Menu Close

Why big corporations are ditching tradition for trailblazing

Why should startups have all the fun? More and more mature corporations are throwing out their playbooks and investing in innovation to pioneer and exploit new, untapped markets.

When the results of a poll to find 2023’s most annoying business words and phrases were released earlier this year, it was no surprise that ‘pivot’ had been voted into the top 10.

Perhaps the only shock was that it wasn’t ranked higher than seventh, though it had faced strong competition from ‘synergy’, ‘I hear you’, ‘demystify’, ‘ecosystem’ and ‘let’s circle back’, among others.

A full decade earlier, Forbes declared it the most ‘overused buzzword’, while the Wall Street Journal implored the financial sector to, er, pivot toward a less irritating catchphrase.

Its use had soared as a galaxy of startups emerged from the black hole of the 2008 global financial crisis, many helmed by maverick entrepreneurs whose mantra of ‘move fast and break things’ meant they learned quickly how to turn on a dime and grab opportunities that no-one else saw.

The companies circling back to find synergies that demystify their ecosystems aren’t nimble little Industry 4.0 software launches; they’re major corporations.

Pivoting was cool, and underpinned many an overnight success story.

And though the word itself may be decidedly uncool today, the action itself is back on trend, but with one key difference. The companies circling back to find synergies that demystify their ecosystems aren’t nimble little Industry 4.0 software launches; they’re major corporations.

And, according to former Cisco CEO John Chambers – no stranger to the maneuver himself during his 20 years in charge – they’re doing it to survive.

“At least 40 percent of all businesses will die in the next 10 years if they don’t figure out how to change their entire company to accommodate new technologies,” he declared.

Pivoting dinosaurs

As digitalization infiltrates everything, everywhere, all at once, a few plodding corporate dinosaurs have been putting extinction on hold to do just that, pivoting with the grace and poise of a prima ballerina.

IBM effortlessly transitioned from hardware to software; Instagram changed its status from a social gathering planner to photo sharing; YouTube, which began as a dating app, swiped right into video; while Abercrombie & Fitch came back into fashion by pulling out of the crowded youth market in favor of more mature customers, ditching its shirtless store greeters along the way.

All of them took a giant, perilous leap into the dark and found new customers eager to break their fall.

a closed shop, a result of not blazing a trail

“At least 40 percent of all businesses will die in the next 10 years if they don’t figure out how to change their entire company to accommodate new technologies.” – John Chalmers

But sadly, other, more venerable business ballerinas had a few too many achy joints to perform such moves and were outdanced by sprightly startups with no lethargic legacies or ingrained bureaucracies to bog them down.

This century is already littered with enough corporate corpses to disprove the theory that a brand can be too big to fail. Most succumbed because they were oblivious to a commercial landscape transforming beyond recognition, or because they couldn’t be bothered to innovate.

Toys R Us thought it was investing in innovation when it signed a deal to be Amazon’s sole toy vendor instead of promoting its own ecommerce platform, leading to bankruptcy in 2017 with debts of US$1 billion. It has since relaunched, having hopefully learned that selling toys is no longer child’s play.

Kodak, formerly the world’s biggest film company, became the poster child for dogmatic arrogance when it imploded, overexposed to debt, in 2012 after falling victim to its own invention. Having plowed billions of dollars into digital photography for smartphones, it made the catastrophic decision not to develop digital cameras for fear of harming its revenue from film. Its days of developing anything were soon numbered.

A blockbuster flop

The issue of innovation intransigence is best illustrated through the cautionary tale of two companies in the same rapidly evolving industry who were facing the same dilemma and made two very different choices.

In 2004, Blockbuster Video had 9,000 stores worldwide and employed more than 80,000 staff. It had blithely rejected the chance to buy an irritating little upstart called Netflix and instead indulged in some questionable acquisitions and increasingly desperate special offers as online streaming gradually became a thing.

Senior management had plenty of opportunities to jump on board the digital bandwidth bandwagon, and did dip their toes into online movie rentals, but their focus remained on brick-and-mortar stores. Today, only one store, in Bend, Oregon, exists and there’s no option to rewind to happier times.

Ironically, the idea for Netflix came to Founder Reed Hastings after he’d been fined US$40 by Blockbuster for returning Apollo 13 late. The company initially sent rental DVDs out by post, but adapted to streaming very quickly, and when, like Blockbuster, it had to figure out how to respond to streaming, it pursued it full throttle, investing in emerging technologies at every turn.

In 2006, it offered a prize of US$1 million to any developer who could devise an algorithm to recommend films to customers based on their previous choices, an investment that has since paid back several million times over.

A turn for the worse

But in fairness to the hapless Kodak and Blockbuster chiefs, even if they had nailed their flag to the mast of modernization, it probably wouldn’t have made much difference. When large, traditional organizations suddenly try to plot a different course, it usually ends badly, according to a study by Swedish researchers Johan Karlsson and Johan Nordström.

They found that there are three main factors that tend to sink such schemes.

