Why innovation might be your way out of this crisis
Historically, companies’ standard reaction to a looming economic recession has been to cut costs dramatically, focus on their core business, strictly manage cash flow and sit tight for a couple of years until times get better. While this sounds like a logical thing to do, the 2008 financial crisis has proven that investing in innovation and R&D during a recession pays off in the form of long term profitability and growth.
During some of the hardest years of the financial crisis, 2007 and 2008, the 100 biggest innovation-spending companies surprisingly enough increased their investments on innovation while they cut capital expenditures such as office building costs, software costs or machinery costs. At the time this was a very bold move, given that there was no certainty at all that investing in innovation during economically uncertain times would have a long term positive effect.
Now, 12 years later, we can conclude that this strategy has been very successful. It turns out that it wasn’t only the 100 most innovative companies who applied this strategy successfully. Gartner found that 30 of the Fortune 1000 companies that accelerated in growth during the economical crisis of 2008, all invested heavily in new growth options instead of only cutting costs. Even more so, Bain & Company analysed the success of 5000 companies over a 10 year period. Their conclusion: the winning companies of this batch named investing in innovation, and growing outside of their core business as one of their key strategies to win. As you can see below, this strategy resulted in long-term positive results.
Why innovation is even more important this time
The 2008 financial crisis has proven that continuing to invest in innovation is a winning long-term strategy. We believe that this time, it will be significantly more important to do the exact same thing during and after the COVID-19 induced crisis. Here’s why:
- This is not just a financial crisis, but a virus-induced crisis that has a significant and permanent impact on consumer behaviour. Social distancing, fear of contamination, travel restrictions and the ban on large gatherings are likely to have an impact on how your customers use and perceive your products or services. This means that you need to find a way to adapt to stay relevant.
- Some part of your business model will most likely be impacted by the 1.5meter economy. Whether it is your supply chain, your relationship and interaction with your customers, your physical sales channels, demand volatility or your relationship and interaction with your employees; you need to find a way to adapt to the new reality.
- The virus is here to stay. Expecting a vaccine to be ready in 2021 is wishful thinking. The fastest vaccine ever produced was for Ebola and took us about 5 years. Can your company survive running like you are running now for 5 years? If not, you need to find a way to adapt quickly and efficiently.
3 types of innovation
Depending on how hard your business is hit by the COVID-19 induced crisis, you can focus on 3 types of innovation to save your company:
- Focus on incremental innovation of your core business to adapt to the new context if your business is mildly impacted. For example, adjust your supply chain, increase your focus on hygiene, service your customers fully remote and online.
- Explore whether you can use your existing business model and core competencies to service new customers or markets if your business is severely impacted. For example, explore a switch from B2B to B2C, using your technology to solve a completely different need.
- Create completely new business models in opportunity areas created by the 1.5meter economy if your business has become irrelevant. If you are looking for inspiration, Board of Innovation has compiled a very interesting list of 1.5meter economy-related business model pivots can be found here.
We’re here to help.
The Talent Institute has over 5 years of hands-on experience in helping market-leading companies validating and building winning new products and services. Hit me up if you want to share some experiences, share your challenges, or if you want to discuss any of the ideas mentioned in this article.