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TransformationJan 31, 2022

Innovation During Crisis: How COVID-19 Creates Unforeseen Competitive Advantages

Gail Stout Perry and Nathan Lowenthal

From innovation out of necessity, to innovation with purpose.

Indelibly Brave 

“When you’ve laid off 17,000 people and are still losing $70 million a month, you innovate.” 

The words are as poignant today as when I first heard them while meeting with a small group of C-level executives around the topic of innovation. The group shared best practices about innovation execution. We turned to a chief marketing officer whose company had recently executed a series of remarkable innovations to ask how her company did it. 

Her response led to a robust discussion about the importance of highly focused strategic objectives, how a sense of urgency can break down silos, and how to organize teams to enable rapid decision-making. She shared how they sped up innovation by empowering cross-functional teams to test new ideas and rapidly implement promising innovations. We discussed how an emboldened and renewed appetite for change made it possible to break away from old habits and slower ways of working, to embrace new ideas, and to energize the organization’s culture of collaboration. 

By the end of the evening, it was clear to all: These shifts in her organization were likely permanent and were proving unexpected benefits from having a painful burning platform. 

Winners or Losers?

The COVID-19 pandemic created a dichotomy between organizations. Companies with products and services that saw level or increased demand during COVID-19 were initially viewed as fortunate.

However, some companies that were originally severely bruised by COVID-19 may have emerged with a competitive advantage: a new leadership culture and structure that is innovative, agile, open to change, able to rapidly establish cross-functional execution teams, and constantly alert to shifts in their environment. 

In short, who will emerge as a winner, and who will not be able to master the moment has yet to be decided.

Have the companies busy trying to keep up with demand, navigating the supply chain, and figuring out what to do with hybrid work been alert to potentially important signals from the micro and macro environment? And even if they detect the signals, are their leadership, culture, and operations poised to successfully navigate future rapid innovation and change? 

Without a burning platform to force change and innovation, is there a long-term disadvantage to these organizations’ structures and cultures that might hamper their future success?

Now, Next, Future

When the pandemic first hit, Credera developed a Now-Next-Future framework as a way for organizations to process and analyze their response. As uncertainty abounded and faced with an unknowable future, we encouraged clients to think in three distinct, concurrent timeframes:

  1. The “Now” – What is happening at the earliest/first opportunity that needs immediate focus and action? 

  2. The “Next” – What can we sense about shifts that will inform rapid innovation any day now? 

  3. The “Future” – What is our long-range strategy? What do we still need to keep in mind so we don’t jeopardize unimagined possibilities with short-sighted or knee-jerk reactions?

As the future continues to play itself out, aligning along a framework has become significantly more important, as understanding the impacts of decisions are of greater consequence: for now, for tomorrow, and for the future. 

A View Across Many Horizons

It is important to be reminded that the shifts that have happened, the shifts that are happening now, and the shifts that will continue to happen are not only happening at a microcosmic level. The same problems, challenges, and forces are being experienced by all. What will separate those that can seize the moment, from those who will be mastered by it, comes in the decisions and actions undertaken to chart the course that suits each organization best. 

Companies severely impacted by COVID-19 (entertainment, airlines, travel) went through some quick decisions in the “Now” that often focused on stopping the bleeding. Some then hunkered down to ride it out while others moved quickly to addressing the “Next” by innovating their way through it. 

Many of these companies are now emerging to focus on their “Future” as they leverage their competitively advantageous innovations, their changed culture, and their updated operations to inform investments that will further position them to compete for the long term. 

18 months ago, many looked at these companies whose customers disappeared overnight as “the losers” in the pandemic. But it seems we may have been wrong. 

One’s greatest challenges can become one’s greatest opportunities. 

Embracing the Challenge

Darden, the giant restaurant chain that operates over 1,800 restaurant locations, took an obvious early hit during COVID-19. Like most restaurants, they had to shut their restaurant’s doors. Pre-pandemic, the company focused heavily on the in-person dining experience. The company and its brands had undertaken major innovations and borne huge costs in accentuating those experiences. Suddenly, old reliable was no longer so steady. 