  1. Lack of funds: Why would a CEO greenlight a risky punt on something that’s not specified in their bonus criteria? And anyway, layers of bureaucracy usually mean that if a project does get off the ground, it won’t have the authority to adapt its goals as circumstances change, so will likely end up in approval limbo.
  2. Too many cooks: A startup may comprise two people bouncing crazy ideas off each other in a parent’s garage, zig-zagging as they learn more and test prototypes. In a large company, the number of stakeholders will grow exponentially by the day, so quick decision-making becomes a pipe dream.
  3. Trust issues: Boards know that when a middle manager pitches an ingenious idea, it comes with a dose of hyperbole and a desperation to please. Profit forecasts are often pushed beyond the bounds of credibility to get it over the line. So even when a suggestion is a potential game-changer, it’s likely to be greeted with more cynicism than a wannabe startup entrepreneur would encounter.

When all three factors conspire, business innovation grinds to a halt, and the opportunity that had presented itself will be grabbed by someone more agile. MIT Leadership Center Founder Deborah Ancona advocates for what she calls nimble leadership at every level of a company, starting with relatively junior staff.

“Entrepreneurial leaders come up with new products and become an innovation engine for their organization,” she said in an interview with The Economic Times. “Then, there are enabling leaders who help the entrepreneurial leaders bring their ideas forward. At the top are architecting leaders who create funneling mechanisms for innovative freedom without chaos.”

Making the big calls

But is being nimble enough?

Rand Fishkin, Seattle-based author of startup bible Lost and Founder, and the successful founder of companies including Moz Analytics and research leader SparkToro, argues that traditional businesses contemplating a sea change need to have more weapons than speed alone.

“Nimbleness isn’t the trait that’s most needed here,” he tells The CEO Magazine. “Rather, it’s the will to make hard decisions, switch direction and change how things are done by the CEO and C-suite.

Formulating a trailblazing plan

“Nimbleness isn’t the trait that’s most needed here. Rather, it’s the will to make hard decisions, switch direction and change how things are done by the CEO and C-suite.” – Rand Fishkin

“If the leadership can break processes, change structure, modify compensation plans and violate traditions, then great. But if, instead, they merely verbally encourage three-to-six layers of management down the org chart to ‘be nimble’, nothing will change.”

Fishkin believes that people in large organizations respond to pressure from their immediate manager, their team and, most importantly, their compensation or reward structure. So, if those three things aren’t modified, it’s unreasonable to expect behaviors to do so.

“Microsoft is my go-to example of a huge, nearly 50-year-old firm that’s managed to dramatically change how it does things, remain a leader in its sector and enter a bunch of new sectors thanks to its willingness to violate old traditions and embrace new ones,” Fishkin says.

“It’s by no means nimble, but it has leadership willing to break norms, and even piss off long-term managers who got used to a certain way of doing things in order to better serve customers and improve core products.”

Middle-age spread

Another Silicon Valley behemoth that can still pirouette with the best of them is Adobe, which has remained a tech juggernaut for decades because it’s never not trailblazing.

It’s telling that it was launched not by a nerdy teen, but by two 40-year-olds who saw the need for desktop printing software.

By far its biggest investment in innovation came when it, too, was in middle age. In 2012, with annual revenue at a record US$4.4 billion and the gross margin of its Creative Suite at 97 percent, it jettisoned its entire business model in favor of Adobe Creative Cloud, a Software as a Service (SaaS) subscription model with no shrink-wrapped CD-ROMs, or indeed anything physical.

Initially, many customers were vocal in their outrage that Photoshop, Acrobat and Illustrator were no longer theirs in perpetuity, and that instead they’d need to keep shelling out for them. The media, too, were skeptical about such a gargantuan gamble.

Senior Marketing Director Scott Morris acknowledged as much. “We are taking a risk. We’re doing something that is disruptive to a very mature business.”

Young person speaking on phone

“Entrepreneurial leaders become an innovation engine for their organization.” – Deborah Ancona

But he also knew he was onto a winner. “Tell a graphic designer she can use up-to-date versions of any Adobe title for US$50 per month, and that cost may be covered in less than one billable hour of work,” he added.

Adobe’s all-in cloud wager proved to have a lucrative silver lining as revenue doubled in four years before doubling again in the next four.

Perhaps the growing number of similar high-stakes reinventions will mean the business world will one day look more kindly on the much-derided pivot. Or the vernacular will have evolved to swivels, twists or rotations to describe the phenomenon.

Business leaders who fail to keep up with the acrobatics will watch helplessly as their rivals steal a march on them.

It’s something that the former big cheeses at Blockbuster know only too well. In a deliciously cruel twist of the knife, Netflix last year launched a comedy series, Blockbuster, based on its former rival’s last remaining outlet. Ouch.

Tough Times for Change

The current economic uncertainty means the odds of a major business successfully changing tack have never been worse, according to global management consultant Oliver Wyman.

“Transforming is harder than it looks, and even harder in the current business environment,” he warned. “But leaders cannot just wait for conditions to become more favorable.”

In the current climate, one of the major reasons businesses fail is the lack of a unified vision with tangible milestones that can be ticked off along the way. Too often, a lack of accountability and a failure to assess risk mean the process begins to fall apart very early on.

Another common red flag occurs when adapting to new ways of working, which can cause fault lines across a business if teams are forced into new, unnatural liaisons that provoke resentment and resistance.

Leave a Reply