Pivoting to Growth in a Crisis: Eight Principles for Leadership
As a leader, you probably had plans for growing your organization before COVID-19 hit. You had products you wanted to launch, markets you wanted to enter, maybe even firms you wanted to buy.
Then, with the pandemic, your business paused, pivoted, or skyrocketed—depending on how demand for your goods and services was shaped by the crisis.
At Manifold, we help firms grow based on our research into the economic returns of thousands of firms, and a decade of practical work helping design and deliver new products.
Our latest research analyzed 2,415 U.S. based companies (excluding Financial Services) listed on AMEX/NYSE/Nasdaq that account for ~$35 trillion in market capitalization as of Aug. 31st. We found that only 12% of companies are well positioned for resilience in the course of the COVID-19 pandemic—we call them Growth Innovators. They have proven historically that they can generate strong return on assets while investing in their future to reinvent their asset base and stay relevant in the midst of changing trends and markets.
We have distilled eight principles leaders can use to help their organization survive and grow like these Growth Innovators during these difficult times.
Download a PDF version of this report here.
Principle 1: Invest When Others Can’t
We have found that those who have a history of turning their R&D investment into growth, a group we call “Growth Innovators”, are well positioned to sprint ahead during a down-turn.
A prime example is UnitedHealth Group. The first thing we look at, is have they been effective at growing their business? For UnitedHealth their properly adjusted Return on Assets in 2019 was 36.4%—which is great performance.
The next question is can they afford to grow? Their weighted average cost of capital was 2.9% which means that they have a sustainable growth rate (SGR=ROA-Cost of Capital) of 33.5%, so they have plenty of financial room to invest.
But do they have the courage? Not all executives use their investment capacity— but United grew their asset base in 2019 alone by over 25%. They have the boldness to invest in the future and the numbers show it. Not only that, but it pays off, as they had a total shareholder return that was 290% greater than their industry peers!
Principle 2: Cut the Right Costs by Getting to the Root Cause of the Expense
Many organizations lower costs by cutting across the board.
Sometimes this is done for good reasons such as sharing the pain of salary cuts to avoid massive layoffs. But other times firms don’t perform the root cause analysis to truly understand the cost drivers and value drivers in their business.
What is core to your business and brand, and what do customers value? In this downturn, senior executives are willing to reimagine their businesses at a fundamental level. Given the new attitude toward virtual work, every major cost and value driver should be analyzed.
Travel is a huge expense, but firms are teaching their salespeople how to do B2B sales virtually. Medical productivity is often driven by the throughput of the physical facility—how many patients can a doctor see in her or his office?
With remote technologies this traditional constraint is removed and can radically increase productivity. The Optum branch of United Healthcare recently reported that their claims for virtual visits rose from 2% to 33% in the past few months.
Radical changes such as virtual sales calls and remote healthcare that only a few months ago would have been too taboo to examine are now the norm. This is why firms need to act now.
Principle 3: Move Beyond Digital—Digital, Physical, Virtual Integration Required
Many have pointed out that COVID-19 has accelerated the adoption of digital technology, but how many truly understand what customers want in this new world? Will they continue to be satisfied with awkward virtual interactions, or will you need to blend face-to-face with digital into better virtual models?
For example, ghost kitchens serve many restaurants and act as a huge value-added step in the food value chain that changes the unit economics of restaurants—at the exact time that COVID-19 has upended restaurant economics. Restaurants are reinventing their menus and formats to include more take-out and delivery to meet customer demand.
But how will they start reinventing the virtual restaurant experience in this new form? Will we see a separation of the chef who loves to design and cook great meals and the means of getting that meal made and delivered? Will we see the emergence of a virtual restaurant experience for the home that includes a chef greeting, best dish recommendations from waiters, and advice from the sommelier?
This type of fundamental examination of the value chain with a view to how virtualization will impact core costs and customer value should be done by every organization. Our experience has been that deep creative design expertise is needed to properly understand and reinvent those customer journeys combined with agility to get prototypes built and tested with real clients in the marketplace.
Principle 4: Automate Your Way to New Business Models
In the realm of automation it is vitally important to pay attention to the law of accelerating returns—a phrase coined by Ray Kurzweil in 1999 describing the notion that technology drives new knowledge which then drives new technology—so improvement is improving at an increasing rate.
