The Strategic Pivot

A strategic pivot changes a company’s direction when a threat reaches its core assets, its core activities or both. Which of the two is under threat decides the design of the pivot, so the core threat matrix sorts strategic pivots into four designs: radical, multi-pronged, operational and opportunistic.

A pivot redirects the business once it is clear the current value proposition, core assets or core activities will not hold. A pivot is a rapid, agile move with a defined aim, while a multi-year transformation program is too slow for most of the threats that call for one. Design and timing decide the outcome, and both have a direct effect on shareholder value.

Core assets and core activities

Anita McGahan of Harvard Business School set out the two tests in “How Industries Change” in the Harvard Business Review in October 2004. Core activities are the recurring work that attracts and keeps customers and suppliers and has historically produced the profits. Core assets are the durable resources, including knowledge and brand, that make those activities efficient. McGahan asked which of the two faces obsolescence and named four trajectories of industry change from the answers.

I use the same two tests to design the pivot rather than describe the industry, alongside the cash-valuation map for threats that start inside the company. Table 1 maps each pivot design to McGahan’s trajectory, the way The Product Pivot maps product pivot types to Eric Ries’s names.

Table 1 · Strategic pivot designs on the core threat matrix

Radical pivot

A radical pivot fits when both core assets and core activities are under threat, as linear television and print media faced from streaming and digital advertising. The company needs a new combination of brand, target market, value proposition, talent and customers, and it has to build that combination while the old business shrinks. A radical pivot cannot be run as defense, because protecting the old core and building a new one pull the same people in opposite directions. Making the old business more efficient with cloud infrastructure protects it for a while, and building a new business on the disruptive technology is a different project with a different team.

Nokia made the move after smartphones took both its handset franchise and its way of building phones. On September 3, 2013 it agreed to sell its devices and services business to Microsoft for €5.44 billion, including a patent license, and kept its networks unit, which had €13.78 billion of revenue in 2012, along with its mapping business and patent portfolio, Light Reading reported. In 2015 Nokia agreed to buy Alcatel-Lucent for €15.6 billion, Mobile Marketing reported, and became a telecom equipment company.

Multi-pronged pivot

A multi-pronged pivot fits when the core assets are under threat and the core activities still work. The value proposition holds for the near term, so the company can move its assets to new markets quickly and support them with the processes it already runs. The camera industry is the textbook case today, with phone makers taking the hardware market while lens makers keep the skills to build high-end optics.

Fujifilm made the pivot that Kodak missed. Film produced almost 60% of its operating profit around 2000, demand for camera film fell about 90% in roughly ten years, and by 2011 film made up about 1% of sales, Peter Fisk’s case study found. The company took its chemistry and thin-film coating skills into cosmetics in 2006, launched the Astalift skin care line in 2007 and grew medical systems and materials, while Kodak filed for Chapter 11 in 2012.

Operational pivot

An operational pivot fits when the core assets hold and the core activities are under attack. Telecom operators are the example I know best from two decades in technology, media and telecom: messaging apps took voice calls, text messages and roaming fees, while spectrum and last-mile networks stayed shielded by regulation and the cost of entry. The fix is to digitize the business processes and offer the old services at a competitive cost on the assets that still hold.

Best Buy faced the same split from 2012. Shoppers tested products in its stores and bought them cheaper online, which threatened the core activity of selling, while the store network kept its value. Under CEO Hubert Joly the company matched online prices, gave Samsung, Microsoft and Apple branded shops inside its stores and rebuilt backrooms so stores could ship orders, Modern Retail reported. Comparable sales had fallen for nearly two years before Joly arrived and rose for the five years after.

Opportunistic pivot

An opportunistic pivot fits a company whose core assets and activities are both sound. Strength makes the pivot optional, and companies in this cell still need small, well-designed pivots as insulation against disruption that has not arrived yet. These pivots are progressive and use assets the company already owns.

Delta made one with its SkyMiles program. American Express paid Delta $3.4 billion for the co-branded card partnership in 2018, The Points Guy reported, and $8.2 billion in 2025, against $63.4 billion of revenue for the year, per Delta’s full-year results. The loyalty program sold an asset the airline already had, its customers’ travel, to a partner that pays for it every year.

