When business people refer to a “pivot,” they’re usually referring to a point when a new, fledgling business realizes its business model isn’t working and starts creating a new one. Those that successfully make this change or pivot do so because they used what they learned to create a new model. As Polaris Venture Partners’ Alan Spoon wrote in Inc., “...pivoting doesn’t necessarily mean desperation. It can be a tool to discover additional growth—growth you might otherwise have overlooked.”
It might be easier for new startup businesses to discover that additional growth and pivot to capture it than it is for big corporations. But, as American Express showed, the big boys can pivot too. Can states steal a page from the playbook of the world’s biggest credit card issuer?
It was pivot or die for American Express in 2008, when the financial markets crashed and the company faced mounting credit card payment defaults. The company hunkered down, shedding about 10% of its workforce, reducing senior managers’ salaries, and reducing marketing expenses and professional services fees. But CEO Ken Chenault maintained customer service budgets and found new revenue by entering into the “deposit-gathering business.” He cut costs, but he also reallocated resources to take advantage of new opportunities.
Chenault kept one foot on the ground while he pivoted with the other. “He developed a vision of the future with Amex as not just a card company but as a broader financial services company supported by a strong digital platform, and he invested in technological innovation,” Reeves, Haanaes, and Sinha wrote in Your Strategy Needs a Strategy: How to Choose and Execute the Right Approach (2015).
Can states do the same? Your Strategy Needs a Strategy focuses entirely on business strategy, but its general principles could give policy makers a fresh perspective on their fiscal challenges. Here are some examples of principles that could serve this purpose:
- Recognize and respond quickly when your business model no longer works.
- Cut costs, but make sure you have enough resources left to pivot or change to a new model.
- Innovate, develop a new model, and reallocate resources needed to implement it.