Corporate innovation has been under serious pressure during covid19. Innovation budgets were frozen, teams were made redundant and innovation hubs came to a halt. Why did this happen, what can we learn from this crisis (for the next), and what does this tell us about the standing and maturity of corporate innovation?
Covid19 hit organizations with full force within just a few weeks. Supply chains were disrupted, existing business models became obsolete, and modes of service delivery didn’t work anymore.
What made covid19 unique is that it was a global crisis that affects us on many levels simultaneously. In addition to the impact it had on businesses, covid19 had a direct impact on our personal and social life. It was a crisis that affected us on an emotional level too. The root cause of covid19 - a highly contagious virus - is simple, something we can easily understand. In contrast, the financial crisis of 2007/2008 took years to unfold, its root causes were complex and difficult to understand and its impact was primarily economically.
A crisis is the ultimate stress test for corporate innovation. A crisis can help flush out unnecessary surface-level innovation initiatives that can be labeled as innovation theatre. As budgets are tighter than usual, existing projects need to justify spending and new projects need an even stronger case to kick off.
A key challenge of a crisis as severe as covid19 is that it can put organizations into survival mode. Survival mode is a necessary strategy for some organizations as it provides focus and helps deal with the situation at hand. However, the survival mode comes with a strong bias toward the short-term. As a result, many organizations have reduced their innovation budget and stopped promising innovation initiatives. In some cases, entire innovation teams have been made redundant. Furthermore, survival mode can be contagious. Even organizations that have the financial means to navigate a global crisis join in a collective survival mode by cutting innovation budgets.
Survival mode is about preserving the status quo. Innovation is about creating future opportunities.
How are organizations responding?
How do they manage to integrate both short-term fire fighting and exploring new possibilities?
What approaches to innovation do organizations apply in a crisis?
From my perspective, you can observe three distinct survival mode patterns: back to the core, expand the core, and reinvent the core.
Back to the core
This pattern is followed by organizations that reduce their innovation efforts to save costs in the short term. Functions that are not essential to the core business are being deprioritized and existing innovation initiatives are being paused or shut down. Innovation is seen as a ‘nice to have exercise when things are going well.
Advantages:
cost savings can be realized in a short time frame.
serves as an emergency approach to keep the organization alive.
can be a valid approach for a short time frame only.
Disadvantages:
organizations that don’t make innovation part of their core business risk their future business.
reducing innovation budgets sends the wrong signals to corporate innovators and the rest of the organization.
it’s difficult to ramp up innovation again when the crisis is over.
Back to the core is an effective pattern that produces results immediately and can help ensure survival. If followed for a prolonged time, however ‘back to the core’ is a risky approach and can be a sign of low innovation maturity. Most likely innovation has no seat at the table when it comes to strategic management decisions.
Expand the core
In the ‘expand the core’ pattern organizations do consider innovation as a means to navigate a crisis. Organizations that apply this pattern understand that saving costs is not sufficient to bring an organization back on course. Innovation is applied to expand the product and service offering.
Advantages:
a burning platform can accelerate innovation.
if successful, innovation can achieve new revenue opportunities.
expanding the core is seen as a less risky move.
Disadvantages:
innovation is under immense pressure to save the day.
designing new service offerings and business models takes time - innovation is no quick fix in a crisis.
in order to make a real impact, fast innovation teams need more budget and manpower.
Organizations that apply an ‘expand the core’ pattern successfully can persist and even thrive during a crisis. The chances of success are high if innovation has sufficient management attention, is well resourced and innovation teams have already investigated new opportunities outside the core business. A neglected and under-resourced innovation function will have a hard time turning a crisis into an opportunity.
Reinvent the core
Organizations that apply a ‘reinvent the core’ pattern are either bold or desperate. Following this pattern is not just about seeking new revenue opportunities outside (new customers, or markets). It’s about the need to reinvent the core of the business completely in order to not only survive the current crisis but also to become more resilient in the future.
Advantages:
a crisis is a unique situation to reflect on outdated belief systems.
a crisis releases energy and organizational development can be accelerated.
adaptability is a competitive advantage. Adaptable organizations are more likely to succeed in the future.
Disadvantages:
bold strategic moves during a crisis can create even more uncertainty. A balanced approach and good communication are key.
reinventing an organization requires developing a vision, having long-term focus, and patience.
the common fail fast and break things mantra of innovation can be harmful if applied to organizational development.
Organizations that follow the reinvent the core pattern realize that innovation can be applied internally as a means of organizational transformation and development. They understand that this is not a project that can be managed with your usual innovation approaches. It’s a complex social system of written and unwritten rules, conscious and unconscious beliefs, and formal and informal expectations including a corporate immune system that will push back if triggered. Reinventing the core benefits from a systems perspective and thinking techniques that are counter-intuitive yet effective.
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Posted by Dr. Sebastian Vetter
