In times of great uncertainty, we seek safety. But what does “safety” look like?
What we say: Safety = Data
We tend to believe that we are rational beings and, as a result, we rely on data to make decisions.
Great! We’ve got lots of data from lots of uncertain periods. HBR examined 4,700 public companies during three global recessions (1980, 1990, and 2000). They found that the companies that the companies that emerged “outperforming rivals in their industry by at least 10% in terms of sales and profits growth” had one thing in common: They aggressively made cuts to improve operational efficiency and ruthlessly invested in marketing, R&D, and building new assets to better serve customers have the highest probability of emerging as markets leaders post-recession.
This research was backed up in 2020 in a McKinsey study that found that “Organizations that maintained their innovation focus through the 2009 financial crisis, for example, emerged stronger, outperforming the market average by more than 30 percent and continuing to deliver accelerated growth over the subsequent three to five years.”
What we do: Safety = Hoarding
The reality is that we are human beings and, as a result, make decisions based on how we feel and the use data to justify those decisions.
How else do you explain that despite the data, only 9% of companies took the balanced approach recommended in the HBR study and, ten years later, only 25% of the companies studied by McKinsey stated that “capturing new growth” was a top priority coming out of the COVID-19 pandemic.
Uncertainty is scary so, as individuals and as organizations, we scramble to secure scarce resources, cut anything that feels extraneous, and shift or focus to survival.
What now? And, not Or.
What was true in 2010 is still true today and new research from Bain offers practical advice for how leaders can follow both their hearts and their heads.
Implement systems to protect you from yourself. Bain studied Fast Company’s 50 Most Innovative Companies and found that 79% use two different operating models for innovation to combat executives’ natural risk aversion. The first, for sustaining innovation uses traditional stage-gate models, seeks input from experts and existing customers, and is evaluated on ROI-driven metrics.
The second, for breakthrough innovations, is designed to embrace and manage uncertainty by learning from new customers and emerging trends, working with speed and agility, engaging non-traditional collaborators, and evaluating projects based on their long-term potential and strategic option value.
Don’t outspend. Out-allocate. Supporting the two-system approach, nearly half of the companies studied send less on R&D than their peers overall and spend it differently: 39% of their R&D budgets to sustaining innovations and 61% to expanding into new categories or business models.
Use AI to accelerate, not create. Companies integrating AI into innovation processes have seen design-to-launch timelines shrink by 20% or more. The key word there is “integrate,” not outsource. They use AI for data and trend analysis, rapid prototyping, and automating repetitive tasks. But they still rely on humans for original thinking, intuition-based decisions, and genuine customer empathy.
Prioritize humans above all else. Even though all the information in the world is at our fingerprints, humans remain unknowable, unpredictable, and wonderfully weird. That’s why successful companies use AI to enhance, not replace, direct engagement with customers. They use synthetic personas as a rehearsal space for brainstorming, designing research, and concept testing. But they also know there is no replacement (yet) for human-to-human interaction, especially when creating new offerings and business models.
In times of great uncertainty, we seek safety. But safety doesn’t guarantee certainty. Nothing does. So, the safest thing we can do is learn from the past, prepare (not plan) for the future, make the best decisions possible based on what we know and feel today, and stay open to changing them tomorrow.