Innovating for the post-crisis rebound

creative-destructionSchumpeter defines innovation as a process of creative destruction. The point is not merely that innovation can still happen in times of crisis; it is that crisis are the best time for era-defining innovations to emerge. In yesterday’s session of the Mardis de l’Innovation cycle (in French), Marc Giget highlighted a few powerful examples of companies, which emerged or re-emerged stronger out of the Great Depression of the 30s with winning products, such as GE and its refrigerators and washing machines, Converse and its emblematic (and ugly) shoes, or the entire machine-tool sector. As it turned out, the Great Depression became one of the most innovative periods in American history.

Today, some post-crisis winners are already emerging, though others may still be in the making. Examples include:

  • Boeing, which just started a third assembly line to increase production of its Dreamliner from 4 to 12 per month;
  • O3b with its low-cost satellite telecom network for the Other 3bn people who do not have access to a legacy, land-based, telecom infrastructure;
  • India’s Aravind eyecare system, which has already treated 12m patients with a state-of-the-art cataract operation at an ultra-low cost of $7, and has become the #1 training centre for eye surgeons from around the world;
  • Decathlon with its low cost, high performance, standardized sportswear and sport equipment business model.

In the last four years, the automotive sector has been badly hit by the economic crisis. Yet, 20% of Europeans say they intend to buy a new car in the next 2 years, a proportion that is not indicative of a particularly depressed demand. But 75% say that cost will be their #1 criteria, both from a cost of purchase and from a cost of operating perspectives. Three ways are emerging to meet that typical crisis-time need:

  1. Development of frugal products such as the Logan or the Duster from Renault’s Dacia. The Duster, a small low-cost SUV, has been so successful that some second-hand cars have become more expensive than new ones due to the delays to meet a higher-than-expected demand.
  2. Investment in high-throughput maxi-volume industrialisation. The most emblematic example is VW which has sold 30m Golf cars since 1974, is now launching its 7th generation, and is investing a staggering $50bn in the largest and most modern plants that the auto industry has ever seen, all operating on a standardized but modular MQB platform that will support 40 to 60 different models. The development costs are reduced by 20% and the production costs by 25%, positioning VW as a clear winner in, and post, crisis.
  3. Collaborative Consumption alternatives to car ownership, such as CityZenCar, BlaBlaCar, and many others, ranging from fleet sharing to peer-to-peer rental, which enable individual mobility with a radically different cost structure.

Let’s note in passing that electric cars are unlikely to be the growth engine of the post-crisis rebound, as they are not the cost-conscious, back-to-essentials response that the crisis-hit consumer needs. Auto manufacturers who bet the farm on electric may not live long enough to be able to see their bet pay off.

Looking at past and present examples, some common key principles of innovation for the post-crisis rebound appear to be:

  • Smart functional product definition focused on customer essentials, not by de-featuring existing products but by restarting from scratch;
  • High-quality design focused on purchase cost-effectiveness and in-use cost-efficiency;
  • Synthesis of the best state-of-the-art technologies (as opposed to making new discoveries);
  • Design that allows for fast and easy extension of the product range when post-crisis growth returns;
  • High-quality high-throughput industrialisation, where simplicity, economies of scale, and modularity lead to a step change in manufacturing costs;
  • High unit margins as the new lower-cost product is shielded by the higher cost of the previous generation products still in the market.

Organisations that harness these key principles of innovation for the post-crisis rebound often flourish to become the new leaders in their respective sectors, when a new world inevitably rises from the ashes of the old one.

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