How enterprises can change direction when facts dictate and keep their key stakeholders onside
“When the facts change, I change my mind. What do you do, sir?” – John Maynard Keynes
Many successful entrepreneurs have followed Keynes’s example at one time or another. Business plans are a valuable exercise but reality very rarely follows the plan. So, to stay relevant in a fast-changing market, companies often need to pivot, sometimes dramatically, away from their original aims and goals.
The agility and adaptability to be able to pivot when facts dictate is an important capability for any business. However, there is a potential downside. An enterprise founded with one aim or purpose will have attracted many champions and loyal customers – if it changes direction it may antagonise or lose them.
New research from Professor Paul Tracey of Cambridge Judge Business School and colleagues (see below), looks at how business leaders can pivot when necessary yet maintain good relations with their stakeholders. It reveals the potential consequences of pivots for ventures that rely on stakeholders who identify with them, and advises how to manage relations with these stakeholders during pivots.
When big corporations pivot, they can usually weather consumer protests. Nokia, once a Finnish paper mill, pivoted into mobile phones and has had to pivot again. Whitbread, the famous London brewery, no longer brews any beer (or sells much coffee, having sold Costa Coffee to Coca-Cola), but has now become a multinational hotel company.
But for start-ups and smaller enterprises disrupting relationships with key stakeholders – user communities, investors, distributors, agents, and suppliers – can be fatal. Support may be rapidly withdrawn starving the enterprise of resources and with social media bad feelings can quickly lead to bad PR.
Launching a new venture is complex and entrepreneurs rarely get it ‘right’ first time, so pivoting is common. For any leader of a innovative venture staying the course or changing direction can be one of the most difficult decision they ever take. So, it is essential that if they do decide to pivot, because their original approach has failed and market entry has shown them a potentially better way forward, they understand how to do so keeping their original stakeholders on side and defusing any existential threat.
The solution emerging from this research, is to create a ‘bond’ focused around shared experience of the venture’s early customers and stakeholders. “Ventures can remove the affective hostility of stakeholders and rebuild connections with many of them by exposing their struggles,” say the researchers. In other words, user communities will be open to accepting the venture’s new direction if they have been kept well informed and can better understand the venture’s difficult journey.
The problem arises because in its first iteration the venture will have built close relationship with user communities and other stakeholders creating a sense of obligation. Following a pivot, that radically changes the venture’s strategy, identity, and goals, the ‘identification’ of key stakeholders is threatened. This leads these stakeholders to challenge the venture either by attacking it outright (if they feel betrayed by the new focus) or by doubting it (if they feel anxious about the new focus).
A key finding of the research is that employing “identification reset work” can defuse identification threats and transition stakeholders to “a new identification relationship.” Identification reset work involves:
“By creating a bond with stakeholders around these shared challenges, the venture is able to emotionally reconnect with many of the stakeholders whose identification is threatened, nudging them to drop their opposition to the venture or to resume their support for it,” say the researchers.
The research method involved conducting a qualitative process study of a photography venture which encountered significant resistance from its user community as it pivoted from an analog focus to an analog-digital positioning. In today’s rapidly changing world staying the original course as technology moves on is usually far too risky a strategy – altogether better to pivot but bring your stakeholders along with you.
The authors of the study were:
Paul Tracey, Professor of Innovation and Organizations, Co-Director of the Cambridge Centre for Social Innovation at Cambridge Judge Business School.
Klaus Weber, Professor of Management and Organizations at Kellogg School of Management, Northwestern University
Christian Hampel, Assistant Professor of Entrepreneurship and Strategy at Imperial College Business School
Access the full research paper here:
The Art of the Pivot: How New Ventures Manage Identification Relationships with Stakeholders as They Change Direction, published in the Academy of Management Journal, April 2019
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