- Michael S. Ringel is Boston Consulting Group’s global leader for growth and innovation analytics, and a senior partner.
- He says investing in innovation is crucial for businesses to stay viable post pandemic, as shown through analyzing companies which came out on top from the last economic crisis.
- BCG’s 2007 list of the 50 most innovative companies all invested heavily in innovation and, despite the 2008 downturn, significantly outperformed the market.
- He recommends companies rethink their portfolio partners, update culture, consider hiring new talent, try new business models, look for new opportunities, and break from the status quo.
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Many businesses are appropriately focused on managing the current crisis, whether that means maintaining liquidity to secure survival, pivoting to COVID-19 response, or addressing the impacts of a global downturn.
That’s the short game. For the long game, we know that value for customers, shareholders, and other constituents depends on growth — and that growth requires innovation.
As we’ve seen with previous downturns, companies that navigate the crisis deftly while positioning themselves for future growth will reap disproportionate rewards. The years following the 1929 stock market crash, for example, were years of hardship — but also of frantic innovation, giving birth to such disparate inventions as the helicopter, nylon, radar, the jet engine, canned beer, frozen food, Scotch tape, and sunscreen.
Companies that made investments to prepare for the return to growth — whether through the enhancement of internal capabilities or the pursuit of additional merger and acquisition opportunities — not only were able to take advantage of a window during which those capabilities were easier to acquire, but were also better positioned to outperform, once conditions for growth returned.
A similar burst of innovation took place following the Great Recession, giving us the iPad, reusable rockets, household-quality LED lighting, and self-driving cars, with similar disproportionate outperformances by firms that bet on innovation. Companies recognized on Boston Consulting Group’s list of the 50 most innovative companies for 2007 all invested heavily in innovation despite the downturn and significantly outperformed the market as the economy recovered: delivering total shareholder returns 4% higher annually, on average, than the market from 2007 to 2012.
Contrary to conventional wisdom, which suggests that smaller companies have an advantage when it comes to innovation, there are many reasons to believe that larger companies — which often have more resources, more balanced risk profiles due to diversification, and greater ability to fund investments — may have the edge in times like these.
And for companies in such a position, the crisis presents an opportunity for new strategic moves.
But even before the current crisis, many companies were remarkably fuzzy about their commitment to innovation. BCG’s research has found that two-thirds of corporate leaders consider innovation a top-three management priority, but only 45% put the required resources behind that claim. This was wasteful in the past, but it’s unforgivable now.
To wield their advantage successfully today, we suggest six urgent priorities for innovators:
Rethink portfolios, don’t just divest
It’s critical for companies to rethink their portfolios in light of the current situation and reorient investment toward opportunities for future growth.
Wherever possible, companies shouldn’t just cut their budgets to meet cost targets, but deploy their assets to accelerate the most promising efforts in light of likely post-crisis realities. BCG research shows that companies that shifted — or even grew — research and development spending in the last crisis created more shareholder value.
Change culture now
For many companies, this moment may be the best opportunity for culture change in a long time. Take advantage of the opportunity for the long term.
Most companies are going through huge changes with the widespread shift to remote working. Introducing digital tools is essential to support collaboration and teamwork, but it’s not enough. Teams need to be energized, empowered, and aligned. New team norms should allow for more decentralized decision-making and autonomy, such as introducing a “default to yes” logic for many noncritical decisions.
Consider hiring contractors and filling skill gaps
This is a time of extreme hardship for smaller suppliers, innovation partners, and freelance providers, many of which are critical sources of fresh ideas and capabilities. On a selective basis, companies should consider reaffirming or expanding commitments to mission-critical partners — such as IT and engineering freelancers — by extending contract commitments.
Companies that have the economic flexibility should consider targeted hiring to fill skill gaps, shore up critical capabilities, or build new ones. Some companies might think even bigger by looking for opportunities to bring entire new teams on board.
Build resilience through business model innovation
Whether inspired by necessity — such as the urgent need for retailers and restaurants to design and launch new delivery options — or driven by other needs, business model innovation is increasingly essential for both resilience and growth. We are already seeing that digital-first, asset-light companies have been able to adapt more rapidly to the current crisis than asset-intensive, vertically integrated companies.
Leaders can significantly accelerate the process of business model innovation by acquiring ventures that are already using novel business models — particularly now, when valuations are low. The new Disney+ streaming service, for example, leverages capabilities and talent brought in through the acquisitions of technology provider BAMTech and streaming platform Hulu.
Look for new opportunities
Nobody knows how COVID-19 will change the world, but that shouldn’t stop companies from looking for new opportunities, even if those opportunities involve entering new sectors or partnering with companies in those sectors.
Bosch, the German automotive supplier, for example, partnered with Randox, a UK-based medtech company, and was able to develop a potential new COVID-19 rapid diagnostic test in just six weeks.
Reimagine innovation systems
The crisis also offers companies an opportunity to reimagine the way they innovate. BCG’s research shows that a well-functioning innovation system comes down to five factors:
- An inspiring ambition with concrete goals
- A clear system of decision-making
- The ability to attract and retain talent, and assign it to the most important tasks
- A rigorous approach to the project portfolio (to ensure a steady stream of innovations that deliver on the ambition)
- Cross-functional teams working in an agile manner, supported by the right digital tools
If there was ever a moment to reconsider the status quo, this is it. Think of the possibilities: What if the crisis permanently resolves a constraint that previously stopped you from pushing into a new field? What if your customers discover new needs you can support? What if you have skills or intellectual property that can be deployed in new ways in a post-crisis world?
Smart moves to achieve innovation excellence today can help companies both navigate the current crisis and create long-term growth. The details will vary, but those that invest now will be in the best position to accelerate out of the crisis when conditions improve. Tomorrow’s innovation leaders will be made today.
Michael S. Ringel, a Boston Consulting Group senior partner, is BCG’s global leader for growth and innovation analytics.
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