Countries included in the survey: Australia, Brazil, Canada, China, France, Germany, Hong Kong, India, Japan, Singapore, United Kingdom, and the United States.

Our study identified four distinct groups of companies at different stages of their rotation to the New journey—Rotation Masters, Rotation Drivers, Rotation Strivers and Rotation Starters. Progress on this rotation journey was measured by assessing the (self-reported) contribution of new business activities commenced by the company in the past three years to overall revenue.