The Pandemic is Liberating Firms to Experiment with Radical New Ideas

 Apr. 25, 2020

On April 25, Gao Feng Advisory's CEO Dr. Edward Tse was quoted by The Economist on companies are experimenting with new distribution channels during the pandemic.

When mount tambora erupted in April 1815 the dust and ash from the volcano in what is now Indonesia blotted out the sun and lowered global temperatures, hurting harvests everywhere. As food prices soared, tens of thousands of people died from famine and disease. So did thousands of horses, because their owners could no longer afford to feed them oats. It was against this dismal backdrop that Karl von Drais, a German inventor, dreamed up the Laufmaschine to replace equine locomotion. Today his “running machine” is known as the bicycle.

The pandemic is, like Tambora, an unmitigated calamity. But in some quarters it, too, is spurring innovation, as firms come up with new ways to keep making existing products despite disrupted supply chains, or, as demand collapses amid self-isolation, create new ones. Some are changing the very way they innovate.

The first thing about corporate innovation that the pandemic has changed is its cost. Doing anything novel at large firms typically involves oodles of capital. Right now, while companies preserve cash to stay liquid as revenues dry up, fresh investments are the last thing on most bosses’ minds. Some are discovering ways to do things differently without huge outlays.

The chief executive of a big European food retailer explains how his firm managed to increase online fulfilment by more than 50%, with no new capital investments, thanks to all-night picking and packing at stores. Evergrande, a big Chinese property firm, encouraged its sales force to use social media and virtual-reality technology to promote homes during the country’s covid shutdown; its sales more than doubled in February to $6.4bn. One foreign buyer recently paid £6m ($7.4m) for a home in London after only a 3d virtual tour. Matterport, a Californian firm, says its 3d cameras are selling like loo rolls.

Besides being expensive, corporate innovation has also historically been insular. This closed approach carries an opportunity cost, notes Henry Chesbrough of the Haas School at the University of California, Berkeley. Most large companies do not use or license most of their patents, save their “crown jewels”. Some of these vaults are being opened up, and their contents shared with others.

Usually prickly pharmaceutical rivals are working arm in arm in the race to develop drugs and vaccines against the coronavirus. ibm is leading a consortium that will pool supercomputing resources to help in the search for therapies. On April 21st Microsoft, once a staunch advocate of the “walled garden” approach to software, declared its support for the open-data movement .

Big companies have largely favoured the advice of insiders and elite consultancies over the wisdom of the crowds, notes Karim Lakhani of Harvard Business School. This, too, is changing. Ericsson, a Swedish telecoms-equipment firm, is now investing more in open-source software and engaging customers in open-innovation efforts to speed up the adoption of its 5g kit.

Firms’ embrace of outsiders is boosting businesses like Tongal, a marketplace for creative video work used by multinationals including Lululemon, a Canadian athletic-wear firm, and Lego, a Danish toy company. Its new creator registrations were five times higher in March than in February, and monthly activity rose by 150%. Topcoder, which provides on-demand tech talent, has also seen a surge.

But the defining feature of the latest innovation revolution is breakneck speed. Companies are being forced to raise their corporate metabolism and overcome “analysis paralysis”, an affliction caused by top managers having pored over the same irrelevant case studies at business school. In a recent briefing consultants at Bain urged companies to throw out old data, test quickly and often, and assume you will be in testing mode for some time to come.

Confronted with the sudden closures of its primary distribution channel to restaurants and institutions, Sysco, a big American food-distribution firm, built an entirely new supply chain and billing system to serve grocery stores in less than a week. Long-delayed initiatives have suddenly been rolled out at scale overnight. A global standards body converted one of its main customer offerings from in-person to online in two weeks, says a person close to it.

The crisis has emboldened managers to move faster and to try out risky new ideas on larger groups of customers. As the boss of a Fortune 500 firm recently put it, “We are learning more by testing than [from] months spent [with] analysts and endless meetings.” Despite a worldwide retail apocalypse, Nike saw global internet sales of its sporting goods rise by over a third in the three months to February, thanks to a deft digital pivot inspired by its early covid-19 experience in China. Engagement with its Chinese online offering grew by triple digits in January and February, year on year, as consumers shared workouts through WeChat and other social media. Its sweat-inducing masterclass is being streamed more than 800,000 times a week on YouTube.

The desire for speed is reflected in the performance of firms that make 3d-printing equipment, which slashes the time from prototype to final product and, by replacing faraway suppliers with nearby 3d contractors, speeds up distribution. hp is accelerating the roll-out of “3d as a service”, which allows customers to pay just for what they print rather than purchasing the pricey kit and supplies. Early customers include Wallbox, which makes electric-vehicle chargers, and hipp Medical, which makes tools for orthopaedists and dentists.

Companies are also experimenting with new distribution channels. With workers scarce and customers happier to get a delivery from a machine rather than a human these days, automated deliveries have been embraced by Chinese e-commerce giants such as Alibaba, jd.com and Meituan. Edward Tse of Gao Feng, a consultancy, believes that autonomous delivery will be widespread within 12-18 months, much faster than he previously thought possible. Zipline, a Californian startup that is already delivering blood and medical samples by drone in Africa, now wants to do the same with coronavirus samples in America. Google has expanded the use of its Wing drones to deliver medicines and other necessities in rural Virginia.

Weighed down by legacy assets and protected by oligopolistic profits, many big firms are not natural innovators. Most corporations that have them relegate geeky innovationistas to skunk works that besuited types steer from the c-suite. In quiet, predictable times this command-and-control approach to innovation works fine, says Darrell Rigby of Bain. And, adds Gary Hamel of the London Business School, “In a small crisis power moves to the centre.” But, he reflects, in a big one “it moves to the periphery”. It may stay there for a while after the pandemic passes.

Correction (April 27th 2020): In the original version of this article we mistakenly said that Nike’s online revenues in China grew by triple digit in January and February, year on year. The growth figures referred to user engagement with Nike’s online workouts. Sorry.