Innovation in a Downturn: Pivot or Perish?

Times of crisis create an explosion of opportunities for the companies that are prepared to seize them. COVID-19 is no exception: Indeed, hundreds of pandemic-related innovations have already sprung up globally, fueled by initiatives such as Startups Against Corona in Germany.

The best organizations are responding to the current crisis by leaning into strategic innovation or innovative business products to obtain a competitive advantage.

Three Ways to Thrive Amid a Downturn

Organizations can leverage innovation to thrive during a downturn by:

1. reevaluating their business model
2. identifying and filling existing gaps
3. building a culture that nurtures innovation

Reevaluate your business model: Start from the core.

COVID-19 has forced most organizations to change the way they deliver value to their customers (e.g., by suddenly adopting untested digital tools or quickly launching new products and solutions). To respond quickly to emerging demands, organizations must build from their existing core assets, talent and capabilities.

• Assets: Leaders can leverage existing assets -- like their organization's brand, proprietary distribution channels and licensing rights -- to give their innovations the best odds of success.
• Talent: Organizations must expand the top of their innovation funnel by pooling and evaluating ideas from across the organization rather than relying solely on R&D and a handful of pre-pandemic innovation-focused teams.
• Capabilities: Pooling ideas from employees is a particularly useful approach to leverage existing capabilities to drive incremental innovation, as it aims for a series of small improvements rather than creating new business models, products and services from scratch. These improvements can help organizations gradually adapt to the new normal while strengthening their capabilities and providing additional value to customers.

Fill gaps through strategic external partnerships.

Innovation leaders understand that they can better meet customers' increasing demand for integrated customer experiences by partnering with other organizations in innovation ecosystems.

For example, Rakuten -- Japan's largest online retailer -- offers customers a highly integrated digital experience, with e-commerce services ranging from banking to media. Rakuten partnered with Walmart to introduce their products into the Japanese market, and with the Chinese company Tael Ecosystem to leverage blockchain to verify the legitimacy of Rakuten's products in China.

Post COVID-19, organizations that master the art of selecting the right innovation partners will gain a competitive edge and recover faster.

In addition to leveraging innovation ecosystems, successful organizations look to their customers and to the public to help them adapt their business models. Some companies (such as Starbucks, P&G and Dell) have long "outsourced" innovation, using crowdsourcing to gain input on how to solve specific challenges. For example, Roche Canada started a COVID-19 open innovation challenge, receiving more than 800 robust ideas to mitigate the effects of the pandemic.

Other external sources of innovation include existing suppliers (who already have a deep understanding of their client's business), M&A target companies, corporate venture capital initiatives, and academic and government partnerships.

While strong business models and external partnerships are critical for successful innovation, without the right culture, organizations will be unable to sustain innovation and respond to a changing environment.

Build and sustain a culture that nurtures innovation.

For innovation to blossom, it must be embedded in the organizational culture.

Unfortunately, only 38% of employees say their company asks for their input on changes affecting their work. Even more alarmingly, just one in five say their job allows them to share and work on their most creative ideas.

To remedy this, leaders must foster a culture that celebrates diversity of thought; encourages employees to innovate; and leverages agile methods to optimize the testing, validation and scaling of the best ideas.

• Celebrate diversity of thought: Leaders must clearly define where innovation efforts should be focused, set KPIs to monitor progress and align incentive structures accordingly.
• Encourage employees to innovate: Leaders must ensure agile teams are given time and resources to devote to innovations aimed at offsetting the downturn.
• Leverage agile methods: Leaders must develop a transparent and clearly phased-out innovation funnel so ideas are pooled, tested, validated and scaled rapidly in short iterations involving cross-functional teams. Companies that fail to do so may jump too quickly into faulty or undesirable offerings -- something leaders cannot afford, especially during a downturn.

As organizations chart the way forward and change their focus from survival to recovery, innovation will be paramount to securing future growth and maintaining (or building) a competitive advantage. A company's ability to innovate amid this downturn will be the difference between successfully pivoting and slowly perishing.