Innovation in response to COVID-19

New data from a UK survey indicates that the COVID-19 pandemic is jump-starting innovation (at least in the UK). The survey, The Business Response to Covid-19: the CEP-CBI survey on technology adoption, looked at four types of innovation:

  • Introduction of new products or services
  • Adoption of digital technologies such as customer relationship management systems, remote working technologies, mobile technologies, cloud computing, automation, and AI. (Process innovations)
  • Adoption of digital capabilities, such as e-commerce, advanced analytics, and cyber-security. (Process innovations)
  • Adoption of digital capabilities, such as e-commerce, advanced analytics, and cyber-security. (Process innovations)

[Note: While I am not completely clear of the difference between digital technologies and digital capabilities, the difference is apparently enough to have significantly difference levels of adoption – see below.]

The survey reports that 60% of firms indicated that they adopted new digital technologies or new management practices; 38% adopted new digital capabilities and 45% introduced new products or services. Of firms adopting new digital technologies or new management practices, 95% did so because of the pandemic. The corresponding date was 90% for adoption of digital capabilities and only 75% for new products or services.

Answers to the survey also indicated that the overwhelming number of firms (90%) expect the innovations to be permanent changes not just temporary measures to get through the crisis.

Given the lower overall rate of new products and services as well as the lower direct response to the pandemic, this suggests that process innovations are what businesses are focused on.

The results are in stark contrast to innovation in “normal” times. The UK Innovation Survey for the years 2016-2018 indicated that only 13% of businesses were involved in process innovation and 18% we involved in product innovation.

The results make intuitive sense. With lower overall demand and a concern over day-to-day operating sustainability, the pandemic is causing companies to look at greater efficiencies rather than the latest new thing.

Not surprisingly companies saw macroeconomic uncertainly as the biggest barrier to innovation (with that uncertainty in thee UK complicated by Brexit). Follow that was what we have generally seen as barriers to innovation: financial constraints and a number of factors I would lump together as absorptive capacity (e.g. lack of skills, resistance to change, lack of information, lack of technological infrastructure to support new digital technologies, applicability doubts, etc.).

Finally, the survey found – not surprisingly – that companies who had adopting new digital technologies or capacities pre-pandemic were significantly more likely to innovate in response to the crisis.

The good news here is that more firms are responding to the crises with innovations, especially process innovation. The trick is to help them sustain that activity – especially for what I would call the new-to-innovation companies.

Intangible employment flatlines in Sept

This morning’s employment data from BLS for September is rather disappointing (even though the unemployment rate dropped significantly). Employment rose by only 661,000 compared to the 850,000 economists expected. All most all of that growth was in tangible producing goods and services industries. Similar to the previous months, increases occurred in industries where there is physical presence with customers, specifically Accommodation & Food Services and Trade, Transportation & Utilities.

On the intangible-producing side of the economy, employment grew modestly in almost every industry. But those gains were offset by a large drop in government employment, which the BLS says were mainly in state and local education – probably reflecting the slow return to the classroom.

Once again, under normal circumstances this would be a positive increase. However, in the age of COVID-19, this is only a modest rebound in employment. And keep in mind the worrisome trend of furloughed workers being permanently let go. Much more needs to be done.