INNOVATION FOR BETTER STABILITY

Innovation in a crisis: Why it is more critical than ever

Sourced from mckinsey.com

The recipe for emerging as an innovation leader

In earlier research, we introduced the Eight Essentials of Innovation—the critical practices that have the greatest impact on innovation success. We subsequently showed that mastering the Eight Essentials leads to significantly higher performance, with organizations that excel at most of these practices delivering 2.4 times higher economic profit. Mastering these innovation essentials is even more important now, as companies prepare to return to growth coming out of the crisis. The immediate challenge is motivating teams to bring intense focus, speed, and agility to delivering new sources of value. Crises are like adrenaline for innovation, causing barriers that once took years to overcome to evaporate in a matter of days. Entrenched orthodoxies on “the way things are done” are replaced with “the new way we do things” almost overnight.

To emerge as leaders from this crisis, companies can rely on the Eight Essentials of Innovation as a formula and a road map for success. While all of the Eight Essentials matter, our earlier research has shown that in times of broad economic stability, two of them—Aspire and Choose—are most important for generating immediate outsized impact. In times of crisis, however, we observe that other essentials take on greater significance, suggesting a different order of action (Exhibit 7). We recommend prioritizing Discover, Evolve, and Choose; these three will guide an organization in reorienting its focus, as needed. Then leaders can address Aspire to reset their guiding “North Star,” Accelerate and Scale to invest at the right levels and speed given potential changes in end markets, Extend to develop new types of ecosystems, and finally Mobilize to put in place the appropriate talent and incentives to activate the innovation plans.

Discover. The market context during a crisis is dynamic, with little certainty about what will define the world when things stabilize. Having a powerful approach to analyzing this type of landscape requires the ability to Discover. It is critical for companies to overinvest in rediscovering what matters to customers now and understanding the impact those changing needs will have on their business. As Henry Ford once remarked, “If I had asked people what they wanted, they would have said ‘faster horses.’”

Crises tend to reshape spending patterns, which in turn change how attractive an end market may be. For example, many consumer-facing companies must now contend with the likelihood that brick-and-mortar retail may never return to its glory days, as many stores become mini-distribution hubs for e-commerce. Whereas the commercial real estate market used to place a premium on the highest floors of office buildings, concerns about confined crowds in elevators and high-density work spaces may now flip these valuations on their heads.

Collecting and synthesizing market insights should not be a siloed task left to a dedicated function or agency. Entire organizations, from sales and customer service to marketing and operations, can be activated to monitor change and interpret its impact. Every customer touchpoint is a new opportunity to learn. Having the ability to rapidly synthesize the many signals coming into an organization, recognize new patterns of customer behavior, and take action quickly can give companies a head start in the innovation race.

Organizing this information so that it can be rapidly converted into to new products, services, customer experiences, and business models is critical. First, it means having a way to clearly define and prioritize valuable problems to solve for customers. To identify a valuable problem, companies need to determine a clear “who” (a specific customer description), develop a fact-based understanding of the burning challenge this customer faces, and specify the outcome they hope to achieve by solving it. This strict definition helps to separate fuzzy and unhelpful questions from clear customer needs for which a solution can be precisely assessed.

Businesses can further prioritize among various valuable problems to solve using an equation that factors in the size of the potential market, the value that customers place on a solution, and the relative satisfaction of alternatives to the proposed solution (Exhibit 8). Once businesses have identified the most valuable and relevant problems to solve, they can use concept-generation approaches to arrive at hundreds of ideas within a day (see sidebar, “Concept-generation tools.”). Leaders can then leverage rapid formats such as pitch panels to further prioritize and refine the concepts. As American chemist Linus Pauling advised, “The way to get to good ideas is to get lots of ideas and throw the bad ones away.”