Pivot diagnostics

Threats show up late. Most companies learn their core is under threat only after the first hit to revenue. Earlier signs exist: a profit pool shifting away, a competitor changing the economics of the industry, or a growth formula that has stopped working. Table 2 sets out the diagnostic I use to place a company on the matrix before choosing a design. Score each focus area from 1 to 5 as a heat map, separately for assets and for activities.

Table 2 · Pivot diagnostics by focus area

Strategic pivot example for a software company

Take an illustrative B2B software company with $40 million of revenue from on-premise licenses. Its leadership scores the seven focus areas for core assets and averages 3.9 out of 5 on threat, driven by customers and profit pools, because cloud rivals are taking the renewals. The score for core activities averages 2.1, because the implementation and support teams still deliver well and customers rate them highly.

High threat on assets and low threat on activities puts the company in the multi-pronged cell. The design follows: move the product to a hosted subscription quickly, keep the implementation and support teams and the processes they run, and sell the move first to the best-retained segment. A radical pivot here would throw away the activities customers still value, and an operational one would polish processes around an asset that is losing its market.

Pivot tactics

A strategic pivot needs tactics as well as a design, because the move into the new business has to be executed in steps sized to the company’s capital. A well-funded company can move from strength by entering a new market, buying a capability, or redeploying an asset nobody has priced, and the tactics fall into nibble games, asset redeployment, scale plays and geographic vectors.

Nibble games are small. They build the new business through a series of minor moves, so a company can test the direction before it commits. Asset redeployment puts a hidden asset to work, as Amazon did when it sold its own infrastructure as AWS. Scale plays bundle a technology into a platform that grows with size, the way Google added paid search, video distribution, ad tools and analytics around its search business.

Geographic vectors take a working growth formula into new countries. Netflix launched in more than 130 new countries on January 6, 2016. The launch took the service from 60 countries to over 190, with more than 70 million members, the company announced. The same tactic runs in reverse when a company shrinks by selling markets or assets it cannot run well and puts the capital into the one that works.

Strategic pivot lessons

Pivot the whole organization when the analysis supports it. Nibble pivots work when they are funded and protected from the old business, and whole-company pivots work when brand, target market, sales motion and pricing move together. Of the 75 pivots scored in The Startup Pivot Playbook, companies that moved the product first succeeded 64% of the time and those that moved it halfway 17% of the time.

Offensive pivots carry high risk and high reward, while operational pivots are quicker and more forgiving, and in the two dozen or so pivots I have worked on, each took three to six months to execute. The free Pivot Field Guide has the core threat matrix and the diagnostic as a scoring sheet.

Questions

What is a strategic pivot?

A strategic pivot changes a company’s direction when a threat reaches its core assets, its core activities or both. Nitin Kumar’s core threat matrix sorts strategic pivots into radical, multi-pronged, operational and opportunistic designs based on which part of the core is under threat.

What is the core threat matrix?

The core threat matrix is a framework by Nitin Kumar, author of The Startup Pivot Playbook, that plots threat to core assets against threat to core activities to choose a pivot design. It builds on Anita McGahan’s 2004 work on how industries change.

What are the types of strategic pivots?

Radical pivots fit when core assets and activities are both threatened, as at Nokia. Multi-pronged pivots fit threatened assets, as at Fujifilm. Operational pivots fit threatened activities, as at Best Buy, and opportunistic pivots fit a sound core, as with Delta’s loyalty program.

What is a pivot strategy?

A pivot strategy is the design, diagnosis and sequence a company uses to change direction. It starts with a diagnostic of customers, strategic advantage, profit pools, capabilities, digital potential, culture and talent, then chooses a design and the tactics to execute it.

What are examples of strategic pivots?

Nokia sold its phone business to Microsoft in 2013 and bought Alcatel-Lucent in 2015. Fujifilm moved into cosmetics and healthcare as film sales fell to about 1% of revenue. Netflix launched in more than 130 new countries in January 2016.

How do you know a company needs a strategic pivot?

Watch for a profit pool shifting away, a competitor changing the economics of the industry, retention falling in the best customer segment or a growth formula that stops working. Score each focus area for assets and activities to place the company on the matrix.