Critical thinking: how the COVID-19 pandemic is driving progress – EuropeanCEO

The COVID-19 pandemic is forcing us to confront the huge social importance of essential workers, especially compared to their small market value

Author: Charlotte Gifford

1 Jun 2020

Frank Gehry, one of the most prolific architects in the world, claims that his nightmare scenario when building a house would be to have no constraints whatsoever. Its better to have some problem to work with, he explains. I think we turn those constraints into actions. It was the strict standards set for the acoustics at the Walt Disney Concert Hall in Los Angeles, for example, that inspired the extravagant interior that makes it one of Gehrys most well-known works.

We often assume that we are at our most creative when we have an abundance of time and resources at our fingertips, but research suggests that constraints help us unlock our brightest ideas. A 2018 review of 145 academic studies found that resource scarcity produces the most novel solutions to problems, whereas resource abundance encourages people to choose the path of least resistance and propose the easiest available solution rather than testing until they find the best one.

Resource scarcity produces the most novel solutions to problems, whereas resource abundance encourages people to choose the path of least resistance

National and international crises push this theory to the extreme. The COVID-19 pandemic has created an urgent need for more ventilators, hand sanitiser and protective equipment. At the same time, disruption to global supply chains has placed a serious strain on resources, while the confinement of millions of workers to their homes has limited the workforces capacity to produce this vital equipment. Its a challenge that will test the limits of human ingenuity. But from these immense trials, organisations are likely to emerge with novel ways of working and new ideas for the future.

Wartime spiritThe Austrian political economist Joseph Schumpeter argued that crises are hotbeds for innovation. This might seem counterintuitive; for example, the financial crisis of 2008 led to reduced investment in research and development. However, times of crisis have also been known to spur huge technological and organisational change.

During the Second World War, businesses were mobilised for the war effort on a scale that had never been seen before. [The Second World War] is the best example for what we call total war, that is the total mobilisation of economy and society, said Tams Vony, an associate professor of economic history at Bocconi University.

It was mass industrial warfare, a war of attrition on steroids, where military outcomes were determined more in factories than on battlefields All major powers spent between 30 percent and 70 percent of their GDP on the war. Civilian production in several industries was completely shut down. No manufacturer was building passenger cars or electrical household appliances. They were converted to supply tanks, aircraft engines and radars. For manufacturing firms, military procurement was the only survival strategy.

Out of this mobilisation emerged technological innovations that were absorbed into commercial sectors once the war had ended. Satellites and commercial aeroplanes owe much to the technological advancements made during the Second World War. In France during the First World War, car manufacturer Renault produced a light tank for the military, which gave it the tools to develop its first tractor. Stainless steel was created while the British Army was looking for corrosion-resistant alloys for guns.

Social distancing measures and disruption to global supply chains have put millions of employees in the manufacturing sector out of work

Transitions during crises almost always spur innovation, whether it is established makers of goods or suppliers of services changing and adapting, or through creative new start-ups, said Andrew Simms, Coordinator of the Rapid Transition Alliance. When transitions are about the public interest, that also means removing the pressures that can lead to competition defeating cooperation.

Today, manufacturers find themselves in a similar position. In response to the COVID-19 pandemic, we see brewers producing hand sanitiser, makers of fashion-wear producing protective clothing and Formula 1 engineers making breathing aids, said Simms. In all cases, existing skills have been applied to making the products needed.

For example, the demand for ventilators is so critical that governments have enlisted industrial companies to produce them. The French carmaker Groupe PSA is working in collaboration with Valeo and Schneider Electric to assist Air Liquide Medical Systems in ventilator production. Spanish automaker SEAT is producing simplified ventilators using windscreen wiper motors, gearbox shafts and gearbox housings. In Germany, Volkswagen has floated the idea of using its 125 industrial 3D printers to make critical medical parts.

