The Economic Crisis Unleashes Managerial Innovation

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The Economic Crisis Unleashes Managerial Innovation

At the World Economic Forum in January 2009, Israeli Prime Minister Benjamin Netanyahu offered this advice to the assembled CEOs:  "Never waste a good crisis."

In other words, a crisis is an opportunity to rethink your business, your products and services, and the ways in which you deliver value to your customers.  It is much harder to make changes when the economy is strong and a company's position is solid, because leaders become complacent and even the most innovative thinkers are discouraged from tinkering with a formula that is working.

However, in a major downturn, everyone in the organization feels a sense of urgency to generate new revenue streams. 

As Bill George, the former CEO of Medtronic and now a Harvard Business School professor, suggests in The Wall Street Journal,1 "[A] crisis offers the best opportunity to change the game in your favor, with new products or services to gain market share.  Many people look at a crisis as something to get through, until they can go back to business as usual.  But 'business as usual' never returns because markets are irrevocably changed.  Why not create the changes that move the market in your favor, instead of waiting and reacting to the changes as they take place?"

As you rethink your business, keep in mind that you will need to take a new approach to segmenting your customers.  It isn't enough to divide them according to demographic groups, or by geographic location.  Instead, consider the psychological and emotional impact of the recession on their buying behavior.  In general, as John Quelch and Katherine Jocz of Harvard Business School reveal in the Financial Times,2 the current crisis has exacerbated the fault lines separating six broad psychographic categories of customers:

The first group, the naysayers, have either lost their jobs, fear that they are about to be laid off, or know people who have been downsized.  Naysayers are so frightened by all of the bad news about the economy that they've stopped spending except to purchase essentials, and even then, they are buying "store brands" rather than nationally advertised products.  They are also cutting back in many small ways, like sharing a single tube of toothpaste with family members and "trading down" by buying frozen vegetables rather than fresh vegetables.

The second group of consumers, the short-termers, are young consumers who live and work in cities and have minimal savings.  Because they had little to lose in the stock market, they haven't been affected much by the recession and will continue to spend as they have in the past...

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