3 Paths to Innovation-Driven Growth During Economic Uncertainty
As the COVID-19 acute economic downturn recedes and businesses stabilize many B2B executives want to take advantage of trends emerging from the pandemic-induced disruption. Earlier this year many companies shored up liquidity, pared down R&D investments and delayed capital expenditures. Pre-COVID innovation plans became deprioritized for fear of being too risky or far flung. We argue that innovation should now become top-of-mind for executives. Instead of keeping a tight rein on capital, you should now fund innovation— a move that could very well fuel your recovery and set your company up for success in the post-pandemic world.
As we discussed in our previous series, steering your business through this disruptive environment is a three-step process. Executives must anticipate what the new normal will look like, adapt their strategy accordingly, and accelerate critical initiatives to drive success. Innovation opportunities should be a key consideration while adapting your strategy in step 2. Conventions should be challenged in this new environment. You may find new ways to serve your customers, target new markets, or change how you do business.
In our experience, exploring innovation opportunities can be organized into three separate tracks. In each track, innovation is achieved through different means.
- Developing innovative next level technologies to leapfrog your core market
- Entering and bringing innovation to adjacent markets
- Creating innovative new business models to capture more value
To understand which innovation opportunities are right for you, we recommend undergoing a rigorous assessment of opportunities in each track. This process will yield an exhaustive basket of innovation ideas that can be evaluated further and compared. Finally, the most attractive ideas that rise to the top can be prioritized and accelerated.
In the next three sections, we discuss how to begin brainstorming ideas in each innovation track.
Next Level Technologies
Companies have an opportunity to leapfrog competitors in their core market by developing next level technologies. These technologies go beyond the evolutionary to the transformational – they help customers transform how they do business. Rather than providing incremental benefits typical of most product improvements, next level technologies create a step-change in value for customers. This level of value creation rewards innovators with increased revenue, market share, and customer loyalty.
Transformational next level technologies must solve customers’ most pressing issues. In the underground utility locating market, that problem was speed. In the past, utility locating was a slow and costly process for services providers due to the prevalence of poor markings and inaccurate maps. We worked with a tool manufacturer that revolutionized the process for customers in this space. Our client developed a technology which integrated GPS and mapping software with their locating equipment, thereby reducing their customers’ locating activity time by 50%. The efficiencies captured by their innovation ensured they had a leading market position for years to come. Next level technologies can allow your company to similarly leapfrog the competition.
Innovation does not always require major technological advancement. While your business’ current generation technology may no longer be innovative in your core market, it could be innovative in adjacent markets. Adjacent markets can include new products to offer, applications to enter, or customers to target. Value creation potential and high accessibility are key characteristics of attractive adjacent markets. The more innovation your solution brings the table, the higher your value creation potential in that market will be.
High growth adjacent markets are especially good targets for companies who are experiencing downturns in their core market. A manufacturer of industrial low voltage drives decided to research prospective adjacent markets due to low growth in their core applications in ventilation systems, pumps, and conveyers. To identify adjacent market opportunities, they took stock of their strengths and examined how and where they could apply them. The manufacturer’s top of the line inverter – a component within their drives – was identified as a potential power-saving solution for solar arrays and windmills. They began selling the inverters into solar and wind applications. The inverter solution enabled more efficient power conversion, allowing end customers to capture more energy when operating windmills and solar arrays than with the previous technology. The manufacturer established new revenue streams by finding an innovative application for their core product in a new, fast-growing adjacent market.
New Business Models
The third track, which is the most wide-ranging, involves looking across your business model for opportunities to innovate. Companies that implement new, innovative business models fundamentally change how they create and capture value.
New business models are novel, challenge the status quo and offer a diverse array of potential benefits.
Developing next level technologies or entering adjacent markets are new ways of adding revenue. New business models, by comparison, are more novel, challenge the status quo, and offer a diverse array of potential benefits. We organize the business model into six interconnected elements pictured below. Innovations can include anything from a new fee structure for your field services involving remote monitoring, to an additive manufacturing line that cuts production time in half.
New business models can be key to rising above competitive markets and setting your company up for long term growth. A construction equipment OEM did so by developing a new, digital platform that created enormous value for their contractor customers. Recognizing a new business model opportunity, the OEM partnered with a software company to build a cutting-edge fleet management platform. The platform’s open architecture allowed customers to manage information and control equipment across all brands and all makes, rather than being limited to just the OEM’s equipment. By using a single, unified platform, customers were able to optimize the operation of their fleets. Not only did the OEM open a new, subscription-based revenue stream, they also were able to offer more attractive warranties and improve their inventory management system with maintenance data delivered more accurately and frequently. Innovations in this space often yield a cascading series of benefits as different elements of the business model are affected.
Innovation should not be ignored when adapting your strategy to the new normal. In fact, innovation will likely be the key differentiator for companies that find the most success in the post-pandemic world. Innovation opportunities – which can be categorized as next level technologies, adjacent markets, or new business models – should be assessed by businesses looking to make the most out of these unusual circumstances