Evolve. Today, countless companies are seeing dramatic shifts in their profit pools and the economics that support their operations. Crises like the one we are living through today are watershed moments for companies to Evolve. Successfully managing a business model shift first requires determining which aspects of the model have been impaired and are unlikely to return. If a company derived an advantage from a field sales force that can no longer call on customers or brick-and-mortar storefronts that now have reduced foot traffic, for example, it will need to pivot to develop a digital approach. While some of these challenges may ease as lockdowns are lifted, other market dynamics and ways of working may be permanently altered. As recent research shows, Chinese consumers’ offline consumption dropped almost 70 percent with shelter in place restrictions and only half of that volume returned after the lockdown was lifted; likewise, consumer adoption of telemedicine appears to be sticking. That, in turn, will have implications for an organization’s assets, tools, and capabilities.

Experimenting with alternative business models—by asking, for instance, “What if we were acquired by organization X today?”—can be a great way to test what an organization could accomplish by evolving its business model. Removing constraints and questioning previous assumptions about what will generate the most value are powerful ways to conceive new business and economic models.

Choose. So, how does one fund the innovation required to make this kind of pivot? Revisit the innovation pipeline with fresh eyes and reprioritize resourcing. Challenging the core assumptions that support each initiative can determine which initiatives to continue, pivot, or cut. One of the biggest mistakes an organization can make is to let assumptions become assertions. The value, timing, and risk of initiatives will likely change in the “next normal” as market dynamics evolve and customers rethink their needs and associated spending.

Reconstructing the innovation portfolio based on what will drive the most value enables leaders to reallocate resources toward the best “next normal” opportunities and away from opportunities for which previous assumptions no longer apply. As an example, a consumer-packaged-goods company that planned to launch a product line centered around health enthusiasts in gyms may decide to shift resources toward building its direct-to-consumer e-commerce business that had been sidelined previously because of historic beliefs that demand was too small and customer adoption of virtual channels too limited. Today those beliefs may have reversed.

Aspire. Setting a new aspiration should act as a North Star that defines a combination of capabilities and strengths that will persist in the post-pandemic world. To do that, leaders may need to reframe their business and challenge orthodoxies that shaped the previous aspiration. As an example, the work-from-home technology platforms that once saw themselves as compliments to an office-based model could now envision their business as competition for the likes of WeWork and the biggest commercial real estate firms. They could also position themselves to become the platforms of choice for older generations of consumers, now savvier in the use of digital technology, to communicate with family and friends.

Accelerate and Scale. The global pandemic has significantly accelerated the pace at which companies are bringing new ideas to market, including massively expediting some regulatory processes and applying pressure on industry ecosystems to deliver scarce products and services in new ways. In a matter of weeks, some companies pivoted their existing manufacturing to support COVID-19 response: industrial companies are producing ventilators and hygienic masks, luxury brands are making hand sanitizer, and distilleries are producing disinfectant alcohol. Given the accelerated pace at which products and services are launched directly into market, it is critically important to ensure that supply chains and other enablers of scale keep pace to meet demand.

Extend and Mobilize. In some cases, businesses can leverage external partnerships to Extend their organization’s reach and, in so doing, realize a higher return on innovation investment, mitigate risk, and help shape regulatory policies. One of the major early lessons of the COVID-19 crisis is that competitors and firms from completely different industries can suddenly become allies. We have seen this in the more than 15 pharmaceutical companies that agreed to share compound libraries in the search for a coronavirus therapy, and in the public-private partnerships created to help flatten the infection curve and prepare for the reopening of economies.

To enable such extensions, organizations will benefit from instilling an agile culture and working model that help Mobilize innovation. Speed is an important driver of innovation success, as is the ability to persist despite the hardships that a crisis imposes.


The essential practices underpinning distinctive innovation have not changed in this time of crisis, but the relative emphasis and urgency of where businesses should focus has. Whereas in our 2019 article “The innovation commitment” we highlighted Aspire and Choose as disproportionately important during times of stable economic growth, we believe the uncertainty and severity of the current crisis requires leaders, first and foremost, to re-Discover customer needs and Evolve their business models to meet those needs.

Above all, organizations need to realize that innovation, now more than ever, is a choice. Regardless of the relative emphasis and order, we believe that the Eight Essentials of Innovation, which for years have helped leading innovators more than double the total returns to shareholders compared to laggards, will continue to be critical in navigating and emerging even stronger from this crisis.