For many organizations, before coronavirus, 2020 was shaping up to be another stellar year. The stock market was on a tear, the global economy was growing at a brisk clip.
Then COVID-19 struck. Overall, consumer demand collapsed, revenues shrunk, investments were quashed, unemployment skyrocketed, though there are sectorial and geographical variations and government stimulus is keeping economies afloat.
The economic fallout from the pandemic has prompted many companies to change their business models, sometimes radically, to account for “the new normal”.
Other businesses, though, have looked to persevere with their pre-COVID strategies, especially now that hopes for a vaccine are rising.
It could be foolhardy to commit to permanent strategic plans given the uncertainty in the world today. Many countries are going into second lockdowns after a resurgence of coronavirus in recent weeks. The outlook for the world economy is being slashed as government deficits soar.
So, should leaders dump their corporate strategy, or just tweak it? Or should they persist on their current path, even in the face of so much ambiguity?
In a webinar, Patrick Reinmoeller, Professor of Strategy and Innovation at IMD, explored the relative merits and downsides of pivoting or persisting with a strategy, and provided a framework for choosing the right path, based on fresh case studies taken straight from the headlines.
He argued that as a society, we often celebrate leaders who stay their course, fight against all odds and strong opposition and stick to their original objective. “But at the same time, we also admire leaders who are able to see that the world has changed, and have altered their course quickly to account for the new reality,” he says.
Reinmoeller cites the example of Boris Johnson, Britain’s prime minister who has roundly been criticized for “flip flopping” on several key issues from Brexit to COVID-19. That is in stark contrast to another notable British political leader, Margaret Thatcher, who told her country in 1980 that “the lady’s not for turning” when she refused to U-turn on her controversial counter-inflationary policies despite soaring unemployment.
Today, Reinmoeller says that business leaders face not just a global pandemic but a whole host of factors that could force them to choose to pivot or persevere, from geopolitical uncertainty to climate change, regulatory changes to cultural shifts in trends.
Often, he says, the ability to change direction quickly is loaded with positive connotations such as agility, innovation, creativity and resilience. Today, for example, carmakers are shifting to an all-electric future to meet tough new emissions regulations in key markets across the world.
Participants in the webinar also commented that pivoting can increase organizational agility, speed up market entry and lower the time required to innovate. But they also pointed out that pivoting can lead to instability, uncertainty, while it’s also capital intensive and can lack deliverables.
“There is a lot of good stuff that comes with sustained effort; it’s important for learning, for improvement, for innovation,” says Reinmoeller. “Yes, pivoting is super sexy and everyone wants to pivot, apparently, but there is a lot going for perseverance. And the positive associations are continuity, overcoming obstacles.”
But he added that perseverance can make companies irresponsive to consumer demands, and can lead to group think if firms do not consider broader perspectives. That would be determinantal to creativity and innovation.
Reinmoeller also argues that pivoting or persevering are not mutually exclusive paths. A better strategy, he believes, is to pivot from a central point that gives the organization stability: “We need to reframe pivoting and perseverance.”
Consider how, for example, Amazon has used its dominant ecommerce position to funnel investment into web services. Or how Apple has been reducing its dependence on the iPhone (hardware is its central point) and has been ramping up revenues generated from services.
“The challenge for strategic leaders is to sweat the detail but stay open to environmental change and the signals that indicate it’s time to make the pivot,” says Reinmoeller. “In order to make this pivot we need a central platform.”
Oftentimes, this is a strong core business unit that can serve as the base for expansion into new product or service categories or geographies.
To work out which direction to move in, Reinmoeller recommends that leaders analyze data, talk to customers and key stakeholders and also use some of their own sound judgement. “It’s down to the judgement of leaders — and how to make these judgement calls is not an easy question; it’s a science in itself.”
The wisdom of leaders is the next frontier which he hopes to discuss with participants at IMD, as he helps them navigate an uncertain world and prepare for fast and frequent changes.