The Theory of a Firm and Business Pivoting

Before engaging in business, it is crucial to understand the fundamental terminology and literature regarding what a firm is, and how the definition and idea of what a firm is has evolved over time. When researching the idea, I considered diverse opinions such as the one by David Ahlstrom, author of the paper “Innovation Growth: How Business Contributes to Society.” According to Ahlstrom, businesses should target disruptive innovation primarily as a means to grow and develop, and focus on the benefit that specific goods and services bring to consumers, as a means of developing the economy. When researching this subject, I established that disruptive innovation may be more viable when a corporation has familiarity with an industry or market, has developed a deep understanding of the shareholders and stakeholders within a market, and is able to exploit inefficiencies within the industry to facilitate innovation. This thought led me to the idea of businesses pivoting, and how businesses are able to adapt to ever-changing market conditions and consumer demand.

When reading the Forbes article “How to Pivot a Successful Business,” I often noticed that the article entailed that the idea of “pivoting” a business was abandoning all previous investments and resources invested into the primary business idea. Although on a theoretical level, the idea of abandoning a business that the market does not require makes sense, I disagreed with this idea. On a practical level, I believe that large corporations that hold billions of dollars in assets and investments may find it extremely difficult to simply liquidate their assets and “pivot” their business if the market no longer values their assets. If a business holds assets that the market no longer requires, it may find it difficult to find appropriate value and demand for individuals who want to acquire these assets, making the idea of pivoting extremely challenging. From my readings on the basic terminology of pivoting a business, I was able to come to the conclusion that some businesses may be able to drastically pivot, while other businesses may not be able to recover from the losses undertaken in the process of pivoting and drastically changing business models. When reading case studies on businesses that pivoted, one common theme stood out to me. I noticed a drastically large percentage of businesses that were able to pivot drastically were tech startups and corporations that offered consumers technology services, such as — Twitter, Netflix, Nintendo, Paypal, etc. I believe that tech companies are able to pivot due to the fact that tech companies have high liquidity of the business, in the sense that they are not asset-heavy, allowing for them to quickly alter the fundamental idea of the business model with minimal negative impact on the company. In contrast, when studying companies such as Philip Morris, I was able to notice that due to the company being asset-heavy, the process of pivoting takes a longer period of time, and is drastically different from tech company pivots. This is because, instead of fundamentally altering its business model, Philip Morris chose to instead acquire the company Vectura, with the idea of entering into a high-growth industry through acquisitions. The idea of diversification through acquisitions allows Philip Morris to continue to benefit from the diminishing returns of the cigarette industry, while also implementing a “safety net” in order to pivot when required.