Mark Fagan, CPA, Managing Partner, Connecticut Office, Citrin Cooperman
Jack Welch, the highly quotable former chief executive of GE, once said, “Change has no constituency—and a perceived revolution has even less.” That’s a vital lesson for CEOs of companies that are going through a strategic pivot. It is fine for a CEO to mandate a change in direction and take the business model down a more promising path – as long as the rest of the company is willing to follow his or her lead.
There are a number of key actions CEOs must take to ensure that their teams are aligned around a strategic pivot. Before we consider how the CEO can create organizational buy-in for a pivot, it’s important to understand why the pivot occurs in the first place.
Why Businesses Pivot
Pivoting, basically a change in business strategy or business model, can come from different needs. Economic pressures often drive such changes; in the wake of the Great Recession of 2008-09, many firms suffered sharp revenue and profit declines. Companies were forced not only to downsize, but to take a hard look at how they made money and how they could return to growth and profitability going forward.
Technological disruption is probably the most talked-about force for change today, as entire industries are being up-ended by such factors as mobile, social, data analytics and cloud technologies. This is evident to anyone who has followed the trajectories of Blackberry or Blockbuster, as well as traditional media, entertainment, retail or financial services companies.
Internal forces also can trigger the need for a pivot, even in otherwise healthy economies and industries. For example, some companies experience a loss of growth momentum over time, often coupled with rising costs of salaries, raw materials, insurance, occupancy, etc., that may squeeze profits to the point of threatening the company’s existence.
Market pressures often necessitate a pivot. In my industry, CPA firms are increasingly seeking mergers to meet clients’ demands for expanded practice capabilities, broader geographic reach, or other evolving needs.
This is just a summary of some forces that may require businesses to pivot; a complete list would have to include such factors as global competition and regulatory shifts, to name but a few.
How CEOs Must Lead the Way
Regardless of which forces are compelling the pivot, it is the responsibility of the CEO to identify where the company needs to go, what it must do to get there, and how the entire organization must align with the new direction.
1. Create buy in from your management team. The entire organization needs to understand the CEO’s vision and why it is the right move for the company. In order to create buy-in, getting input from the management team is essential. Toward that end, the CEO needs to get the management team involved early on with the pivot decision. Bring along the executives who have the needed expertise to make the pivot work, listen to their ideas and concerns, and make sure those factors are reflected in the eventual decision. And once the pivot decision is made, communicate actively and frequently across the organization to ensure that the decision and its consequences are well-understood.
2. Don’t assume you know all the answers. The CEO typically knows “why” the company must pivot, but needs help with “how”. One of our firm’s clients, a manufacturer and distributor of equipment, faced challenges of stagnant growth and rising overhead. Worse, technological changes threatened to make its core products obsolete in a few years. This company’s pivot was to reinvent everything from its market strategy to its culture. In addition to an internal analysis, they used outside consultants to evaluate their product range versus customer needs. This led to a move from a “one-stop shopping” strategy based on a large product portfolio, to a focused portfolio that cut out peripheral products that did not contribute to profit. The consultants also guided management toward a marketing and distribution model, outsourcing manufacturing to free up facilities, reduce overhead, and create the flexibility to offer new technologies and products.
3. Create a culture of accountability. No matter how hard the CEO works to sell a pivot to the team, the rest of the organization doesn’t always buy the argument. Key individuals or teams that fail to accept the new reality, or do so half-heartedly, can create resistance. That’s why a culture of accountability is essential. In the case of the equipment company, they understood the need for change in the organization’s culture. A somewhat informal workplace had to become more structured and rigorous. Defined, measurable KPIs were established for all personnel, with monthly tracking of goals and follow-up.
4. Consider evolution as well as revolution. Often, it is better to take an existing business or asset and make it the basis for the new model, rather than pursue entirely new products, operations or markets. After all, one definition of “pivot” is to turn on one heel, rather than shift both feet in a new direction. It can be easier to align organizations (not to mention customers) around a familiar offering rather than a revolutionary change. One of our clients is a provider of sales commission software. Over many years, the company collected vast amounts of data on the factors impacting sales performance, commission rates, and related information which could be analyzed and sold to the sales industry. This led the company to pivot toward more of a subscription research model rather than software sales.
5. Make sure your processes support the pivot. Execution is the key to a successful pivot, and usually requires a company to rethink and reinvent core businesses processes, functions and systems to support its new direction. The clearest example of this is when companies merge. This is now happening in the CPA industry, as smaller firms combine with larger ones to broaden their practice areas and industry expertise, strengthen balance sheets to invest in growth, and attract larger clients and talented professionals. However, leaders of both firms and their teams must have a framework in place and operating to facilitate a successful merger and a stronger resulting business. Departments such as Administration, IT, Marketing, HR and others must be structured and organized to advance the implementation. Also, rather than defaulting to the acquiring firm’s processes, it’s important to consider the best elements of both parties’ systems, or even to go outside the merging organizations for new solutions. An added benefit of this approach is that it will not only lead to a more robust process, but also foster collaboration among new employees and management.
In addition to the above elements, the other assets that a CEO must have in order to successfully perform a pivot include:
- Strong lines of communication throughout the organization.
- Good corporate governance policies and procedures, so management can quickly assess how the pivot is affecting the company’s finances, its reputation with customers, etc.
- Systems of accountability.
- A team that is motivated to succeed and knows how success will be measured.
- A willingness to make – and learn from – the inevitable mistakes.
A pivot is by nature a complex task with an uncertain outcome. The CEO won’t know all the steps leading to the goal, because circumstances and plans will change and there will be mini-shifts along the way. The important part is to help the team see the potential opportunities and outcomes, and create processes that will align the organization.
About the Author
Mark L. Fagan, CPA, is the managing partner of Citrin Cooperman’s Connecticut office. With more than two decades of audit, tax and business advisory experience, Mark is an expert in business formation, profitability enhancement and mergers and acquisitions. He counsels businesses and CEOs in a wide range of industries, including technology, financial services, private equity, manufacturing and construction. Mark is a frequent author and speaker and also serves as an instructor for training courses on topics such as leadership, technical accounting issues and financial statement presentation. Mark is also a graduate of a Harvard Business School leadership program.