Don’t Pivot Away From Your Old Businesses, Pivot Around Them

The relentless digital disruption of one industry after another has led many companies to quickly disengage from their older businesses and enter new, more promising ones. Strategy experts warn against exiting mature businesses too late. CEOs, considering their legacy, understandably focus on the new. But it turns out that the best response to constant and potentially devastating change isn’t a headlong, one-and-done pivot to the new.

Digital-first strategies can not only give you a jump on disruption but also breathe new life into old businesses and enable you to seize new opportunities in existing businesses. That’s what my colleagues and I found in our on-going study of over 1,300 companies, about 100 of which have learned to pursue repeated renewal and reinvention through a series of strategic pivots, applying innovation equally in the old, the now, and the new.

These companies fight the urge to prematurely abandon legacy businesses. They nurture rather than simply exploit today’s “cash cows.” And they use the additional value they uncover to fuel the new, embracing the start-up mentality of scaling rapidly when new technologies and markets solidify, often suddenly.

The problem with prematurely abandoning old and existing businesses is that even better and cheaper offerings don’t always scale when you think they will. Long-time customers may also not be ready to give up on products they have come to rely on, and which they’ve integrated into daily life. (Case in point: Netflix’s hasty abandonment of mail order DVDs in favor of streaming, which CEO Reed Hastings almost immediately realized was a mistake.) You may be more reliant on both healthy revenues from the mature business and the goodwill of legacy customers longer than you think.

In the growing gap between how companies use technology today and its much greater potential lie increasingly rich stores of untapped opportunities, or “trapped value.” Continuing improvements in the speed, size, power, price and efficiency of digital technologies can free that trapped value in all parts of your business.

Consider Google

In the old, rather than simply letting its search and advertising business run on autopilot, the company continues to innovate ferociously. Core algorithms are constantly updated to improve results, tested by a network of 10,000 paid raters. In 2017 alone, Google ran 31,584 side-by-side experiments, resulting in 2,453 separate changes to its core search product. Just in the last ten years, a few of the major innovations the company has added include everything from auto-completion to automated subtitiling service, directions and traffic, versions optimized for a wide range of mobile devices and voice and image-based searching.

In the now, Google’s parent Alphabet is diversifying its revenue sources in businesses like cloud computing, hardware (smart speakers and phones, and IoT products such as Nest smart thermostats), apps in the Google Play store, and subscriptions to YouTube TV and Music products.

In the new, Alphabet is investing nearly 7% of annual operating revenue in what it calls “other bets.” These include the Waymo autonomous vehicle unit; the Tech Lab X, which oversees initiatives including broadband delivered by high altitude balloons; and Project Wing, a drone delivery effort.

Google’s continuous innovation in old and existing businesses grows the bottom line, discourages competitors and helps fund the futuristic disruptions sought by Alphabet. And it points away from old business paradigms focused on linear, lifecycle models of business management.

Companies that are adept at releasing trapped value don’t just pursue new strategies but a new approach to strategy itself. Instead of pivoting prematurely away from the old and the now toward the new, they pivot simultaneously around all three, continually reallocating assets and investments to balance the old, the now, and the new.

Applying this new way of thinking for managing the old and the now can help you create a portfolio that generates revenue and competitive freedom to focus on an increasingly uncertain future. Improving your core and growing it at the same time protects fleeting market share and generates revenue growth that can be reinvested in the higher-risk technologies and innovations that have the potential to help you arrive sustainably at the new.

That’s a legacy any chief executive would be proud of.

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