Given this, we predict the creation of radically new business models that employ automation in new ways because the combined forces of the internet of things, AI, 5G, voice, augmented reality and big data create a new platform for transformation.
To give an idea of what it means to the economy when we have a new platform, think about containerized shipping. In the Korean War the US army used containers to supply the war fighters. This sped up the adoption of containerization of shipping. By the 1970s there were full container-only ships—and the wave of innovation after innovation changed the entire way we move things across the globe. Every logistics system has been so completely reconfigured due to container shipping that we don’t even notice it anymore. It’s just the way we do business.
There are many technologies out there now which are having as big an impact as containers did on shipping, and they are creating new business value. For example, due to the testing needs of coronavirus, some companies are not only making money doing the tests, they are building up massive databases. Sema4 and Tempus, two leading data/genetics firms, are scaling up their testing capabilities to serve the market and their information exhaust will create some of the most extensive, powerful and detailed human genome databases ever conceived. These assets will change everything from new drug design to personal diagnostics.
There are broad categories of automation that can be addressed with the new technologies: automated evaluation of customer feedback and sentiment, virtual sales and service, training, asset tracking, underwriting, diagnosis and many more that have entirely new economics and quality.
For example, with our AI tools we can analyze hundreds of millions of customer interactions in the blink of an eye to see your firm’s true standing versus the competition. You can do an x-ray of your customer sentiment and use it to guide action. More broadly, every important task and interaction can be digitally instrumented to provide insight, productivity and quality.
At the very least, if you have not re-engineered your sales and service process to accommodate this new reality of video-conference meeting, configuration, selling and servicing—you are behind!
Principle 5: Use Vendors to Drive Down Total Cost and “Variablize” Your Costs
The progress of cloud capabilities that can help to take what were once fixed costs and make them variable is enormous.
Take human capital. Large gig economy platforms such as MBO Partners which has over 30,000 active professionals on their platform is an example of how firms can scale on an as needed basis. Whole functions and capabilities can be bought from the cloud.
In healthcare the entire landscape is in flux. For example, a Chicago startup called Tapcloud provides a mobile and desktop platform that enables patient engagement in the hospital and at home—enabling telehealth. (In the spirit of full disclosure, one of the authors has an investment in Tapcloud.) The patient can be educated, provide vitals, connect any Bluetooth devices, report their symptoms in a gamified word-cloud interface, and interact securely with their doctor. People provide their information voluntarily four times a week and the predictive power of Tapcloud is such that hospitals have decreased readmission rates by the thousands saving millions of dollars.
Activities on the cloud allow for huge economic scale, even if you’re only a medium-sized business. Functionality is growing all the time, whether it is symptom collection, diagnosis, translation, access to talent—you name it, can likely be variablized.
Principle 6: Identify Customers to Grow With
Customer selection at any time is vital to growth, and now it is more acute than ever.
New customer behaviors that redefine their needs are becoming cemented. Some customer segments are benefiting from this new environment. Those firms who are in data-driven healthcare, tools that support remote work, Amazon, and exercise equipment manufacturers cannot keep up with demand.
If you are serving those companies, your firm can grow significantly. Many need help dealing with the growth and they want to make sure they will be still growing after COVID-19 calms down.
When dealing with segments which are hit badly by COVID-19, one needs to separate the customers who will survive from those who will not. For example, in restaurants there are many innovative applications being targeted at the restaurant industry.
One such innovation is Bizzy—offered by Westfield Insurance’s 1848 Venture arm. It’s a scheduling app that can improve the accuracy of labor forecasting by 10-30% or more. Given COVID-19, and the predictions that many restaurants will not survive, Bizzy has pivoted to serve those chain restaurants that have the capital to invest during this downtime. Interestingly they are working with these firms not just to help them survive but to reimagine how restaurants will compete with a new mix of online ordering, delivery, and in-restaurant dining.
As Churchill said, “A pessimist is a person who sees the difficulty in every opportunity. An optimist sees the opportunity in every difficulty.” Leaders need to take a look at their customers and potential customers through an optimistic lens.
Principle 7: Optimize the Marketing Mix
Advertising and marketing spending are often the first areas where firms cut when facing difficulty.
