Globally, large companies are sitting on an abundance of cash - $3.8 trillion of cash to be exact (2016). But many are hesitating to invest in their future, while others prefer to give back money to their shareholders. There are two reasons for this behavior: 1) some companies prefer to maintain high liquidity as a hedge against potential market volatility, and 2) some face challenges in identifying or acting on profitable growth opportunities at the right time.
Our research and work with clients suggest that there is a way to move confidently and successfully into new businesses — it involves learning how to pivot wisely. The Wise Pivot requires an investment approach that enables companies to create major new businesses without prematurely abandoning their core.
What makes a pivot wise? It is all about constantly calibrating investments — not moving too fast (giving up on the core business too early), and not moving too slow (waiting until change is a desperate and reactive move). That means continually assessing the organization’s investment capacity (the resources available to invest) and velocity (the speed at which the company has been moving into new business activities) to inform key decisions for the next pivot.
When looking more deeply, a more differentiated picture emerges. Companies find themselves in entirely different stages in their business cycle. To better understand how well companies are positioned to pivot, Accenture Research has applied a proprietary, data-driven method to categorize companies into four “scenarios”, based on their investment capacity and velocity. We have found that only 33% of companies have invested aggressively in creating future growth options, while 55% have opted for a more cautious investment strategy.
Companies that master the Wise Pivot are in the best position to drive the most value out of their core business, typically by operating in new ways (such as tires evolving from a product to a sensor-enabled intelligent device that collects data to inform and improve maintenance activities). At the same time, companies are also able to identify, scope, and pursue the most promising new business activities (for example, technology companies that are creating software platforms and artificial intelligence systems to help doctors improve diagnoses and the treatment of illnesses).
And although each company’s pivot will be different, success will ultimately depend on the willingness of business leaders, and CFOs especially, to:
Set a new direction, not only verbally, but with the tangible commitment behind it (e.g., prioritize capital allocation to support the growth of new businesses).
Define a clear pivot path that creates fusion between the core and the new businesses (e.g., create management incentives to bring innovation back into the core business).
Leverage partnerships across ecosystems to exploit and scale new, but often riskier commercial opportunities (e.g., make commitments to small startups; pursue value sharing and intellectual property sharing arrangements with partners).
Large companies typically do not jump into high potential new opportunities, at the expense of their legacy business. What will set successful companies apart from others is their ability to make a Wise Pivot to their future on their own terms: by revitalizing (not neglecting) their core business, while scaling new businesses.
Please visit www.accenture.com/wisepivot to read the full report.