5 Signs a Company Is Poised to Pivot

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The Covid-19 pandemic and its unprecedented economic fallout are testing how successfully many companies can react to changing market conditions. As the business models of entire industries are upended, the ability to innovate rapidly and smartly is not just a competitive advantage, it could be what decides which companies thrive and which will falter in the post-Covid economy.

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But determining a company’s innovative potential is not always easy. Here are five signs that a company is poised to pivot.

It Backs Potentially Game-Changing Ideas

Disruptive companies build products and business models that are not just new, but the first of its kind. Many startups fit this category, but having an initial spark does not ensure the innovation fire will keep burning. To continue to grow, a company must commit to innovation over the long term—even if it means disrupting itself. Netflix pivoting to streaming as its DVD rental business tanked is a classic example, as is Apple’s bold decision to discontinue making most iPods and focus on iPhones, remaking the music industry along the way.

It Creates Space for Disruptive Innovation

Disruptive innovation does not just happen, employees need time and space to focus on ideas and prototypes that can extend the business’ market value. Many companies, such as Lululemon and CVS, have built dedicated “innovation labs.” These are often deliberately sited away from the corporate head offices and in creative locations, such as near a university or startup hub, where employees can be exposed to new ideas and collaborate with people outside the business. These specialized labs work: in three years, Target’s product design lab has developed six in-house brands worth $1 billion each.

It Has a Robust Innovation Management Process

Innovation begins with a culture open to ideas and iterating, but it needs structure to ensure great ideas are pursued and funded. Organizations that connect with a diverse stakeholder ecosystem are much more likely to excel at innovation, so structures need to be in place that encourage, collect, and evaluate ideas from employees across the company, as well as from vendors, customers and partners. These may include insight programs that bring in ideas from vendors, customer intelligence platforms or employees tasked with overseeing and managing an innovation strategy.

It Invests in the Future

Innovation does not happen overnight or without financial commitment. R&D funding is not a true proxy for innovation, but how much a company invests in it and how successful its pipeline has been can be telling. Amazon, for instance, spends more than $20 billion a year on R&D. Corporate venture capital is another area to watch. There are more than 1,500 corporate venture funds, which companies use to scout for new technologies and seed ideas in startups. These funds are essentially peering into the future to determine which new technologies represent opportunities and threats to the parent company. During the 2008-2009 downturn, many corporates reduced their venture investments, so those that stay the course this time are signaling a strong commitment to continuous innovation.

It Balances Risk and Reward

The truth is that disruption requires risk-taking, and failure is a necessary part of the innovation process. The key is for companies to find the right balance between risk and reward. Many startups adopt a strategy of “failing fast” in order to experiment rapidly, learn from mistakes and progress towards breakthrough innovations. That approach has traditionally been harder for established companies. However, in the post-pandemic economy, disruption will be the new normal for the foreseeable future. That changes the risk-reward calculus. Indeed, in such uncertainty, choosing not to be bold and innovate could be the biggest risk of all.

About the Author

Ludwig Melik is CEO of Planbox, a provider of agile innovation management software.