How companies prioritized innovation during the crisis

To hunker down or branch out? We look at how large and small companies budgeted for innovation in the wake of Covid-19.

We do regular pulse checks with a variety of organizations. So naturally, the moment the Covid-19 crisis hit, we asked our network how they were responding. By mid-May 2020, we’d gathered the reaction strategies of more than 750 companies.

Though many told us they were concerned about the outbreak’s impact on the economy and their organization’s future prospects, most had yet to do anything about it. Of the companies we spoke to, just 24% had so far made bold investments or launched new products or services. Most had been hesitant – instead of conducting smaller experiments or slashing costs in an effort to protect their core business and weather the initial storm.

Interestingly, large businesses were less inclined to prioritize innovation and new growth than smaller companies. 52% of enterprises containing more than 1000 employees decided to reallocate budgets from adjacent, exploratory growth areas (horizon 2 projects) to innovation programs aimed at shoring up the core business (horizon 1). Only 21% of those larger companies were investing in projects for new growth.

Whereas with smaller organizations, this shift was reversed. 41% of small businesses we spoke to were already exploring new or adjacent opportunities. While only 35% were reinforcing their core products.

Of course, many businesses are wisely doing both. A survey by Innovation Leader shows that, in general, organizations are splitting their innovation budgets up as follows:

  • 60% is maintaining existing business offerings through incremental horizon 1 optimizations
  • 23% is bookmarked for risky, longer-term horizon 2 (adjacent business) projects
  • 17% is going towards pursuing loftier horizon 3 (transformational new growth) projects

It’s important to note that, as a publication for innovators, Innovation Leader’s sample may be biased toward organizations with a relatively strong commitment to innovation. As a rule of thumb, it’s said that most companies should aim to split their innovation budgets 70/20/10 between each of the 3 horizons. But again, Innovation Leader’s sample group indicates a general crisis-time shift toward defending the core business.

As for what exactly those daring companies choosing to leverage this crisis are up to? According to the sample we took of 50 recent business model pivots:

  • 75% have decided to test a new product or service
  • 52% have ventured into a new market or client segment
  • 45% have attempted both of the above

Interestingly, few large organizations are doing both at the same time. Most enterprises are more conservative in their approach to innovation. And, in general, slower to execute. But there are some exceptions.

Recent innovation experiments by large corporates

PepsiCo

When the lockdown hit its key regions, the team at PepsiCo decided to leverage the fact that people would need to eat at home for an extended period – no more dining out. In less than 30 days, they developed two new direct-to-consumer platforms: Pantryshop.com and Snacks.com. On Pantryshop.com, consumers can order specialized bundles of PepsiCo’s top-selling brands, including Quaker, Gatorade, SunChips, and Tropicana. While Snacks.com, unsurprisingly, is an e-shop for snacks.

Kaiser Permanente

American healthcare provider Kaiser Permanente moved quickly to improve its user satisfaction. Amid the healthcare crisis, the company announced it would be partnering with meditation app Calm to offer the service to Kaiser Permanente members for free. “As we all continue to grapple with the uncertainty, stress, and sometimes fear brought on by COVID-19, it’s essential that we tend to our physical and mental health,” explained MD, psychiatrist, and national leader for mental health and wellness at Kaiser Permanente, Don Mordecai, of the partnership.

Panera bread

Casual restaurant chain Panera Bread quickly responded to the Covid-19 crisis by introducing several redesigns to their business model. Not only did they add contactless and curbside delivery (after having gone digital through a partnership with Grubhub last year), they also quickly launched Panera Grocery. This new service enables customers to buy high-demand pantry items, including bread and fresh produce alongside classic Panera soups and sandwiches. “Leveraging the Panera supply network of clean ingredients, Panera Grocery is easily ordered on the Panera app or website and is available via contactless delivery, Rapid Pick-Up, Drive-Up and Drive-Thru,” they explain. Venturing into a new market so quickly? Impressive.

AB InBev

Multinational brewery, beverage, and cafe company AB InBev launched an app to enable patrons to order in cafes and bars without going to the counter. This service will enable increased safety for customers and staff.

Emirates Airlines

Pre-Covid-19, passenger flights were Emirates Airlines’ bread and butter. But with travel canceled, the airline was faced with the possibility of having to close the business. Instead, they quickly increased the freight side of the business by offering more cargo flights. This move provided an additional revenue stream when the company needed it most.

How smaller businesses have pivoted amid Covid-19

The smaller the organization, the faster they can pivot. But with less of a foothold in the market than their larger counterparts, acting quickly is often essential for a new business’s survival.

We’re crowdsourcing a long list of Low Touch Business Model Pivots in Google Sheets. So far, users have contributed more than 50 exciting cases. From those, here are two standout examples of smaller organizations that stayed afloat amid the crisis through whiplash-inducing innovation.

EmiControls

With their snow-cannon business set to see an extended drop in demand, EmiControls decided to target a completely different market. Ingeniously, they were able to modify their current product to tap into a new need: disinfection of large open spaces.

Tomorrowland

With music festivals off the table for 2020, the team behind Belgium’s internationally renowned event Tomorrowland needed to change their plans. In the end, they decided to swap their planned in-person gathering for a virtual 2-day festival. Interestingly, this offering could enable them to increase their revenues going forward by reaching more people (no more sold-out tickets) and making the event more accessible and affordable.

What can you learn from them?

With bigger companies leaning towards optimizing their existing cash cows, many of their smaller counterparts are striking while the iron is hot. But which move is the right one? Should you be safeguarding what used to work, or experimenting for future growth? Our advice would be to avoid extremes. By no means should you eliminate your innovation budget. Nor should you solely explore new opportunities at the expense of your existing business. Instead, be flexible. Protect what works, but be sure to pursue backup options. You don’t want to ignore a consumer need only to have it served by a more nimble competitor.

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