The COVID-19 pandemic has already disrupted patterns of life and work across Asia, Europe, and the Americas. While measures to ensure the safety of staff are still the immediate worry for executives, they will quickly need to turn to thinking about how the business should respond. Forecasts of the economic impact remain highly uncertain, with McKinsey, for instance, offering scenarios that range from a modest reduction in global growth, to a recession that leads to a global contraction of 1.5% of GDP. Despite the lack of clarity, innovation leaders should be thinking about how to prepare for possibilities in the near-, medium-, and long-term.
Near-term: Look to new ways to keep idea pipelines full.
A survey of innovation leaders from the Innovation Research Interchange (IRI) found that the most common response so far have simply been “changing or suspending customer-facing activities” – in addition to increasing telecommuting. And, of course, there has been a wave of cancellations and postponements of industry events, such as Mobile World Congress and JEC World.
Notwithstanding optimistic stories about how Isaac Newton did groundbreaking work on optics and gravitation while “working from home” due to the plague, this type of isolation isn’t good for innovation teams, cutting them off from the fertile sources of ideas that most still rely on. While there’s no substitute for deep interaction with customers and networking with other innovators, novel tools for ideation and discovery can be a useful supplement – see “Improving the Front End of Innovation with Artificial Intelligence and Machine Learning” for a case study on using natural language processing (NLP) to find new opportunities. Travel and event restrictions should ease later in the year, but now is a good time to develop such data-driven capabilities, especially as these tools will be an increasingly important part of innovation management even in normal times.
Medium-term: Be on the lookout for smart deals.
High uncertainty can create opportunities to put the second half of Warren Buffett’s famous maxim into play. We’ve already observed a slowdown in VC investment in China, and the same restrictions that frustrate corporate tech scouts could also stymie venture dealmaking. If the uncertainty also leads VCs to keep more of their powder dry for current portfolio companies, the next six months or so could see many innovative start-ups in financial distress.
Corporate leaders should aggressively seek chances to engage on favorable terms. Even if outright acquisitions or equity investments are too much for skittish CFOs to stomach, aim to find more generous JDAs or licensing deals with startups that are eager for any cash injection or for “wins” to wave in front of investors. This strategy has a strong pedigree: Apple acquired the tech that became the iPod during the 2001 recession, and our archives from 2009 are replete with stories about firms making tech acquisitions on the cheap. In the last recession, many of those deals were in energy, but this crisis could provide interesting opportunities in gold-rush fields like AI, 3D printing, and alternative proteins.
Long-term: Pursue digital innovations for efficiency.
Hopefully there is little “long term” impact of COVID-19, as its spread is brought under control and the world economy returns to (more or less) normal later this year. However, if the outbreak causes more protracted economic disruption, many innovation organizations will be under pressure to cut budgets and to deliver more immediate improvements to profits – and prudent leaders should be prepared for the worst.
In this case, there is a good recent model to follow: the oil & gas industry. Following the precipitous drop in oil prices in 2014, the industry turned to open innovation and digital tech partnerships to find efficiencies and shore up margins – and has seen successes like Shell’s work with Quantico on synthetic well logs or Enbridge’s collaboration with Hifi Engineering on fiber optic leak detection. Now oil & gas is arguably a digital leader relative to other heavy manufacturing industries. Others should also be prepared to pivot to savings- and efficiency-oriented strategies if tough times seem likely to stick around.
Certain firms can also develop innovations that directly address the pandemic, such as AI diagnostics, point-of-use sensors, or digital biomarkers. But all organizations are going to be facing the same difficult and uncertain operating environment for some time, and leaders should be thinking about how they want to position their teams to respond.
Lux will be closely monitoring the ongoing impact on innovation, the development of technologies that can help deal with the virus and its aftermath, and the shifting strategies leaders should take to keep their teams, projects, and businesses as safe and productive as possible. We’re committed to working diligently, flexibly, and creatively with all our clients to make sure that we’re able to assist you as we all work together through the challenging days ahead. Our team is already having discussions with clients about what their firms are doing and how we can help, so let us know how we can support you as well.