Hint: internal efficiencies are not enough

Disruption is costly – just ask the many businesses that have spent 8, 9 or even 10 figures acquiring companies that disrupted them.

In our findings, companies that have pivoted to the future successfully have done three things well. The first is to build sufficient investment capacity for change.

In our Wise Pivot research we distinguish between four groups of companies based on they progress they have made in dealing with disruption. The smallest group, Rotation Masters, have expanded decisively into new businesses and at the same time transformed their legacy business. Between three-quarters and all (100%) of their revenue comes from new business activities started in the last three years. These comprised only 6% of the companies surveyed – around one in 16.

These companies earn more revenue from new business than the other 94% of companies surveyed. A full two-thirds of Rotation Masters have double-digit sales growth and over half have EBITD growth of 10%+.

One of the lessons we learned from them is how to build investment capacity for change. The Rotation Masters focus on internal efficiencies and cost reduction. But they do more than that. They are deliberate about making investment decisions that create capacity for change. They consolidate tangible assets and divest select business lines faster than other companies in our research.

Kingfisher, the UK-based hardware giant I spoke about in my previous post, introduced a five-year transformation plan to infuse digital innovations into the customer experience. To fund this it drove efficiencies, standardising group-wide processes, consolidating its supply chain, and centralising purchasing and inventory management.

The consolidation of purchasing and inventory management went beyond what you would typically think of in a retailer. Kingfisher improved its purchasing of everything, including advertising and shop-fittings.

That saved the company the equivalent of R600 million in a single year. These savings were not normal run-of-business savings – that could be returned to shareholders immediately as a dividend. These were specifically earmarked to be re-invested in the company’s five year digitalisation strategy.

In our research, we have found that cost reduction and improving efficiencies are only part of the story. Deliberate and far-sighted divestment of businesses and streamlining assets are helping the Rotation Masters fund their war chests, giving them the essential means to beat the disruption they are facing. It is also evident that companies that do not fall in this category will likely mirror the transformative choices of the Rotation Masters in the next three years. More than 70% of these businesses will in future include increase in workforce efficiencies and strategic cost reduction in their transformation plans.

Learn more about how to manage disruption by downloading The Wise Pivot. Or, contact me to discuss how Accenture’s international research can help you understand and prepare for the coming disruption.