Competitiveness and Innovation

Value Pivots

30 Mar 2020  

One of the more timely parts of my upcoming book The Value of Knowledge is Section 7.7, Value Dynamics. This includes the idea of value entropy, which essentially means that once you get your value proposition finely tuned to user needs, if left unchanged it then slowly begins to leave perfect alignment with those needs. This happens over time to any product or service due to changes in a range of factors in the enterprise ecosystem.

This value dis-alignment typically happens slowly and imperceptibly, such that it is difficult to notice it happening. And the silence of this erosion is indeed often a big part of the problem.

Value shock

But it’s no less a problem when “shift happens” quickly and in plain sight — as with the economic shocks and after-shocks being caused by the COVID-19 virus, now rippling outward and likely to cause major and long-lasting damage.

We’re experiencing a value shock — it’s not a slow, gentle drift, it’s a sharp jolt (at first, at least). Not knowing that it’s happening is not a challenge. Knowing what to do about it is a problem, though — all the more so because the situation is still “hot,” i.e., highly fluid and emotionally charged. It’s also immersive — nearly all of us on the planet are being affected in some way.

“If you don’t change, you have changed”

Your value proposition must be agile and resilient. You can’t leave it as it was, because, relative to your strategic ecosystem, it is likely no longer an optimal fit. Many smaller firms are doing this already. Here in NYC, for example, several local restaurant that we patronize recently sent me emails that, even though the restaurant is closed temporarily, their kitchen remains open — and are preparing meals for pickup or local delivery. Their websites have been updated to reflect this.

In short, within a matter of days they pivoted their value model to that of a “ghost kitchen,” but with the same great food, fair prices, and superior service we have become used to. They will retain our business and will be remembered as a company that adapted during a time of stress.

Temporary value pivots (TVPs)

Other examples abound:

  • Local gyms now offer live streaming exercise classes
  • Wholesale food distributors like Baldor have shifted to a direct-to-consumer model, and are now taking grocery orders on their website
  • Liquor distilleries have shifted to making hand sanitizer
  • Companies are shifting production to make face masks and other protective gear
  • Several US manufacturers, led by GM, are making respirators

The list goes on — we are in times that breed amazing ingenuity! These are examples of what I will predict are temporary value pivots (TVPs). When we finally emerge from the hybrid health-and-wealth crisis in which the world now finds itself, it’s likely that these companies will go back to doing what they do best (and produce the greatest value doing.)

Permanent value pivots (PVPs)

If history is a guide, there are also value pivots that will remain permanent (PVPs), no matter when a recovery happens or what it looks like. For example:

  • The shift to greater use of remote meetings and events
  • The shift to greater use of telemedicine
  • The acceleration of the shift toward online shopping in new categories like food and pharmaceuticals

Technology publisher Tim O’Reilly announced last week that regarding his company’s in-person events business, which is on hold at the moment, they are permanently exiting that business. COVID-19 drove EXIT-20, an opportunity to reassess that part of their business model and make a permanent shift.

Pause and pivot, whether undertaken electively or under duress, can be turned into an opportunity to clean house in a strategic sense. Note that, for more complex organizations, it may carry ramifications involving extreme reorganizations, even bankruptcies or out-of-court restructurings.

A famous PVP example

Pfizer logoPfizer was originally known (during the late 19th century) as a Brooklyn-based manufacturer of speciality chemicals — for example, the citric acid they made for flavoring Coca Cola. One of their core competencies was deep-tank fermentation, a process used to make large quantities of citric acid.

Decades later, during World War II, the US government was seeking ways to mass-produce penicillin, the life-saving drug that was until then produced only in small quantities in the lab. Pfizer was able to adapt their fermentation process to make penicillin in massive quantities, thus saving the lives of many wounded soldiers.

From there, Pfizer developed other antibiotics, eventually growing into the global pharma powerhouse we know today. Their knowledge-based value pivot, made in a time of crisis, thus became game-changing and permanent.

How do you know the difference?

Whether a value pivot is temporary (TVP) or permanent (PVP) depends primarily on two factors:

  • the Enterprise — the overall purpose and mission of your organization, and the core competencies your organization possesses
  • the Ecosystem — how long the adjustment back to normal takes, and how complete the recovery is.

The nature of the post-COVID ecosystem is best addressed by scenario-based thinking, which I’ll address in an upcoming post.

Core competencies

Core competencies thinking, developed by Prahalad and Hamel in the 1990s, is summarized in Section 7.4 of my book. It is critical to any enterprise knowledge strategy, including value pivots.  This technique springs from Peter Drucker’s 1964 insight that “Knowledge IS the business… Physical goods or services are only the vehicle for the exchange of customer purchasing-power against business knowledge.” Knowing what that unique enterprise knowledge consists of — and how it addresses shifting customer needs — is core to the success of a value pivot. It works with business units — I recently used it with a knowledge services group — as well as with organizations as a whole, and with individuals looking toward the future.

Drucker’s single sentence is, for me, the keystone of a knowledge-based business strategy — one that enables value pivots, whether in the best of times or the worst. Organizations need to do value pivots quickly — always, but especially in times of crisis — as part of building agility and resilience into their enterprise DNA.

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