Posted by: Bruce Nussbaum on July 31, 2008
An economic crisis can be a crucible that forges new innovations in business operations or they can lead companies to make dumb mistakes that destroy them as they rush blindly to survive. We’re beginning to see corporations move into one camp or the other as the economic downturn gets worse and worse.
Take Best Buy. I haven’t been in a big box electronics store in years. The experience used to be just horrendous. But a Best Buy just opened up in my West Side neighborhood in Manhattan and I went in to buy a Flip videocam. I’m going to be doing a lot more video (don’t forget to send in some serious questions so the “Innovation Guru” can talk about them—seriously), and I want a simple machine, so I went out to buy the Flip (designed by Smart Design and Pure Digital Technologies).
And my consumer experience was wonderful! It was almost Japanese-level service. People greet you with both information about products and a smile. Knowledgeable employees give you advice. There are wide open spaces with lots of products to play with. In a deep economic downturn, with so many companies firing people and cutting back on service, Best Buy is going the other direction—and getting
my business and my loyalty. I'll be back and so will many others. Best Buy's counter-intuitive decision to focus on service by adding people to help customers, is a long-term business strategy that is sure to pay off.
Apple's innovation strategy also involves great in-store service plus terrific new products. I was down in Soho this week, early in the morning for an interview, and passed an Apple store. Even before it opened up, people were lining up to get in. Coincidentally, I also had an early morning breakfast meeting the next day in the Chelsea neighborhood where Apple has another store. Again, people were lined up before the store was even open to get in. Now, how many businesses can make that claim? Apple's iPhone proves that even in a recession, people will spend money for a new product/service that enables them and gives them pleasure.
Let's look at Procter & Gamble. Their entire supply chain was designed during a period of low oil prices, meaning the cost of transportation and distribution was low. This led to big outsourcing in Asia and outside the US in general. But oil over $100 a barrel changes all that. Transportation, distribution and production suddenly become more expensive. Add in rising salaries in China and elsewhere and there arises a need to redesign P&G's entire supply chain to make production and distribution more local.
P&G has 30,000 trucks on the roads around the world every day and operates 145 manufacturing plants, according to the FT. The company is now reconsidering how it uses all of them. This is business process innovation at its best. P&G is smart in innovation.
OK, let's look at Starbucks, which is floundering. It's closing 600 stores because of the sharp economic decline. At the same time, it is pumping through more new coffee-based products. Fans (customers) of Starbucks are in an uproar over the closing of their neighborhood stores and everyone else has to wait even longer in line for people ordering more stuff.
The problem with this strategy is that the economy will almost certainly recover in 6 months to a year's time (economic cycles tend to repeat themselves), so will Starbucks reopen the 600 stores it is now closing in half a year? Will angry customers return? Meanwhile, people buying coffee in remaining stores will have a worse consumer experience on longer lines.
As for brand consistency, one day Starbucks announces it will get rid of all its morning food because the smell kills the rich aroma of coffee, the reason why people go to Starbucks. Now the company says it is keeping the morning food, despite the odor. Is the cash flow from sales of this food more important than the identity of Starbucks? Don't think so.
Starbucks needs a major revamp. I got a lot of comment on the post of Jim Biber's strategy for Starbucks. You may not agree with all o fhis 5 suggestions for change, but they are bold enough for Starbucks to consider. Starbucks needs serious business model innovation.
This recession is hurting Starbucks. But Best Buy, P&G and Apple are doing much better because they are innovating in the face of recession. It's the way to go.
Want to stop talking about innovation and learn how to make it work for you? Bruce Nussbaum takes you deep into the latest thinking about innovation and design with daily scoops, provocative perspectives and case studies. Nussbaum is at the center of a global conversation on the growing discipline of innovation and the deepening field of design thinking. Read him to discover what social networking works—and what doesn’t. Discover where service innovation is going and how experience design is shaping up. Learn which schools are graduating the most creative talent and which consulting firms are the hottest. And get his take on what the smartest companies are doing in the U.S., Asia and Europe, far ahead of the pack.