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The corporate pivot: radical change in times of crisis

The COVID-19 (coronavirus) crisis underlines need for firms to quickly ‘pivot’, Professor Paul Tracey of the Cambridge Centre for Social Innovation.

One player challenges another in a professional game of basketball.

Many entrepreneurs need to pivot – make radical changes to their business model – because their initial ideas fail to work out as planned. It is a strategy especially suited to new ventures whose small scale affords them a nimbleness and speed of decision making that often eludes established firms.

But the dramatic spread of COVID-19, and the extraordinary changes to the competitive environment it has brought, has led many mature businesses to shift their business model in a radically new direction. In other words, the corporate pivot has become a mainstream strategic response in this moment of crisis.

In some cases, pivoting has been forced on firms. For example, fine dining restaurants have rarely offered a takeaway service. Their model has been designed for maximum control over the dining experience: not only the quality of the food, but also the physical setting, and the interactions with diners are carefully choreographed in an elaborate performance. Allowing customers to take their food from the premises therefore undermines the core value proposition of these establishments.

And yet the decision of governments around the world to prohibit or severely curtail sit-down dining has driven some of the most illustrious restaurants in the culinary world to reconfigure their operations rapidly to focus on takeaway food. For example, Hakkasan in Fitzrovia – the first Chinese restaurant in the UK to be awarded a Michelin star – swiftly signed up to Deliveroo when it learned that it could no longer host diners on its premises, a decision that would have been unthinkable just a few weeks ago.

In other cases, corporate pivots have been rooted in firms’ sense of responsibility and a desire to contribute to broader efforts to address the consequences of the pandemic. This can be seen in engineering firms’ response to pleas from governments to assemble ventilators in their plants, and to provide design and 3D-printing expertise to existing ventilator manufacturers that are unable to meet the unprecedented demand.

Similarly, in a much publicised move, French Luxury goods group LVMH repurposed three of its perfume and cosmetics factories to produce hand sanitiser in response to a shortage in France, a move emulated by other firms around the world.

It is easy to dismiss these activities as ‘social washing’ – reputation enhancement initiatives for when the crisis is over. But the resources and the intensity of effort expended suggest there may be a deeper set of motivations that transcend profiteering and impression management.

Of course, we cannot know for sure how these pivots will play out in corporate strategies in the long-term. Strategic change in large, established firms tends to happen relatively slowly: corporate leaders need to navigate bureaucratic structures, which become more entrenched over time and with scale.

Pushing too quickly can generate stiff resistance. When seeking to turn around ailing tech giant Hewlett Packard, then CEO Meg Whitman took the bold step of splitting the company up to speed the pace of change, declaring that “the future belongs to the fast” as she did so.

Perhaps surprisingly, there has been limited research on pivoting in established firms, and as a consequence our understanding of the organisational capabilities needed remains limited. But there is a growing body of entrepreneurship research on pivoting in new ventures that may offer important insights for established firms. This work suggests that pivoting involves key challenges, both internal and external.

Internally, entrepreneurs tend to develop strong psychological ownership of their ideas and business model, which can become intertwined with their identity. This can prevent entrepreneurs from changing tack, because reconfiguring their model undermines their understanding of who they are. The implication is that successful pivots involve not only the creation of a new business model, but of a new identity that supports the model.

Externally, pivoting can precipitate uncertainty and anxiety among customers and other key stakeholders, with the risk that they withdraw their support and resources. Research suggests that ventures with strong pre-pivot relationships with customers are most likely to keep stakeholders onside as the pivot unfolds. But even these ventures need to carefully nurture the emotional connections that underpin effective stakeholder relationships if they are to maintain these ties into the future.

For established firms seeking to pivot in response to a radically restructured competitive environment, these studies suggest two key lessons. First, firms may need to change organisational members’ understanding of what is central, enduring and distinctive about the business; a new direction may mean an altered identity. Second, it is crucial that firms proactively manage relationships with customers and other stakeholders – to explain to them why changes are needed and how their interests will be protected.

Firms that are unable to adapt – and for some the strategic room for manoeuvre is highly constrained – will hope that promises of massive government support will help them survive this crisis. For firms that are able to pivot into a new model, there may be new opportunities that support value creation both during this period of turbulence and in a post-coronavirus world.