Just as in wartime, the coronavirus crisis has fuelled companies resourcefulness. An Italian 3D printing start-up, Isinnova, has converted a snorkelling mask into a non-invasive ventilator for coronavirus patients. Other innovative devices that have made their way to market include a door-opening device named the Hygienehook, created by London-based designer Steve Brooks to help hospital workers avoid direct contact with door handles. A national effort can accelerate technological development, but we are yet to see whether any of these new inventions could have commercial applications once the crisis has ended.

Stretched thin Many world leaders and economists have drawn comparisons between wartime and the coronavirus pandemic: Mario Draghi, former president of the European Central Bank, urged governments to accept that a change of mindset is as necessary in this crisis as it would be in times of war. In March, Italys special commissioner for the coronavirus, Domenico Arcuri, told the country to equip itself for a war economy.

However, the coronavirus pandemic differs from wartime in at least one crucial respect. The experience of hibernating economies for months is uncharted territory for government and business alike, said Vony.

The world wars did nothing of this sort. Quite the contrary: the aim of total war was to exploit all production capacities and mobilise all workers beyond what was considered feasible in peacetime. Short-term survival was everything. Future prospects were unpredictable and therefore secondary. Today, we do the opposite: we shut down all production that is not absolutely essential, using as little capacity and as few workers as possible, so that we can all stay at home. Total war maximised mobilisation; now we minimise mobilisation.

This is what makes the economic challenge of coronavirus so unique and difficult to overcome. Social distancing measures and disruption to global supply chains have put millions of employees in the manufacturing sector out of work. Moreover, some of the devices these manufacturers are being asked to make namely ventilators are complex pieces of equipment that need to meet strict specifications. Medical device companies usually take a long time to get going, Peter Ogrodnik, a professor of medical devices design at Keele University, wrote in The Engineer.

Despite the colossal challenges that lie ahead for companies, innovation in the private sphere is likely to bloom

They need to build their manufacturing knowledge and supply chains to ensure their products are safe and packaged in a sterile way. They need to understand things like biocompatibility (how materials interact with the body) and materials made from animal by-products (in order to minimise the risk of transmissible diseases such as Creutzfeldt-Jakob disease). These companies also need to develop the necessary skills in specific risk management and quality procedures.

This brings us back to the influence that constraints have on creativity. As mentioned previously, there is evidence that limitations are more conducive to creativity than resource abundance. However, a recent study published in the Journal of Management found that there is an inverted U-shape relationship between constraints and innovation. Too few constraints, and we become complacent. Too many, however, and we become overwhelmed. A perfect balance needs to be struck, it seems, and the constraints imposed by the coronavirus are multifold.

In some respects, the innovation that emerges out of crises is the result of nations and businesses learning where they have blind spots the hard way. The deficiencies exposed in nations diagnostics sectors and medical equipment supply chains may push us to rectify these problems once the coronavirus is finally suppressed. Nations are almost certain to invest more in pandemic preparedness, for instance.

Already, we can see that the pandemic has been a catalyst for long-overdue transformation. Greece, which currently sits 25th among the 27 European Union member countries in terms of digital transformation, is rapidly digitalising in the wake of the pandemic. It has launched a web conference system for state officials and brought important documents like residence certificates, family status statements and recognition of university degrees online. Greeces last-minute digital transformation is a large-scale example of what many companies around the world are currently undergoing.

Organisational changeAs cities around the world entered lockdown at the start of the year, businesses were forced to rapidly evolve and bring both their services and company infrastructure online. Entire sectors are rethinking their operations, while customer-facing businesses are forced to adapt quickly.

EURACTIV reported that German and Polish farmers are turning to social media and setting up online stores to sell their produce. Meanwhile, Europes virtual medicine sector, which has long been held back by strict privacy laws, is relaxing its regulations amid a spike in demand for online appointments. This has created a gap in the market for digital healthcare providers. The Swedish telemedicine company Docly reported a 100 percent increase in demand from one week to the next in the midst of the pandemic.

These changes could have a long-lasting impact on the way companies and industries work. Crises change firms, said Klaus Meyer, a professor of international business at Ivey Business School. They change their processes and people acquire new skills, which in turn enables them to deliver new services including last-mile logistics. To give an example in my own area, professors get better at online teaching and therefore online learning will play a bigger role in higher education in the future though I expect mainly in the form of online-offline integration.

