Recovery from the pandemic has not been as most businesses anticipated. An unstable global geopolitical and economic environment continue to heighten uncertainty and volatility for businesses. While companies see an impact of these challenges on their operating performance, the ability to innovate will become crucial to drive corporate value and remain relevant in changing global dynamics.
Systemic shifts pose additional challenges
Transportation, shipping disruption, and rising cost of raw materials are leading factors impacting businesses in 2022, as reported by more than 88% of industry professionals, according to Euromonitor International’s Voice of the Industry: Retailing Survey, followed by the rising cost of production and distribution, inflation, and unavailability of raw materials.
Source: Euromonitor International Voice of the Industry: Retailing Survey (June 2022)
As businesses aim to navigate these challenges, efforts are turning to executing tactical decisions - featuring accepting lower profit margins, reducing spending on marketing, increasing consumer prices, or opting for costly debt. However, the range of challenges faced by businesses today is not linear - where supply chain disruption and inflation are only evident outcomes of underlying systematic changes.
These systemic changes are essentially changing market structures. With technology and consumer readiness being key levers in the equation, businesses are set to face the fast-paced evolution of many of the long-anticipated trends. Hence, calling the need for strategic innovation among businesses.
What is driving the need to innovate and why is the timing important?
Three main drivers are coming into play to accelerate innovation among firms in this environment:
- Necessity to drive innovation as market equilibriums shift. As businesses face shifting supply and demand patterns, broader macro and micro trends are shifting the status quo, ranging from possibilities of decentralisation of global powerhouses to a complete overhaul of the manufacturing landscape. The economic decoupling of Russia from the West and its deepening alliance with China is restructuring global energy, technology, and trade. Furthermore, the sustainability agenda will lead businesses to use new methods and technologies to reduce their climate impact. In many sectors, this can lead to reinvention and innovation in product design and manufacturing. Innovation - incremental or radical - would find its way to tread new market realities.
- The current economic downturn is set to strengthen the implementation of various disruptive technologies to address the challenges at hand. The pandemic strengthened use cases and commercial use for new and mature technologies. Optimal for both cost and differentiation strategies, these will lead businesses to find pockets of sustained or premium margins as well as new product innovation. For example, increased use of additive manufacturing in the industrial sector to reduce the production cost, reduce time to market and offer customisation in shorter lead times. As the relationship between labour productivity and job growth evolves, technologies such as AI and quantum computing can revolutionise many job functions, including those associated with human creativity. Businesses are researching these technologies to develop a competitive advantage.
- Looming recession and current economic downturn have set the course to identify winners from losers. The pandemic, unlike the global financial crisis (2007-2009), saw continued investment through venture and seed funding in light of the need for digital solutions and related infrastructure. However, 2022 has not only seen a slowdown in funding, but many ventures have also failed in the absence of continued funding and lack of operational resilience, thereby identifying the winners from the losers during testing times. These developments would lead to market consolidation across various sectors and feature shifts in investment priorities for both institutional and corporate investors – creating opportunities for acquisition and the need to address market gaps.
Next phase of disruption on the horizon
Analysis of the global financial crisis (2007-2009) shows that while there was a recessionary period, it was also during this time when many of the present-day disruptors emerged, notably Airbnb (launched 2008), WhatsApp, and Uber (launched 2009) in addition to Instagram and Pinterest (launched 2010) – platforms completely disrupting their industries since their emergence and valuing more than their incumbents today.
Relatively after a decade, the pace of technological advances is much faster. Globalisation and the rise of social media have not only heightened consumer awareness but also reshaped consumer behaviour and values giving rise to new consumer types. With technology and consumers now having greater power in the business ecosystems – the new phase of disruption is likely to be featured by new business models, partnerships and embracing new values.
A noticeable shift in strategic priorities is evident in 2022, whereby a greater focus is reported on considering strategic partnerships, acquisitions, and investing in new product innovation, according to industry professionals participating in Euromonitor International’s Voice of the Industry: Retailing Survey.
Source: Euromonitor International Voice of the Industry: Retailing Survey (June 2022)
Note: Data shows the difference in number of industry professionals reporting respective strategies to be a strategic priority over the next 12-month period, as surveyed in June 2021 and June 2022.
As innovation becomes a strategic priority, contextual intelligence is key
As innovation becomes important to thriving in an ever-evolving world, its success rate and impact become even more critical during economic downturns. However, contextual intelligence is key for businesses as they integrate innovation into corporate strategy. Broader megatrends and evolving business environments have different impacts on individual companies and the temptation to innovate can override setting up the underlying framework needed for a successful innovation process, including establishing an innovation culture necessary for the longevity of innovative ventures. Simultaneously, certain businesses may be hesitant to innovate amid a continuously changing environment, but a measured and insight-driven approach to identifying innovation frontiers will not only help quantify the impact of investment, but also improve the success rate and confidence in the innovation process.
For further insight, listen to our podcast, Quantifying Megatrends, and read, Understanding the Five Drivers of Megatrends