admin John F. Kennedy once observed that the word “crisis” in Chinese is composed of two characters—one representing danger, the other opportunity. He may not have been entirely correct on the linguistics, but the sentiment is true enough: a crisis presents a choice. This is particularly true today.
The COVID-19 pandemic has upended nearly every aspect of life, from the personal (how people live and work) to the professional (how companies interact with their customers, how customers choose and purchase products and services, how supply chains deliver them). In our recent survey of more than 200 organizations across industries, more than 90 percent of executives said they expect the fallout from COVID-19 to fundamentally change the way they do business over the next five years, with almost as many asserting that the crisis will have a lasting impact on their customers’ needs.
Of course, seeing the opportunities emerging from this crisis is not the same as being able to seize them. Fewer than 30 percent of executives feel confident that they are prepared to address the changes they see coming. The area in which they feel the most challenged is delivering net new growth opportunities.
Executives are largely focusing on maintaining business continuity, especially in their core. Executives must weigh cutting costs, driving productivity, and implementing safety measures against supporting innovation-led growth. Unsurprisingly, investments in innovation are suffering. The executives in our survey strongly believe that they will return to innovation-related initiatives once the world has stabilized, the core business is secure, and the path forward is clearer. However, only a quarter reported that capturing new growth was a top priority today, compared to roughly 60 percent before the crisis hit.
This decline in focus on innovation is evident across every industry known; the sole exception is pharmaceuticals and medical products, where an almost 30-percent increase in the immediate focus on innovation is observed. Leaders face an important choice around supporting innovation-led growth in the short term, one that may have lasting consequences for their companies’ ability to grow in the years to come.
The Case for Innovation
Many companies are deprioritizing innovation to concentrate on four things: shoring up their core business, pursuing known opportunity spaces, conserving cash, and minimizing risk, and waiting until “there is more clarity.” However, we believe that, particularly in times of crisis more urgent actions to take include:
- Adapting the core to meet shifting customer needs.
- Identifying and quickly addressing new opportunity areas being created by the changing landscape.
- Re-evaluating the innovation initiative portfolio and ensuring resources are allocated appropriately.
- building the foundation for postcrisis growth to remain competitive in the recovery period.
Many businesses simply cannot operate as they have in the past. What made innovative companies successful historically may no longer be possible during or after the crisis. Customers may struggle to pay. Channels may have radically shifted to accommodate new needs or work around new constraints. A stable regulatory context may have changed, potentially creating opportunities that never existed before. The assumptions that supported years of stable, predictable growth may no longer be valid.
Competitive advantages shift dynamically as business models adapt to new market realities, and the core capabilities that made an organization distinctive may suddenly be less differentiating. While the rise of digital has been mounting similar pressures for more than a decade, the current crisis has significantly exacerbated and accelerated its disruptive force. Sudden pivots observed during the COVID-19 pandemic include changes to sales models, need for new offerings, rapid changes in customer behaviour, influx of competitors from different industries.
Innovative Companies have gained long-term advantages by understanding such shifts and the opportunities they present. In past crises, companies that invested in innovation delivered superior growth and performance postcrisis. Organizations that maintained their innovation focus through the 2009 financial crisis, for example, emerged stronger, outperforming the market average by more than 30 percent and continuing to deliver accelerated growth over the subsequent three to five years.
Emerging As an Innovation Leader
To emerge as leaders from this crisis, companies rely on essentials of Innovation as a formula and a road map for success. Aspire and choose—are the most important for generating immediate outsized impact. In times of crisis, however, we observe that other essentials take on greater significance, suggesting a different order of action.
Prioritizing Discovery, Evolving, and Choosing; these three guide an innovative companies or organization in re-orienting its focus, as needed. Then leaders can address Aspire to reset their guiding “North Star,” Accelerate and Scale to invest at the right levels and speed given potential changes in end markets, extend to develop new types of ecosystems, and finally Mobilize to put in place the appropriate talent and incentives to activate the innovation plans.
Crises tend to reshape spending patterns, which in turn change how attractive an end market may be.
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