Times of crisis have spurred huge organisational change throughout history

Its not just businesses that must adapt to the new normal. The crisis also changes consumers and hence the products and services they value, Meyer told European CEO. For example, consumers may less appreciate cruise-ship holidays or mega entertainment events because of new risk awareness. On the other hand, consumers are learning during the crisis to appreciate services delivered online such as entertainment or education and the conveniences of online shopping delivered to their doorstep. Some of this will persist in the long run.

Times of crisis have spurred huge organisational change throughout history. During the Second World War, Unilevers multinational corporate structure was broken up, meaning its businesses had to work more independently and hone in on the needs of local markets. In the following decades, Unilever continued to operate as a federation of businesses with high levels of autonomy.

Crises can also lead to deep economic change; Vony points out that the war economy had a profound, long-lasting impact on European industry. The two main areas where European firms and governments faced a steep learning curve, he told European CEO, were mass production and planning. American mass-production methods and management practices were widely known and admired by leading European firms. Fordism and Taylorism were not alien, but their practice expanded rapidly in the context of war mobilisation, where suddenly everyone became quite a bit more American: material, capital and scale intensive production methods were adopted to enhance output per worker.

At the same time, Vony argues, the war encouraged western governments to intervene more in their own economies: With the exception of the Soviet Union, every warring economy remained fundamentally market-based but each developed an increasingly important command-economy element.

There was euphoria all over Europe about economic planning after 1945, not just because of the success of the USSR in defeating Nazi Germany but more so because of each governments own experience with steering economic activity. US economic historian Barry Eichengreen labelled the prevailing western economic model in the postwar era coordinated capitalism, which did not restrict the freedom of property and enterprise but intervened in finance, investment, wage settlements and international economic relations.

The coronavirus pandemic could sow the seeds for a new economic model

The coronavirus pandemic could sow the seeds for a new economic model. In April, US billionaire Leon Cooperman said of the crisis: Capitalism as we know it will likely be changed forever. It is impossible to know the extent to which Cooperman is correct, but its true that the pandemic has rekindled debates around deglobalisation, bailing out large businesses and the benefits of universal basic income.

The new normalMeyer believes that some firms could change for the better as a result of lockdown. Some of the new best practices that firms develop during the crisis will eventually be more efficient than established practices, he told European CEO.

For example, I would expect many business trips to be replaced by video conferences. Some businesses will discover that staff working from home [and] integrating family and work life will be advantageous for them though not for all. I would also love to think that society becomes more accepting that people have families and next time a child joins their dad in a BBC interview, nobody will raise an eyebrow. But perhaps that is too optimistic.

Despite the colossal challenges that lie ahead for companies, innovation in the private sphere is likely to bloom. Ultimately, this will be the key to defeating the virus. For the first time, Apple and Google have partnered up to develop software that alerts users if they come in contact with someone infected with the virus, while biopharmaceutical leader Takeda is harnessing its industry expertise to develop a plasma-based treatment that could treat coronavirus patients.

Coronavirus will have a profound impact on the way we live and work. Businesses may rethink their value chains, having realised how dependent they are on China. In April 2019, the Business Roundtable redefined the purpose of corporations, stressing the importance of serving all stakeholders, including employees and communities. In the time of coronavirus, this is exactly the model that businesses must adopt to stay afloat. Coronavirus is also forcing us to confront the huge social importance of essential workers, especially compared to their small market value.

Vony pointed out that the Second World War inflicted a deeper wound on economies and led to a far greater loss of life than the coronavirus crisis is likely to. Remember, the war lasted five years and incinerated 60 million souls. In the current pandemic, the worst may be over in a few months, with economies back on track within a few years, he said. The economic consequences will not last nearly as long as after 1945. But, as with war, coronavirus impact on business and society will be felt long after the crisis has ended.

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Critical thinking: how the COVID-19 pandemic is driving progress - EuropeanCEO