Innovation in Times of Crisis: Why the Best Time to Grow is Now
There’s no doubt that the COVID-19 pandemic has hit individuals and businesses hard all over the world.
Reports indicate that in the US, more than 3 million people have filed for unemployment already this year and in their best estimates, experts predict that the economic turmoil of the pandemic will cost the global economy trillions of dollars. Essentially, we’re smack in the middle of a global crisis of unprecedented proportions.
For most businesses, the natural instinct at this time would be to enter into disaster management mode. Hemorrhaging profits and revenues must be cauterized somehow, with the usual response being to batten down and impose austerity measures.
But as is often the case, this stability usually comes at the expense of innovation. After all, as Paul J.H. Shoemaker, research director at the Mack Center for Technological Innovation, says, “… if the patient is bleeding you need to stop that first”. There’s no sense worrying if he can learn a new trick while he’s still leaking blood.
Despite this, innovation should not always be a casualty of crisis. While it makes sense to suspend efforts to improve while the existence of the business itself is at risk, companies stand a lot to gain by taking the long view.
History is replete with examples of companies that found a few exploited opportunities to innovate in times of crisis, reaping massive wins as a result. In this article, we will examine what they did right and how your company can also find the best innovation in this challenging period.
The opportunities of crisis
Change precedes growth, and while the current situation is looking increasingly bleak for many, it holds opportunities and positives for the wary.
Times of crisis can hold great potential for growth, evolution and expansion. But it takes a business with a long-term vision to identify available opportunities and act on them as they arise.
Why is the time of crisis such a great opportunity for the forward-looking company? Here are some reasons:
- Crisis creates new consumer needs and habits. Depending on how fundamental the change is, it can result in entirely new and permanent markets or at the very least, short-term opportunities that create long-term advantage.
- It displaces competition in areas that were vital pre-crisis and will continue to remain so afterwards. This can provide an opportunity to grab market share and achieve lateral growth.
- Crisis often accelerates innovation. As new problems develop, it forces businesses to tackle these with new, innovative solutions.
Although the reality of crisis will involve moving vital funds to cost savings and general disaster management, continued innovation, even at a reduced rate, can produce significant advantage.
Examples of companies that rode crisis to innovation
So many companies, both in the past and currently, have taken the opportunity of crisis to innovate successfully. They did this through various means including the following:
Long term goal coincides with instant opportunity
Companies that already hold a long-view on innovation are often better placed to exploit opportunities created by crisis. Examples of such companies include Netflix, Amazon and Zoom.
Although it started out as a DVD rental business, the goal for Netflix was always to become the foremost entertainment company in the world. Their innovation process was always driven by one thing: to increase the number of subscriptions on their platform by making it easier and more rewarding for viewers. So when the financial crisis of 2008 was causing turmoil for most companies, Netflix saw their opportunity to leverage on the crisis. They introduced video streaming at a time when fewer people could afford to go to a cinema or spend as much on entertainment and by the end of 2009, the company’s stock price had risen by 57%.
In like manner, while other retail companies were hit hard by the 2008 recession, Amazon flourished, with sales rising by almost 25%. How did the company do it? Amazon has always made competitive dominance and customer service a priority over profitability. As a result, they had several irons in the fire at the time of the crisis, releasing the Kindle 2 just ahead of the holiday shopping season. In addition, and just as they are doing during the current COVID-19 outbreak, they were able to offer more products at lower prices, making them the number one choice for consumers.
Leveraging on new philosophies and internal processes
Even when it is not customer facing, innovation can come from reinvented processes and strategies. A prime example of crisis-fueled innovation in this regard is the Kaizen philosophy made popular in Japan after the Second World War and adopted by Toyota. The philosophy emphasizes systematic assessment of a workflow and then making strategic efforts to tweak it and generate maximum productivity.
The philosophy was partially responsible for the rise of Japan post-war and specifically for the growth and expansion of Japanese companies such as Toyota.
New solutions for new problems
Necessity, they say, is the mother of invention. In the case of these companies, that was exactly the case. They were able to find the exact solutions that made life easier for consumers in times of crisis.
Going against the natural instinct of most companies to weather out the storm, Groupon launched right in the middle of the 2008 financial crisis. However, despite its launch in November 2008, the company rapidly gained popularity and became massively profitable. The company became so popular because it leveraged on the crisis. It provided a way for consumers to get the best deals that helped them save on all types of goods, and provided businesses with a platform to sell and generate new customers.
In circumstances quite similar to the current COVID-19 pandemic, Ali Baba rose to limelight due to fears surrounding the SARS pandemic of 2002–2004. With its focus on connecting consumers with the products they needed at competitive prices, the then small e-commerce company achieved meteoric growth. It allowed consumers avoid the risk of infection, access competitively priced products in a depressed market and provided sellers with the means to keep making income all in one stroke.
The subprime crisis of 2008 meant lower income and savings for people. In the midst of this recession, and while many other companies were taking shelter, Airbnb was born with its radical idea. In hindsight, its premise seems so simple and yet quite perfect. It allowed businesses and individuals cut costs on traveling and lodging during the tight years after the crisis while enabling individuals make money by sharing their spare rooms. The ingenuity of this offering was not lost on consumers, and by 2013, the company had served more than 9.5 million guests.
Expansion into new markets
While it’s story is not nearly as glamorous as the ones above, Lego found growth during the recession by watching for opportunities in new markets. It boosted profits by more than 63% by expanding into the global market, including Asia and Europe. While the market was depressed in the US and everywhere else, the company increased its profits by selling to a wider market. But this was partly made possible as a result of the reduced competition that the recession engendered.
What should you do to drive innovation right now?
Granted, innovation in times of crisis can be hard going, especially due to tight resources. But this can also be a good thing. Less can often be more when it concerns innovation. You can still create meaningful advantage if you find ways to innovate behind the scenes, even at less than desired rates. What should you do to start the process? First ask these two questions:
- How fundamentally will this crisis change business as we know it?
- What should I be doing to stay relevant in the short term while maintaining a steady long-term advantage?
Your answers should tell you what you need to focus on. A good process for this innovation, according to Forbes, can involve:
- Deconstruction: Understand the constituent parts of your business.
- Imagination: Idealize what can be improved
- Testing: Subject your ideas to rigorous testing. This can include the use of models and even consumer surveys
- Prototyping: Create a simplified version of your product or service to gauge actual market impact
As you undergo this process of innovation, apply the 70/20/10 test to your process. 70% of your innovation should be focused on improving the core of your business, 20% should look to take advantage of adjacent opportunities and 10% on transformational opportunities.
Above all, remember that the dimensions of the current crisis are not static. So you need to be flexible. As the situation evolves, so will consumer needs and opportunity spaces. Ensure you keep these in mind.
If you would like to start a conversation with us about your business’s innovation needs during this period, we would be delighted to share our expertise. Send us a mail at firstname.lastname@example.org or fill our contact form and we will be in touch.