Innovating in a time of crisis
At the time of writing of this post the Tour de France 2022 is still ongoing. Running a business is very much like racing in a Grand Tour, it’s about speed, it’s about resilience, it’s about toughness and it’s about teamwork. In the first stages of the tour everyone has equal chances at the different jerseys, however when the Tour reaches the mountainous stages of the Alps is when the Tour becomes really interesting and big shake-ups in the ranking take place - in times of hardship.
As the old adage goes: “When the going gets tough, the Tough get going.”
Analogously to the Tour de France’s Alp stages we are now in a time of toughness and hardship for businesses: energy and raw materials costs are volatile and on the increase, human resources are under a lot of strain from a talent but also from a cost point of view, investments in the market to maintain share and volume must be choiceful: a lot of cash was spent in the acute stage of the COVID-19 crisis, a lot of debt was created by companies to secure cash, and the pressure is on to recoup it and answer the demands of the stock market.
A “knee jerk reaction” of management often is to pull the hand break on innovation inside of businesses, to rationalise spend and maintain where it needs to be done for business continuity and to deliver the result as close as possible to target, unscathed.
Is this the right approach? Are we missing an opportunity that can let us create an advantage for our business in the long run, but also in the short term?
We will look at different types of innovations we can take on board of our businesses to navigate the crisis while creating an unfair advantage for the future.
Pricing innovation
Knee jerk reaction:
Increase prices to offset our cost base increase, let the user / consumer pay for it
Increase promo depth and length to secure share
What we could do instead:
Review our pack and price architecture, gain deep understanding of market shifts, review the white spots in the market and launch new offers that will address our users’ and consumers’ needs without having to resort to promo
Brand / Product innovation
Knee jerk reaction:
Stop it. Innovation will gain us little to nothing, we have to focus on delivering profit
What we could do instead:
Identify the right innovation that can increase traction / extend our profit pool / tap into new consumer pools and implement relentlessly (which doesn’t mean “overspend”). Chances are your business will be the only one going for it in your category and you will achieve a better result with less resources as there will be no clutter to fight
Business model innovation
Knee jerk reaction:
Minimise our low profit channels, maximise our high profit channels
Squeeze for cost on the supply side (cost and payment terms)
Don’t venture into unknown models for which returns are uncertain
What we could do instead:
Re-evaluate our business model and investigate new and more efficient ways to address the current market constraints and meet our consumer / user
Our supplier isn’t a cost creating, cash sucking enemy. Work together with suppliers across the range of the business to identify solutions for mutual benefit - our cost is their revenue, and they will fight for it and help create a better model for us as they will thereby be able to save revenue (if not increase it). This new approach will likely pay dividends even after the time of crisis
Recruitment innovation
Knee jerk reaction:
Stop all hiring process, no additional HR cost needed, we are already losing on just on inflation adjustment
What we could do instead:
Don’t hire for headcount, hire for expertise and results. In today’s employment market there is a plethora of highly competent freelancers and subject matter experts who can deliver above the weight of a regular employee and are a flexible and highly effective resource for the company. The beauty of the approach is that it is a very clean, time defined and result oriented working relationship whose purpose is to deliver the result and has a natural, contracted end
Trade terms innovation
Knee jerk reaction:
Stop all bonuses to customers and sales channels and review completion of all variable bonus parameters
What we could do instead:
Our customers are counting on their bonuses as they represent their revenues and are a key source of income to cover their cost base. Open the discussion with your customers for joint venture endeavours that will create a common advantage for both parties, redefine their bonus parameters so that they make sense in the current business environment for both parties. We will likely thereby have access to information and resources we could only dream of in the past, and we will create and unfair advantage in the sales space of our customer. And as we know, in FMCG at least, once shelf space is created, it stays
Finance / Purchasing innovation
Knee jerk reaction:
Decrease DSO, increase DPO, create positive cash flow
What you could do instead:
Keep paying on time or in advance to negotiate a better price with your suppliers, this will create more room in your P&L to achieve the end of year result and/or to cover cost that brings growth
There are many other initiatives and activities that can be undertaken in all the areas above. To come back to the Tour de France analogy, when the going gets tough, when the hill incline increases, it is time to step on the pedal and push. This will allow you to create a gap versus competition that will be difficult to close, when done right. Be curious and seek the opportunities.
If you would like to discuss possible opportunities in times of crisis for your business drop us a note.