As Darden outlined in their quarterly Securities and Exchange Commission filing, “For much of fiscal 2021, the COVID-19 pandemic resulted in a significant reduction in guest traffic at our restaurants due to changes in consumer behavior as public health officials encouraged social distancing.”

Embracing the need to turn problems into opportunities was the catalyst that Darden needed to force necessary innovation. Darden invested heavily in technology that improved their guest experience, refreshed their digital presence with relaunched websites, and transformed their business model for long-term growth. 

“In this transformation, it's moved a lot of the technology forward faster than what we originally were planning to do. And the big change for us is moving how we handle the off-premises business, which has been a big part of our growth historically the last five years as we capture the convenience trend,” said Gene Lee, President and CEO of Darden. “But really getting clarity that this is going to be a curbside business, it's going to be technologically enabled versus someone coming to the restaurant and getting out of the car and coming to pick it up.”

It wasn’t just about being responsive, it was interpreting and making decisions through a lens that considered multiple time horizons at the same time.

Focused on the Now

At the start of 2021, Peloton’s revenue and share price skyrocketed as the at-home workout company fought to keep up with orders. As the company rode the waves of zeitgeist and immediate fame, launching treadmills and proposing ideas in new verticals, it seemed as though the company left no stone unturned. Rather than undertaking a strategic and structured innovation approach to bolster their long-term success, Peloton appeared to use a scattershot approach to chasing ideas. 

As sales rose faster than production could keep pace, the company tried to take advantage of the pandemic paradigm shift. They invested significantly in the supply chain to overcome a major undersupply of product. Peloton purchased exercise equipment manufacturer Precor for $420 million—adding 625,000 square feet of production space—and announced a new production facility in Ohio slated for completion in 2023. Marketing ramped up in earnest, buoyed by the prospect of so much new product availability. 

Less than a year later, Peloton warned investors that annual sales might come in 20% below the company’s projections, citing “American’s return to normalcy.” Then, in a January 2022 confidential presentation, the company said it faced a “significant reduction” in demand for its connected fitness equipment. Their heavy investment in their supply chain was now a major constraint. Planned production needed to be halted. Inventory in cargo ships and in warehouses could potentially be left sitting for years. The company had gotten it wrong. 

While Peloton pursued aggressive expansion and bloated its cost structure, competitors amplified their activity and customers became price sensitive. Peloton wildly over speculated pent-up demand. The speculative future turned out to be markedly different from what the company anticipated. A thoughtful balance of solving for the immediate problems (and leveraging immediate opportunities) had outweighed the future-proofing imperative of building business resilience

What went wrong? Companies like Peloton that skyrocketed in the “Now” were so busy trying to solve for immediate demand issues they likely were not scanning for signals that would inform innovative shifts in “Next” or that could impact their longer-range “Future” strategy. They very likely were not revamping their structure and culture to speed up their ability to sense and respond, to pivot and innovate. 

Building a Culture of Purposeful Innovation

No matter how your organization was impacted by COVID-19, it’s not too late to leverage the tenants of Now-Next-Future. An innovation strategy is key to building an organization that can withstand unforeseen challenges and leverage unforeseen opportunities.  

Organizations need to pull their heads up and look around—constantly scan their micro and macro environments and not over-index on the things that require immediate attention and intense focus each day.

Even without a painful burning platform, it is possible to leverage a structured approach to continuous innovation. Credera’s Innovation Maturity Model helps identify where an organization can improve its ability to innovate. If you’d like to learn more, please visit our Innovation page on Credera.com or reach out directly at findoutmore@credera.com.

And if you’d like to know more about how to leverage Now-Next-Future to ensure your organization is thinking strategically, contact us at findoutmore@credera.com. 

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