Disclaimer: This article is published in partnership with Siemens. Siemens is paying for engagement, not for promotional purpose. Opinions are my own.
The first part of this post concluded that de-prioritizing innovation in the current crisis may be a shortsighted strategy. Companies that keep investing in innovation to
- adapt their offerings and operating models to changing requirements
- prepare for entirely new value propositions in the Next Normal
not only tend to outperform during the crisis, but also in post-crisis years. So, how should companies go about innovation in these times?
Innovation in times of crisis takes a dual approach
Accelerating recovery from this crisis and tapping into emerging opportunities through innovation essentially presents a ‘dual response’, encompassing two distinct directions of impact:
Protection: Sustaining the existing business and operating model in the short to mid term – facing the tremendous ongoing changes in the way of living, working, consuming and spending.
Reinvention: Renewing or complementing the existing business model in the mid to long term – accounting for significant shifts in customer value proposition, regulatory requirements or technological capabilities.
A recent study from Deloitte on companies’ current positioning in the process of coping with the Covid-19 crisis has found: the majority of companies is starting to take actions towards or is already passing through the ‘recovery’ stage, i.e. protecting and stabilizing its existing core business. At this point, those companies have not yet started reinvention for thriving in the Next Normal (see image below).
Research also confirms that top-performing digital companies take a dual approach. Digital Transformation essentially spans two dimensions: digitalizing the core of the company and building new digital businesses. This approach is further guided by two central principles:
- Customer focus: Zeroing in on shifting customer needs and prioritizing initiatives that address those changes. While companies may keep up cost-effective exploration of novel opportunities, selecting only those for scaling that serve aforementioned priority is crucial.
- Impact orientation: This crisis has finally terminated ‘Playtime’ and ‘Innovation Theater’. Strategic and financial impact on a limited timescale (ca. 6-24 months) is the dictate of the moment. Revitalizing core business has been taking center stage for now.
Ultimately, increasing the odds of coming out of the crisis in a superior position hinges on a company’s ability to reconcile Protection and Reinvention within its organization.
Three innovation priorities to go about concurrently
This dual direction of innovation impact can be broken down into three buckets of priorities, called playing fields (see table below).
Optimize the Core: Protecting the existing business by adjusting offerings and processes to new behaviors. Streamlining the core innovation portfolio in regard bottom- and top-line impact over the short term. Innovation targets include
- digitalizing products and services (e.g. online medical or legal consultation, virtual learning, remote monitoring).
- digitalizing processes and workflows (e.g. customer sales, service and engagement).
- addressing emerging customer experience priorities: interacting digitally, staying safe and receiving personalized offers.
Create the New: Reinventing the business by exploring new technologies and business models cost-effectively. De-averaging the venture portfolio in regard to impact on transforming the core business. Innovation targets include
- validating new technologies and their use cases – to fuel new business models, but also to advance existing operating models.
- validating new, fully digital business models and making a choice for Scaling-Up.
Companies can mostly match up the crisis’ pace of disruption and opportunity only by building something outside of the company’s core – independently from existing constraints and legacy structures. Leaders need to make sure that their companies develop this business building capability to launch multiple sources of future growth. Those new digital businesses typically draw on platforms and ecosystems. Research has shown ecosystem-based businesses to particularly exhibit advantages in a crisis.
Reshape the Core: Business transformation for Next Normal. Continuous business adaptation to emerging requirements. Innovation targets include
- adapting existing operating models to shifted priorities and changed dynamics in the market environment.
- scaling up new (digital) business models to augment or replace existing ones.
Reshaping the core business happens at the intersection of Protection and Reinvention. Accounting for unforeseeable discontinuities and the lack of clarity these days specifically requires companies to make their operating models more agile and enhance resilience and adaptability. This is largely carried out by digitalizing value and supply chains through new technologies, such as IoT, AI or data analytics.
Takeaway: companies are required to set themselves up accordingly
Certainly, not all companies may rebound into an outperforming position. However, it may be worth for every single one embracing its innovation opportunities at hand to increase the odds. Pursuing the suggested dual approach relies on a company’s (and its C-suite’s) ability to set itself up for concurrent Protection and Reinvention.
What’s your view? How should companies set out to innovate these days? I look forward to your comment!