Recap: Adaptability as a competitive advantage
In our previous article, we discussed how the events of 2020 led many businesses to develop a new and essential skill, organizational flexibility. For most, the development of this competency brought significant growing pains with it (ourselves included). But the development of policies and processes to identify, measure, and respond to environmental changes is a critical, long-term survival skill for all businesses.
In the wake of the pandemic, adjustments may have included new accommodations for working remotely, new delivery mechanisms for products or services, or entirely new products and services, as consumer needs shifted, and new commercial opportunities surpassed legacy offerings.
Following Lewin’s Change Model, by now, many of us have ‘refrozen’ or ‘set’ our newly developed practices in place following a difficult adjustment period. While this was undoubtedly the most abrupt and universal disruption in memory, each of our businesses is continuously faced with its own unique and changing conditions. Consequently, those who can capture and expand on the lessons of this difficult adjustment and retain some element of fluidity will find themselves in possession of a powerful new competitive advantage: Adaptability.
Introduction to the strategic Pivot
Armed with our newfound capability to develop as an organization, your next step is to recognize where to go and what to change. This inflection of strategic direction is commonly referred to as a Pivot. A Pivot is not a change in your fundamental business but rather an adjustment to your strategy while leaving your core business intact.
What happens beneath the surface is highly dependent on specific firm resources and opportunities. For example, no matter the strategic direction, successfully leveraging your core comparative strengths will determine your ability to establish or retain a competitive advantage in your new endeavour. Failure to keep these core success factors in mind can result in failed experiments, wherein you are caught between the past and the future, with vital resources not allocated shrewdly to the service of your future-state.
BDO has taken the time to distill a roadmap for the successful execution of strategic pivots, the BDO Pivot Playbook for the mid-sized enterprise. The Playbook follows five critical steps that are universally applicable for strategic pivots. Together, these provide an essential playbook for executive stakeholders looking to lean-up their operations portfolio, diversify market dependency, and ultimately increase their return on invested capital.
BDO’s Pivot Playbook
Determining if a Pivot is appropriate
Organizational performance indicators depend primarily on your firm’s unique strategic goals and priorities. These likely include some mix of financial performance, community satisfaction, and sustainability targets (often referred to as the Triple Bottom Line).
To know whether a Pivot is appropriate for your business, you must first objectively evaluate your current performance and environmental opportunity against previously established performance thresholds. This is an important opportunity to take a fresh look at your situation. It is a healthy business activity to run regular (perhaps quarterly or semi-annual) performance or business reviews. Still, these are often function-specific reviews that may fail to consider your business units' systemic performance as a whole. Identifying and monitoring performance thresholds (minimum viable performance standards for attaining critical goals) is an important practice to maintain objectivity among executives and operational decision-makers and break free of the status-quo’s endowment effect.
Suppose your organization has not identified minimum performance thresholds across business units. In that case, it may be appropriate to engage an objective third party to help determine your financial or operational ‘red-zone’ or organizational performance across your various business units. If negative trends begin to emerge across business units that are traditionally considered isolated from one another, this is a red flag suggesting that a Pivot may be necessary. If these latent performance thresholds are going unmet, your organization may already be living on borrowed time.
Prioritizing strategic Pivot scenarios
To understand which potential new strategies your existing resources can support, it is crucial to understand what has changed in your business context from your original business plans and assumptions. In considering alternatives, you will also assess the parts of the business that are core advantages or performing well, such that you may leverage those strengths to begin the next endeavor with an upper hand rather than starting from scratch. Answering the following questions may help guide your organization through the pivot prioritization process:
- Who does my offering serve, and how has my applicable market changed?
- What are my primary customers’ challenges, and how have those challenges evolved?
- What is my competitor set, and how has my competitor set changed?
- What is my current strategic advantage, if any (e.g., cost, quality, scarcity)?
- How are my resources aligned to enable and extend this strategy (or not)?
Often, long-established firms accustomed to ‘staying the course’ do not have the apparatus in place to gather rigorous and objective market intelligence. In this case, it may be necessary to engage third party research or a consulting partner to shed light on the blind spots of decision-makers stuck in a previous understanding of your operating environment.
At this point, once you have identified the root cause of your performance challenges, you can conceptualize alternative approaches to your environment. The prioritization of scenarios will depend mainly on your remaining strengths, and thus the answers to the remainder of those five questions. As with any critical business decision, strategic pivots should be scored according to their Impact and Likelihood.
Pivot Impact should be measured as a benefit to the performance indicators or thresholds that necessitated the pivot (financial, community, or sustainability). Pivot Likelihood should be evaluated as a function of the risk/synergy of the organization’s resources, strengths, and weaknesses to successfully align to the requirements of your top priority pivot scenario.
Next time: Defining your migration with the BDO Pivot Canvas
With the vision for strategic direction crystallized in the leadership team’s mind, the next step is for organizations to define the future state for their functional teams, with a clear path for managers to follow.
In our next article, we will share a step-by-step template for reimagining your business activities at the functional level, to drive your pivot outcomes.
Stay tuned for next month’s Growth article from BDO Advisory.
For more information on Growth Insights from BDO Management Consulting, please reach out to:
Chris Diepdael, Vice President Management Consulting, National Leader of BDO’s Go-to-Market Strategy Practice
Sourcing: Harvard Business Review; Adaptability: The New Competitive Advantage. HBR.org. 2011/07