Synopsis of an article from McKinsey, by Jordan Bar Am, Laura Furstenthal, Felicitas Jorge, and Erik Roth, Published 17th June 2020
“Prioritising innovation today is the key to unlocking post crisis growth”
In a recent survey of over 200 organisations more than 90% of executives surveyed, said they expect that the COVID19 crisis will fundamentally change the way they do business over the next 5 years. 75% believe that the crisis will also create significant new opportunities for growth.
Executives are weighing up the current choices on driving productivity and cutting costs against investing in innovation led growth. Many are focused on core business and are planning to recommence innovation programs when the ‘path forward is clearer’.
The McKinsey team went on to interview more business leaders on current priorities; the insight is that companies are de-prioritising innovation in order to bring greater focus to core business, grow the known opportunities, conserve cash and minimise risk.
The case is made however to that in times of crisis you need to take more urgent action including:
- adapting the core to meet shifting customer needs
- identifying and quickly addressing new opportunity areas being created by the changing landscape
- reevaluating the innovation initiative portfolio and ensuring resources are allocated appropriately
- building the foundation for postcrisis growth in order to remain competitive in the recovery period
Business cannot just expect to be able to continue to operate in the same way, the upheaval in business models, regulatory environments, customer segments ability to pay may all create new constraints.
New constraints create opportunities for innovation, that did not exist before.
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.
Competitive advantages are shifting the business model dynamics and forcing industries to adapt to new market realities. The core capabilities that made an organisation distinctive may suddenly be less differentiating. In response industries are being forced to change rapidly:
- Changes to sales models
- Need for new offerings
- Rapid changes in customer behaviour
- Influx of competitors from different industries
Trend analysis of company performance over previous crisis’s has identified that those that invested in innovation during the crisis, were able to sustain and build accelerated growth and superior performance (out performing the market by 30%) after the crisis for the next 3-5 years.
The recipe for emerging as an innovation leader
The authors reference previous McKinsey research into the Eight Essentials of Innovation which identifies what they believe to be the key practices which have the greatest impact on innovation success. Mastering these delivers 2.4x higher economic profit.
- Aspire – Innovation led growth is absolutely critical, targets are set to reflect the aspiration
- Choose – Invest in a balanced portfolio of initiatives that prioritised with resources to succeed.
- Discover – Insights that bring deeper understanding of customer, business, market and technology with clear actions.
- Evolve – Create business models that establish defensible, robust and scalable profit sources.
- Accelerate – Fast and effective development and launch of innovations.
- Scale -Launching innovations in markets and segments where opportunities exist.
- Extend – Creating and capitalising on external networks
- Mobilise – Motivate and reward staff to innovate repeatedly.
Value of potential opportunity = (number of customers x frequency that the solution is used x willingness to pay for current solution) / level of satisfaction with current available alternatives.
This article closes with key point that the essential practices of innovation have not changed during crisis, but the ‘relative emphasis and urgency of where business should focus has’.
Organisations need to recognise that innovation is a choice that will be critical to successfully navigate and emerge stronger from the current crisis.
About the author(s)
Jordan Bar Am is an associate partner in McKinsey’s New Jersey office, where Felicitas Jorge is a consultant; Laura Furstenthal is a senior partner in the San Francisco office, and Erik Roth is a senior partner in the Stamford office.
You can read the full article here (which has some excellent charts and infographics):
https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/innovation-in-a-crisis-why-it-is-more-critical-than-ever