The majority (54 percent) of C-level executives expect their new business activities to generate at least half of their company’s revenues within the next three years, even though only one-third (33 percent) of the executives said their company currently generates more than half of its revenues from business activities started in the past three years, according to new research from Accenture (NYSE: ACN).
The report, titled “Make Your Wise Pivot to the New” and based on a survey of 1,440 C-level executives across 11 industry sectors and 12 countries, reveals that just six percent of companies have successfully achieved what Accenture refers to as a ‘wise pivot’ to new opportunities. Specifically, these companies reported that at least 75 percent of their current revenues come from business activities, investments and ventures into previously unexplored markets begun in the past three years. Almost two-thirds (64 percent) of these companies, categorized as “Rotation Masters,” have grown sales by at least 11 percent, while more than half (57 percent) achieved the same growth results in profits (as measured by earnings before interest, taxes and depreciation, or “EBITD”).
Rotation Masters establish the right pre-conditions for a successful wise pivot in three ways, according to the analysis:
They build greater investment capacity by revitalizing their core business. Seventy-six percent of Rotation Masters said they have sufficient investment capacity to transform their legacy business, versus 49 percent of other companies, on average. In addition, 70 percent have sufficient investment capacity to scale new businesses, compared with just 46 percent of other companies.
They adopt a concentrated innovation strategy. Three-quarters (76 percent) of Rotation Masters said they combine their company’s innovation-enabling resources under a dedicated function, versus 36 percent of other companies. Rotation Masters concentrate investment decisions under the same leadership, making them better able to identify and commercialize ideas with high potential. In addition, nearly four-fifths (79 percent) of Rotation Masters said it is very/critically important to collaborate with a wide network of partners and customers to support their innovation strategies, versus two-thirds (66 percent) of other companies.
They create synergies between their core and new businesses. Rotation Masters evaluate the potential impact of new business activities on their core business before accelerating expansion efforts into new opportunities. 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, and half (50 percent) acknowledge the potential to cross-sell between their core and new businesses, compared with 29 percent of other companies.
“Leading companies rotate to new opportunities successfully not in spite of their legacy businesses, but because they strengthen them to release the resources needed to scale new business activities,” said Nontawat Poomchusri, Managing Director, Accenture in Thailand. “They have the courage to take bold steps – from strategic cost reduction, driving innovation into the core and divesting underperforming assets – to transform their core business to fuel new investments.”
“Our work with clients shows that successful companies are deliberate about the way they foster innovation throughout their organization to both transform their core business and scale the new. Leading companies concentrate innovation capabilities so that they can spot promising ideas from around the company and commercialize them, with the right focus and sponsorship.”
Actions to execute the ‘wise pivot’
Organizations face different challenges when shifting to new businesses. The report recommends a range of actions for companies that are less advanced on their journey than Rotation Masters.
Rotation Drivers – those that currently generating between 51 percent and 75 percent of their revenues from business activities they started in the past three years – should:
Drive growth in their core business, not only optimize costs. This could include applying analytics to understand their existing customers better and leveraging digital marketing and personalization.
Invest deliberately in the highest-potential, scalable new businesses – for example, through the serial acquisition of differentiated talent and assets.
Reinvigorate the culture of their core business by applying new capabilities – for example, by recruiting data scientists to detect opportunities to use big data intelligently and responsibly.
Rotation Starters – those that generate between one percent and 25 percent of their revenues from businesses they started in the past three years – should:
Drastically restructure current operations, including the divestment of underperforming activities and assets, to create investment capacity.
Establish foundational innovation capabilities, such as innovation labs, to start incubating new ideas. Form and expand collaborative partnerships to streamline the testing of new commercial ideas and to break into markets early.