In the face of industry disruption, business leaders often present themselves with a false choice: Do they cling to the stability of their legacy business and risk missing new opportunities? Or do they neglect their legacy business in a proactive dash for the new?
Our research and work with clients suggest that there is a way to move confidently and successfully into new businesses. We call it making the Wise Pivot, a strategy that enables companies to create major new businesses without prematurely abandoning their core.
The good news is that companies are tilting toward the future: 54 percent of C-level executives in large companies expect that new businesses will generate more than half of their revenues three years from now, according to a recent Accenture study that spanned 11 industries and 12 countries.
But for most organizations, progress will take more than high ambition. Large companies are often unable to accelerate their journeys into the future because of seemingly intractable obstacles: capital intensive infrastructures, long standing contractual agreements, outdated technology or relentless devotion to legacy products, services and brands.
While embracing new businesses decisively is a challenge for most companies, the right advance work can make a world of difference. Consider one small group of companies (6 percent) in our study that embraced new businesses ahead of others. These companies reported that more than 75 percent of their current revenues come from business activities, investments and ventures into previously unexplored markets begun in the past three years. We call them the Rotation Masters. (See Exhibit 1).
Notably, 64 percent of Rotation Masters achieved double digit growth in sales, while 57 percent achieved the same growth results in earnings before interest, taxes, and depreciation (EBITD) in recent years.
What sets them apart from others is their prowess in creating the right pre-conditions for change. Rotation Masters:
Understand the level of investment required to drive change. They do not simply treat transformation of the core business as an end goal but use it to build investment capacity for a shift to new businesses.
Seventy percent of Rotation Masters say they hold sufficient investment capacity to scale new businesses, compared to 46 percent of other companies.
Focus on enabling their organizations to innovate by design. Three-quarters of Rotation Masters place innovative resources under a dedicated function that handles funding for a cross-section of innovative efforts, compared to 36 percent of other companies.
Besides building an architecture of innovation capabilities, they apply innovation deliberately to transform the legacy business while helping to identify and scale new business opportunities.
Evaluate the potential impact of new business activities on their core business before accelerating expansion efforts into new markets. They purposely seek and create synergies with the legacy business and external networks.
Sixty percent of Rotation Masters (versus 28 percent of other companies) recognize the potential of their new business activities to reshape the culture of their core business.
The success stories of tomorrow will be determined by C-level executives who create the right pre-conditions for change, decisively. Rather than waiting, these courageous leaders will tilt toward the future before others do—and in doing so, reinvent their organizations on their own terms.
Please visit www.accenture.com/wisepivot to read the full report.