The great marketing challenge of today is to find the best method to get your message out and coordinate it across the many channels that you use. The development of new social and content platforms is moving fast and the early adopters of these methods get cheaper and better access. Over time, you need to pay to get similar access to what a little innovation would have gotten you for cheap or free early on.
Few organizations have world-class social media talent, so if you focus on this part of your marketing effort, you can create a competitive advantage. However, given COVID-19 this opportunity for differentiation will dwindle because as everyone goes virtual, they are seeing the vital importance of digital channels—and leaders need to act soon.
A downturn is an especially good time to look for such new, efficient methods. We believe that LinkedIn today is where Facebook was eight years ago. That is, you can get “natural” attention without having to pay the platform for access to clients; or you don’t pay them much. If you are in a business-to-business firm it is a no-brainer to optimize your use of LinkedIn both for clients and for talent.
Likewise, there is a global war going on right now for the dominance of voice interfaces such as Alexa (Amazon), Siri (Apple), Cortana (Microsoft) and Google Assistant, Orange Telecom, Samsung group and others. We agree with Gary Vanderchuk. In a voice-driven world there will only be one or a few brands in given categories that will matter. Customers will say—Alexa, buy me some Tide. The customer won’t say, what type of laundry detergent do you have? Also, if the customer says, get me the cheapest laundry detergent—Amazon, or the platform player will decide who is the “cheapest”.
We believe voice is vital because we have seen massive choice compression in airline ticket distribution with over 90% of the flights booked off of the first screen of SABRE or APOLLO. Google estimates that 75-90% of click-throughs come on the first screen, 5% on the second, 1% on the third, etc. It is likely that the voice “shelf space” will be even more compressed!
Creative design, economic focus, and technical execution are all needed to optimize your marketing mix in today’s world.
Principle 8: Expand the Portfolio, Then Focus for Momentum
We have found there are many reasons to do fewer things well when focusing on growth.
First, all true innovations look like failure in the middle. SpaceX was a week away from closing its doors and if their fourth rocket (the first three blew up) had not succeeded NASA would not have given them the contract that launched the company.
Second, it is easier to get your talent aligned to the important efforts. When Steve Jobs returned to Apple he killed the vast majority of innovation and product projects that his predecessor CEO Gil Emilio had in place. Jobs focused on a lean portfolio led by the iMac, which turned the company around.
Third, having many projects creates lack of accountability. If your best talent is spread across many projects, and those projects fail ––who’s really to blame?
Fourth and perhaps most importantly, when a team is doing something new, there is often a need for many people to share the same understanding of the task and it’s needs. Legend has it that Thomas Edison would work with his team for ninety hours at a time because he said it took that long to get all the variables and solutions in his mind at the same time.
Fifth, we find that teams have more fun when they have a clear goal and project with a tangible outcome. Focus makes that much easier.
Executive Action
In this time of great human sacrifice, we should remember more words from Winston Churchill, “We shall draw from the heart of suffering itself the means of inspiration and survival.”
The true leader begins with the financial facts of his or her capacity to grow and takes coordinated action across cost and value to sprint ahead while others are distracted. These concepts were not born in this crisis, and these verities we discovered over the past decade still hold today if you want to enhance the competitive position of your firm.
Your leadership must be cognizant of COVID-19, but also create a practical, energizing approach to set a bold path for the future informed by facts, crafted by creativity and implemented with practicality. As a leader these opportunities are before you and greatness is only proven in times of adversity. Now is the time to be great.
Download a PDF version of this report here.
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John Sviokla
Senior Advisor
Dr. Sviokla has almost thirty years experience researching, writing and speaking about digital transformation – as well as and making it real in companies large and small. He has over 100 publications in many journals including Harvard Business Review, WSJ, Financial Times, and appeared on CNBC and Fox News. His most recent book, The Self-Made Billionaire Effect explores how leaders create massive value in times of great change. His most recent writings on The Bionic Organization helps leaders set strategy for today’s volatile, technological environment.
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In partnership with Valens Research, Manifold uses a uniform accounting database that includes 32,000 publicly traded firms. This provides both a view of investment capacity and history of converting investments into economic returns.
We can also use the same approach to evaluate private organizations. Any firm can and should understand their history of investment, results, and current capacity as it is the core basis with which to plan your growth strategy. This analysis is vital now because there is no easier time to sprint ahead of the competition than when they are distracted with worry and fear. Executives struggle with what to do during these difficult times.
