INNOVATION IN A RECESSION
Five tips for preparing your innovation roadmap
By John Jarosz
As we look ahead to the rest of 2023, talks of global recessions are dominating boardroom discussions across the insurance industry. Of course, managing a business during a recession is never easy. But it’s not knowing when the recession will end that makes it particularly hard.
Before launching Sightglass, an innovation consultancy that helps companies build solutions to grow value and capture new demand, I spent the formative part of my career as head of design for a global technology consulting firm where I helped founders, corporations, and private equity firms regain their positioning after the last Great Recession.
[I]f you go into a recession unprepared for its end, you could
find yourself in a situation where you’re left behind.
These companies did everything we’re all taught to do when the economy slows. They focused on essential operations, cut budgets, reduced staff, and put on pause any innovation investments. But when the recession eased, they had to work twice as hard to get back on track. The post-recession start-up boom resulted in a flood of new entrants nipping at their heels. Around conference tables, “disruption” became the new panic word.
Here are five lessons learned after the last Great Recession that can help make managing through the next recession much easier:
- Innovation isn’t a lever. It’s a dial. Many companies struggled coming out of The Great Recession because they had completely shutoff the innovation pipeline. They laid off their research teams, cut budgets, and halted all experiments into new minimum viable product lines—the first step in creating the right product (and IP) for new customers. When that recession ended, they found themselves scrambling to regain market share, confront new competitors, secure funding, and recruit lost talent to implement programs. For companies in insurance, “turning off” innovation efforts can be especially risky. The industry is already being disrupted by shifting purchasing habits among younger generations. Americans used to secure property and casualty insurance in their twenties. Now, due to systemic economic issues like debt, housing costs, and wealth inequality, when younger generations buy insurance products, they’re looking for models that better meet their changing needs. Companies working in and with the insurance industry can’t afford to turn off innovation completely as they search for better technology to grow margins and discover new combinations of products that meet the needs of younger generations. Innovation isn’t a lever that can suddenly turn back on when economic climates improve. Picture it like a dial that can turn up or down in response to market conditions.
- Focus on incremental innovation. Customers want to buy, manage and interact with insurance products through seamless, accessible digital experiences. But instead of attempting to leap-frog the competition through big redesigns or large product suite launches, focus your innovation efforts on continuous product improvements with lower risk and a higher likelihood for positive impact. During economic uncertainty, the best way to stay on top of changing markets and validate experimental offerings to new customers is by making smaller “bets” (or experiments) more often. Have teams improve or add features that address the customer feedback you’ve been collecting over time. It may not be as sexy as a new product launch, but these small steps can make substantial shifts in customer experience and loyalty—especially given the likelihood that your competition will remain stagnant in an economic downturn. You can internalize continuous innovation to your digital experiences by developing a discovery playbook that trains all team members to recognize opportunities to innovate through generative research and incoming feedback. Defining and documenting processes for on-going innovation now can help inspire team members to keep looking for those small improvements to win over customers every day.
- Focus on the experience. Brand loyalty plays a larger than usual role in consumer decision-making when pocketbooks get tight. So a recession is a particularly good time to focus on any experience enhancements that prompt an emotional response. Reduce customer temptation to switch to lower-priced alternatives by focusing innovation efforts on customer support, onboarding experiences, in-app support and communication, visual design enhancements, and brand touchpoints. The more relational connections you can make, the more likely customers will retain your offerings when forced to make tough choices. Emerging brands like Lemonade have done well in creating a targeted brand experience that offers a variety of tailored products to younger generations.
- Experiment with pricing an broader business models. Customers will have less spending power than usual over the upcoming year, so there’s a lot we can learn from the experiments that streaming services are running with hybrid subscription plans. Now is not the time to be rigid about business strategies as customer retention risk grows. Consider new partnerships and revenue share opportunities that can make up (or even exceed) the margins of your existing models. Ethos, a life insurance firm, has used this approach to target millennial-aged families. Their digital experience and offering strategies include transparent and incremental pricing, omnichannel interaction options, and clear sign-up expectations, all of which are highly appealing to the millennial market and help their products stand out against traditional life insurance plans.
- Facts change faster than expectations. During a recession, the day-to-day facts of how you need to operate will change quickly. But expectations surrounding our business can take much longer to catchup. For innovation to work, we need to quickly catch hold of the “new normal” and what that means for your business and its mission. As buyer behaviors shift, revisit your core assumptions. Are your customers still getting value from your products and services? Is a new gap or friction getting in the way of delivering on your brand promises to your customers? Continuous innovation through small and thoughtful experiments will produce the data needed to confidently differentiate your services from stagnant competitors.
To navigate a recession, leaders at all levels must be nimble and potentially shed strategies and methods that have served them for years. Doubling down on entrenched viewpoints is a natural reaction to a chaotic economic climate, so be prepared to help your team absorb insights and how they respond to help them navigate. Nothing will harm an innovation program more than when the insights are overwritten or discarded.
Remember: If you go into a recession unprepared for its end, you could find yourself in a situation where you’re left behind.
John Jarosz is a partner and co-founder at Sightglass, where he oversees experience design, brand collaboration, and the experience strategy practice for clients.