Innovating during an economic downturn might seem counter intuitive at first sight. However, it is precisely the right moment to do so, as long as you already prepared your company for survival during this extremely severe crisis.
This Monday European and US companies announced a brutal 76′000 job cuts in one single day (cf FT article Gloom deepens as 76,000 jobs go in a day). To focus on business model innovation when you just fired a part of your workforce to bring your company through the crisis might seem very strange. Yet, it is the right moment to do so for a number of reasons.
Business model innovation is difficult to achieve because it affects so many parts of an organization and because it needs the buy-in of so many different people. In addition, it requires the right organizational structures and a sense of urgency to make it happen. All these conditions are, unfortunately, easier to achieve during an economic downturn.
In an economic crisis complacency is gone and everybody feels a sense of urgency to act. People resist change much less when the survival of their company and ultimately their jobs are at stake. We all know how fiercely most people resist change in good times. So when the most urgent issues, such as cash management, are taken care of, a company’s management should turn to innovation. This is the best opportunity they will get to position their company for the future of business model innovation.
So what is to be done? A good place to start with is building the right organizational structures that allow for business model innovation. With this I don’t simply mean a “traditional” restructuring and shifting of people, but deep structural change. An organization that systematically wants to address business model innovation has the following characteristics:
- its board explicitly gives the management the mandate to continuously examine business model innovation;
- it extensively works with multidisciplinary teams across “departments” and across hierarchies;
- it has mechanisms that allow innovative business model ideas to be evaluated by peers during a first phase, rather than “just by managers”;
- it involves the customer in the process of business model innovation
- it maintains a portfolio of innovative business models that may even cannibalize the existing business model.
- it has the right physical space in place to allow multidisciplinary business model project teams to flourish. In other words, it has project/war rooms dedicated to a project during it’s entire duration and with lots of whiteboards and walls to post visuals.
Voilà, some “unbaked” thoughts on using the economic downturn as an opportunity to position an organization for the future of business model innovation.
If you have any thoughts to add, please don’t hesitate. The forum is yours…
It’s tempting to think that the financial crisis opens organisations to creative risk taking. However, reality is that nothing makes us more risk averse than losing money.
Yes it is true that you can succeed with business model innovation in a financial crisis, but in my opinion it must be driven by customer needs – you find alternative business models that reduce customers’ risks and short term costs.
Perhaps what opens up for more long term business model innovation is an intermediary recession model, which opens up for a new and different longer term business model for your company.
I guess my opinion is that you’re right, that the downturn opens up for business model innovation, but that the external drivers are more important than you give them credit for in your blog post.
Very good point Rik! The post should have mentioned risk aversion during downturns. One thing companies certainly wont do during such a severe crisis is invest time, energy and money in risky ventures.
However, a crisis is the right time to create the conditions for future business model innovation. It also allows exploring avenues for future growth and expansion.
What is risky, that is the key question. A disruptive concept may appear risky, but still it is the only way out. I would even suggest that every innovative concept should be/is disruptive by nature…
Cut out the dead wood may help, only in conjunction with a strong management vision of the future. If not, the cuts are just to save cost and knowledge capital is distroyed: unforgivable!
It amazes me that so few companies are (re)thinking (about) their business model/concept/future and only react…many of these companies will not survive the next 5 years, since they offer no longer any added value and stakeholders are better off without them…
I have an intuition that underneath these crisis, there should be something untapped that could benefit all. I have been thinking exactly about this post for a while..
I wanted to understand the reality of this crisis and found that people are been laid off, because either their employer had no work to give them (services sector) or they had to reduce headcount to save some money (may be products sector).
The products employer cannot make more profit because of shrinking people’s spending attitude and insecure feeling (May be because of the lay-offs).
On the other hand, the services employer cannot rope in more work because their clients dint want to spend more as the demand is lessening.
Essentially in a nutshell, people and companies feel insecure in spending which creates this vicious circle of crisis and lay-offs.
As you have mentioned the companies can tap this opportunity if they want to sustain longer in future.
For example, we could see that there is a large human resource pool now available, may be also with compromises in salary. Companies can tap it by
involving them as Prosumers (Consumers as also Producers). A very good example may be of Apple’s iStore, which enabled many outsiders to develop applications and sell them through iStore.
There can really be innovative Prosumer products that can be made as compelling products, by tapping the availability of laid-off people and gain people’s trust.
I would be happy to know your comments about my thoughts.
Wow…what presentations. I especially loved the Ipod Business model one.
Would it be too much to ask how you got the “handwritten” styled charts in that one?
Great job!
I absolutely agree with you, Ronald!
@Sandy: it’s simply using the font “Handwriting – Dakota” in MS PowerPoint for Mac…
The financial crisis could stimulate companies to explore underserved markets such as underserved consumers and non-consumers. Due to worries about how the crisies affects them (or already has) consumers may be searching for alternative solutions that are cheaper or provide more ‘productivity’