The One Good Thing Caused by COVID-19: Innovation – Harvard Business School Working Knowledge

The COVID-19 pandemic has profoundly influenced the lives of most people on the planet. It has changed daily activities; something as simple as a walk in the park is perceived very differently now. The same is true for businesses. Many businesses have shut down or changed to accommodate social distancing. New patterns of consumer and worker behavior and expectations have emerged during the first weeks of the crisis.

COVID-19 represents a tremendous economic shock and burden. In recent weeks, the focus has begun to shift towards ways to address its health and safety risks while also accommodating an appropriate level of economic activity. Businesses have historically overcome this type of challenge through the introduction of risk-mitigating technologies, which in this pandemic include technologies, business practices, and strategies that improve customer and employee safety by mitigating the risk of contagion. Other examples of this in the past have been less extreme, but include, for example, medical device advancement developed in response to a rise in consumer awareness of radiation risk.

We recently explored this example, which shares an underlying business response with the pandemic. An increase in risk perception makes consumers more willing to pay for safety features, which, in turn, provides producers greater incentives to develop and commercialize technologies that address consumers’ demands for safety.

In this process, firms have an opportunity to reassess their options. They can invest in new as well as shelved technologies and product designs that are particularly effective in mitigating risk and improving safety—even when they are initially inferior in terms of costs, user-friendliness, or other quality dimensions.

Already during the pandemic, companies have been creative in identifying “low-hanging fruit” that could be quickly implemented in their operations. Grocery stores install plexiglass shields at their checkouts, restaurants and groceries have expanded to takeout and deliveries, and face-to-face meetings have been replaced by video conferences across many sectors of the economy.

In China, which is ahead of the curve both in terms of the outbreak and the subsequent restart of its economy, various essential and nonessential on-premises businesses have implemented pre-booking to control customer flow. They use temperature-detection technologies, wearables, and apps to identify customers in near real-time who are at high risk of carrying the virus.

Experiments using risk-mitigation technologies

At the same time, we are also witnessing firms developing and experimenting with much more radical risk-mitigating technologies. These include developing new products and processes that mitigate contagion risk. For example, in China, robots have been designed to deliver medicines, meals, and to collect bed sheets and rubbish in hospitals. The e-commerce giant JD developed a drone program to drop parcels and to spray disinfectant. Smart helmets can identify anyone with fever within a five-meter radius.

For other businesses, especially those where digital and automation technologies are not commonly used, the crisis led to drastic changes in their interactions with consumers. In education, teachers from elementary schools to universities transformed content and delivered it online or through phones. Retailers started to license Amazon’s Just Walk Out technology that combines computer vision and AI to bill customers directly as they walk out of the store, with no checkout required. Many cultural industries—museums and galleries, cinemas, concert halls, independent musicians and artists—found means to create, perform, and connect with their audience through online platforms, which brings much appreciated comfort to people confined in their homes across the world.

A key question many managers face now is how much and in what form to invest in risk-mitigating technologies and corresponding changes in products and services. This, to a great extent, depends on how long the crisis will last and what form the risk (and the fear) of contagion will persist once the peak is behind us. All these factors will also likely vary greatly across businesses, markets, and locations.

If risk of contagion persists substantially into the future, there will not only be high demand for contagion mitigation but may also lead to long-lasting changes in consumer and worker behavior. These may, in turn, generate new demand. This has important implications, both opportunities and challenges, for technology users, innovators, as well as regulators and policymakers.

Firms are forced to be smarter

Learning from forced experimentation and investment in risk-mitigating technologies may help firms become smarter and more flexible. For example, before the crisis, firms may have regarded the investment of time and resources to experiment with remote-work as too costly. The unfortunate COVID-19 crisis left many with no options. In China, large call centers invested massively in IT equipment and systems to allow their employees to work from home and to ensure the security of client information. Our discussion with local executives in the country suggests that 20 to 40 percent of these call-center workers have continued working remotely as these companies started to resume normal operations, and flexible work-from-home arrangements are likely to become a permanent policy after the crisis.

Consistent with past research, this forced experimentation has led to a better understanding of remote work. Workers who prefer to work from home may find increased productivity, reduced commute time, and a lower quit rate because they are overall happier. For clients, this experience, together with investments made by the call centers during the crisis, have mitigated their concerns over productivity and information security. Similar considerations also apply to business travel, as firms become smarter at identifying less information-sensitive and interaction-critical trips that teleconferencing can replace.

Business and policy opportunities ahead

Just as the crisis has revealed differences across workers in their preference to work from home, experience with remote learning, entertainment, and consumption will also shape consumer attitudes toward digital and physical experiences. Differences in consumer preferences may generate valuable business opportunities. The demand for new digital products, formats, and content will intensify. This will speed up automation and digitization investments and generate new products, services, and business models.

At the same time, some market segments will continue to prefer the physical interactions embodied in the “old” model and will be willing to pay a premium for high-quality and safe physical consumption. Opportunities may abound in enhancing and differentiating physical offerings to compete with the (now improved) remote and digital alternatives that have emerged.

The surging demand for risk mitigation also has implications for policymakers. Greater use of robotics, artificial intelligence, and automation will put the regulatory and liability systems of many countries to the test. They will also affect employment, wages, and union negotiations. Widespread use of temperature screening and tracing of people’s physical movement and health status will generate debates on privacy and data protection. These pressures inevitably engender serious tradeoffs and challenges, but they will also bring valuable experimentation and learning opportunities for policymakers.

Amidst these massive disruptions, a combination of short- and long-term innovation responses can provide a ray of hope for businesses. While the short term inevitably presents deep challenges for individuals and corporations, innovative and creative risk-mitigating technologies can potentially lead to better customer experience and employee satisfaction both now and in the future.

As the world emerges from the crisis, employees will find new ways to interact, entrepreneurs will realize previously untenable business opportunities, managers can reassess innovation strategies, consumers will be able to take advantage of new environments, and policy and regulation will adapt to keep everyone safer in the future. With foresight, the results of these innovations may also support solutions for climate change mitigation (as travel is diminished and virtual work infrastructures expand), risk assessment and emergency responses in hazardous environments, and large-scale biosafety, allowing our economic infrastructure to grow stronger as it overcomes these challenging times.

About the Authors

Hong Luo is the James Dinan and Elizabeth Miller Associate Professor of Business Administration at Harvard Business School. Alberto Galasso is a professor at Rotman School of Management, University of Toronto.

[Image: FilippoBacc]

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