How pivoting can help aid corporate survival in a world of rapid change
‘To stay relevant, many companies will need to transform their core businesses’
Technological changes and regulatory pressures are putting a range of traditional industries in Asia under threat and performance data suggests some have unwittingly begun a prolonged operating margin decline that will become harder to reverse.
Unless these companies revive the core business and free up investment capacity required to expand into new businesses, obsolescence may become unavoidable.
We believe companies today must “rotate to the new,” a journey we think of as a conscious and deliberate act of renewing and transforming the core business, while also growing into new businesses and industries. This perpetual journey requires leaders to make a wise pivot to get the timing, scale, and direction of investments right, in both the core and new businesses. Rotating to the new requires at least four key elements. The emphasis will vary between each of these but they must all form part of a successful transformation.
The response to operating margin decline starts with transforming the core business to drive up investment capacity. This requires the creation of greater competitiveness and improved cost structures. Greater competitiveness might come from using zero-based budgeting, sourcing, cloud technologies and intelligent automation, for example. New profits can then be used to build and innovate other parts of the business.
Organisations also need to drive incremental growth in the core business. This process can often be neglected – but to do so is very high risk. Some of the investment capacity needs to be focused on this growth. A focus on some digital basics including digital marketing, analytics and web interactions can help an organisation become closer to customers, thanks to new operational insights, and this can drive growth in the core business. For example, it may require smaller, strategic bets that add niche offerings.
At the same time, these companies have to tackle what is potentially the hardest challenge – not only expanding into, but scaling the new business. Success will depend on the ability to build an innovation architecture inside the business that reflects the different levels of maturity of each innovation and enables the business to nurture and grow them.
Another essential element is best described as the “wise pivot”. How does a company optimise its investment management and capital allocation over time, managing the capital flows from the core to the new business, and getting the balance right during the transition away from the “old core”? If a company pivots too quickly from the core to the new, it will overinvest and financially stretch itself too thin. If a company pivots too slowly from the core to the new, it could become obsolete. That means companies must carefully plan and decisively execute.
Some companies in the region are already making transformations. Consider Chinese industrial company, Shanghai Zhenhua Heavy Industries. It is reinventing its business model away from traditional equipment manufacturing to become a service provider of port solutions. As part of this transition, the company is partnering with Microsoft to build an intelligent data retrieval and monitoring platform for its global fleet of machinery. The planned predictive maintenance capability aims to improve customer satisfaction while reducing operation workload and cost.
Many companies in Asia are facing incremental challenges to their bottom line. The key to success will be recognising it early and allocating attention – financial and management focus – on the potential new drivers of growth.
Omar Abbosh is Accenture’s chief strategy officer and Gianfranco Casati is the group chief executive of growth markets