From Sears to Starbucks: Pivoting to Thrive in the face of Change
This week, Andre Calantzopoulos, CEO of Phillip Morris International, shared an astounding revelation during an interview with SkyNews.
“At the end of the day, the ambition we have is to replace cigarettes as soon as possible.” — Andre Calantzopoulos, CEO of Phillip Morris International
I personally was stunned. I mean, cigarettes smell like college and Vegas and cheap hotel rooms. They represent cowboys and James Dean. They’ve been an integral part of what cool looked like for as long as movies and TV were a part of our culture.
I mean, just think about tobacco country in North Carolina. Tobacco’s hand-rolled history hearkens back to George Washington and the roots of America itself.
(They’re also an incredibly popular form of currency in the American penal system, second only to Ramen noodles.)
But, of course, the impetus for this move cannot possibly be out of a moral obligation to finally respond to the health impact of smoking. Phillip Morris is not a social enterprise. Trends on the horizon are the catalyst for this huge move — including the popularity of vaping and the emergence of devices that burn tobacco at a lower temperature to reduce the volume of harmful chemicals.
Oh, and the rise of cannabis. That’s a tremendous area of investment for Philip Morris — who invested $2.4B in a Canadian cannabis company in December of 2018.
They’re making a bet, fueled by trends in those key areas. According to the American Lung Association’s 2018 State of Smoking report, cigarette smoking has decreased yet again, down from 15.5% in 2016 to 14% in 2017. However, “this positive news was tempered by a dramatic and extremely troubling 78 percent rise in youth e-cigarette use from 2017 to 2018.”
I validated this with a first-hand account from my own high-school aged nieces. When asked if they knew anyone who vaped, the first response was, “Everybody vapes. They even vape in the bathroom at school.”
My response was that her observation must have been hyperbole and that everyone couldn’t possibly vape. However, three other nieces - from different high schools in three different states - validated the perspective.
According to the available data and these young adults in the trenches, vaping is ubiquitous and cool, and the side-effects are both unknown and unimportant to the younger set.
“Everybody vapes. They even vape in the bathroom at school.”- high school sophomore
We could talk about the murky field of those vaping side-effects — which includes indeterminant links to popcorn lung and harm to the adolescent brain. We could talk about the medical impact of cannabis — which is shown to have similar chemical makeup as tobacco but no long-term studies on any link to cancer. (Although more common consumption in legalized states includes myriad alternative ingestion methods- including using CBD oil, food, or lotion to apply the drug.)
But the point here isn’t to debate the medical impact, nor the value, of cannabis, vaping, or other types of tobacco consumption. Nor are we going to discuss the ethics of selling addictive substances to minors.
But we are going to address Philip Morris’ epic pivot, the largest move in a brand that traces its roots back to 1854 England.
Massive Pivots can lead to Massive Profits
Many successful companies today have a history of big pivots. Some of today’s household brands — including Twitter, Starbucks, and IBM — reframed their entire business strategy to change direction in their respective markets.
Twitter was originally Odeo, a network where people could subscribe to podcasts. However, their attention to the trend of iTunes owning the podcasting market forced them to completely reframe their path to success — which was a catalyst for the micro-blogging platform that we use today.
Starbucks began in 1971 as a company that sold espresso makers. But when Howard Schultz was hired as Marketing Director in 1982, he transformed the company from a Seattle-based coffee equipment company to a coffeehouse chain that powers so much of America. The brand continues to innovate today, with smart moves like the Teavana acquisition and introduction of beer and wine in beta markets.
And IBM — formerly known as Big Blue — made a complete shift away from their core computer manufacturing and sales business into IT Consulting. That move positioned them for significant growth in an emerging technology market that continues today.
However, we can also easily find a long list of companies we consider the cultural icons of a failure to pivot. Kodak, Blockbuster, Motorola, Sears: all are excellent examples of companies that continued an unsustainable market strategy and were replaced by competitors with fresh new takes on their industry.
In fact, according to a 2016 report by Innosight, “half of today’s S&P 500 firms will be replaced over the next 10 years.” This is in part attributed to the kind of Creative Destruction that is happening in companies agile enough to pivot as the market shifts.
In my take on creative destruction and divergent thinking in science as well as the school room, I quote the father of the term “Creative Destruction,” Joseph Schumpter. His theory of creative destruction posits that revolutionizing the economic structure from within a company — and incessantly creating a new one — is the key to reinvention and an integral part of driving a company’s sustainable economic growth.
What these legacy corporations fail to do is to build an infrastructure that is open to change, that values intrapreneurship, and which is conducting the types of research needed to act proactively — not reactive — to market shifts.
The Phoenix Rising: Toys “R” Back?
A recent story of a failure to pivot is Toys “R” Us. The chain broke hearts all over the country when eCommerce — and Amazon in particular — consumed enough of the toy business that it was forced to close.
But in a press release this week, we learned that the company is being relaunched by under a new company name Tru Kids Brands. According to the release, “Toys “R” Us® has officially emerged as a new company, with new leadership and a new vision to deliver the magic of its iconic brands around the world.”
The new company (which incidentally does have at least one Toys “R” Us veteran on it’s executive team) is launching a “newly imagined omni-channel retail experience.” This move into the new landscape of retail sounds promising to nostalgic Americans saddened by the absence of Geoffrey…until they realize that the organization’s pivot is taking him overseas, to relaunch the brand with global partners in Asia, India, and Europe.
“Tru Kids’ global partners are set to bring the joy of Toys”R”Us and Babies”R”Us to more customers.” — Tru Kids Brands press release, February 11th, 2019
Sometimes, the product you offer is no longer sustainable in your market, and you have to think outside of your cultural norm to find a space where it works.
But if you’re trying to stay ahead of it, you’ll still find that crafting a pivot-ready environment in a legacy corporation is akin to squeezing water from a stone. It’s incredibly difficult, especially when a company where change is deeply tied up in bureaucracy. It takes humility and an acknowledgment that you don’t know everything. It takes hiring creative, intrapreneurial talent that looks and thinks differently than your current employee group might. And it takes an openness to the kind of creative destruction that will kill parts of what you do so that your beautiful Phoenix can rise from the ashes.
In all the brands I’ve worked with over two decades, I can list the ones that are positioned to succeed and those that are positioned to fail. It’s evident that some of them have made small pivots…but not the big pivots that are going to keep them ahead of the competition that is rising on the Gartner Quadrant and establishing a bigger market share.
Revolutionizing the economic structure from within a company — and incessantly creating a new one — is the key to reinvention and an integral part of driving a company’s sustainable economic growth.
I challenge my clients to consider which voices inside their company whose divergent thinking potential may be stifled by operations. There may exist key talent inside your company today that can lead your brand to epic creative destruction, paving the way to your big pivot.
Are you, like Kodak, reacting to market trends as new market entrants grow by leaps and bounds?
Or are you, like Philip Morris, taking the proactive approach — shifting the paradigm completely, opening yourself up to creative destruction, and pivoting before your market share is captured by innovative new competitors?