5 insights from our research on innovation during a pandemic

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Sep 24, 2020

As researchers at a think tank, we concern ourselves with questions of causality: What causes prosperity to take root, and how can it be engendered in impoverished communities? These are the guiding questions that have driven our Global Prosperity research since launching the team in 2016. Then COVID-19 reared its ugly head, narrowing our focus to economic development in the context of a global pandemic.

In many ways the devastation that COVID-19 has unleashed is unprecedented, causing organizations across the globe to fundamentally rethink their approach to economic recovery and development. But our “North Star”—those causal questions that guide our research—hasn’t actually changed at all. If anything, the increase in poverty and instability globally has only underscored the relevance of our research and its findings.

As we explain in our recent report, we’ve found that innovation is the driving force that propels nations into lasting prosperity and deeper financial security. Now more than ever, as hundreds of millions of people lose their jobs and are plunged further into poverty, it’s essential that policymakers and development organizations work alongside innovators to build economic resilience and sustainable development in those countries that have been hardest hit by the pandemic.

Here, we outline five insights from our research that we hope stakeholders will find useful:

  1. Short-term solutions won’t build the strong economic foundation that’s needed to ride out good times and bad.

Understandably, global efforts have focused largely on providing near-term relief to poor countries in the form of healthcare and economic aid, but stop-gap measures will not generate the change that’s needed to create a sustainable path towards prosperity. Instead, these measures must be coupled with a long-term approach that focuses less on alleviating the visible signs of poverty, and more on building a robust, economic foundation that’s resilient to economic shocks. Our research reveals that a specific type of innovation—market-creating innovation—is the critical missing link.

  1. Innovators and investors shouldn’t discount emerging economies—instead, they should zero in on nonconsumption.

Since the onset of COVID-19, investors have withdrawn more than $100 billion from emerging economies, seeking a safe haven for capital in a highly uncertain environment. However, those who abandon emerging economies now may find that they have missed the chance to invest in innovative new businesses that will grow for years to come.

In particular, investors would do well to fund market-creating innovations that target nonconsumption. Nonconsumption occurs when people would benefit from using a product or service, but are prevented from doing so because the available options are too expensive, time-consuming, or are otherwise inaccessible to them. In many emerging economies, the population of nonconsumers for most products and services far surpasses that of consumers. As a result, market-creating innovations that make products simple and affordable can become powerful new growth opportunities. And these new markets are doubly attractive because they lack entrenched competitors to stymie new entrants.

  1. Opportunities to create new markets appear where there is struggle.

One way innovators can identify pools of nonconsumption is to observe existing products and services and ask, “what are the barriers preventing someone from consuming this?” In the book  The Innovator’s Guide to Growth, the authors identify money, skill, access, and time as the main barriers to consumption. Our research confirms this—of the 100 innovators we’ve recently studied, each had to overcome at least one of those barriers in order to reach nonconsumers. It’s the innovator’s task to find unique and creative ways to reduce these barriers to tap into the latent demand.

  1. Market-creating innovations benefit organizations and society by creating shared prosperity.

Market-creating innovations are unique in that they create entire industries, thus igniting the economic engine of a society. When organizations launch these powerful innovations, they not only create wealth for their organizations, but also create a domino effect of development as the new industry pulls in the resources, infrastructure, institutions, and human capital needed to deliver their products and services to nonconsumers. Because the innovations address a problem a majority of people want solved, nonconsumers have a vested interest in sustaining the new market.

  1. To create new markets, innovators shouldn’t simply copy and paste. 

We have found that in order to serve nonconsumers profitably, market-creating innovators must develop an entirely new value network. A value network represents the collection of upstream suppliers, downstream channels to market, and ancillary providers that support a shared business model within an industry. Because nonconsumers look different from existing consumers, new value networks that target nonconsumption necessarily look different, too. 

To develop new value networks, organizations must first seek to understand the value network and cost structure used by organizations targeting existing consumers, and then figure out which components must be changed to make their products more affordable and accessible. Instead of waiting for nonconsumers to become wealthy enough to afford existing products and services, market-creating innovators develop value networks with nonconsumers in mind.

For a more in-depth look into our recent findings, read our full report:

Avoiding the prosperity paradox: How to build economic resilience in a post-COVID world

Efosa Ojomo is a senior research fellow at the Clayton Christensen Institute for Disruptive Innovation, and co-author of The Prosperity Paradox: How Innovation Can Lift Nations Out of Poverty. Efosa researches, writes, and speaks about ways in which innovation can transform organizations and create inclusive prosperity for many in emerging markets.