Starbucks was prescient in its pandemic strategy.
The company responded to the upheaval that struck so many businesses last year by rapidly expanding its digital payment app to sign up millions of users. App customers contributed 50% of Starbucks’ U.S. sales in the first quarter this year, which also saw revenue increase by 11% over last year.
It’s a great example of what Wharton professor Serguei Netessine calls “innovate or perish.” He’s not talking about the kind of long-term transformation that requires years of research, development, and testing. This descriptor is specific to businesses that are forced by a crisis to pivot on a dime.
“As we went into the pandemic, it became clear that in order to continue operating, you need to become increasingly digital,” Netessine said, noting the pressure on retailers to respond to a massive surge in online shopping. “All those businesses could continue to operate, but they needed to have online capabilities, which many of them didn’t have.”
Netessine, who is a professor of operations, information and decisions, spoke during a segment of the Wharton Business Daily show on SiriusXM about the pandemic’s lasting lesson for businesses. (Listen to the interview at the top of this page.) He also wrote an opinion piece on the topic that recently appeared in the Financial Times.
Permanent Changes in Consumer Behavior
Starbucks wasn’t alone in its quick adjustment to the pandemic. Netessine praised Target, Best Buy, and others for reacting fast with curbside pickup, QR codes, and a variety of methods that reduced person-to-person contact for both customers and employees.
The coronavirus vaccine is ushering a slow return to normal, but Netessine and other experts aren’t betting that customers will abandon online ordering in significant numbers.
“A lot of this consumer behavior is very different now. We’re now used to all of this,” he said about digital shopping. “So, I think from the point of the business owner, there is less risk in investing in those capabilities.”
Ramping up digital doesn’t take a lot of investment, Netessine noted. “All you have to do is rent out space on Amazon cloud, and you can be up and running overnight.”
He reminded managers that innovating in times of crisis is easier for firms that maintain a forward-thinking mindset and a culture of experimentation. After all, innovation is risky, fraught with failure, and hard to calculate.
“Experimentation is something that traditional companies just don’t do very well,” Netessine said. “There’s no budget for experimentation.”
The best time to innovate is when everything is going well. “Paradoxically, most businesses don’t do that because they’re kind of hostages to their success. Why bother if we are making money and the current business model is working just fine?”
But when a sudden disruption hits, there’s no time or money to form and execute a survival plan from scratch. “Unfortunately, that’s what most businesses do,” Netessine said. “They innovate when it is a time of crisis.”