Innovation as a Crisis-Response


The innovation persistence literature focuses on whether firms reduce, increase, or maintain their innovation activity over time, and in particular through cyclical downturns and crisis periods. This literature mostly addresses whether firms accelerate or decelerate their pre-crisis innovation agenda during these periods. What it tends to underemphasize is that innovation is also a tool firms use to manage the unforeseen circumstances that arise during such periods. To a considerable extent this will involve implementing unexpected innovations to deal with unexpected conditions. We argue and find that crisis-induced innovation displays patterns that are both similar to and different from the innovation behaviors found during more stable periods. More firms turn to innovation, but with important differences in intensity and expected long-run returns. Pre-crisis experience in innovation and organizational agility are key characteristics leading to higher levels of innovation input, innovation output and expected post-crisis value of the innovations. We base our findings on data from firms’ innovation responses to the COVID-19 crisis.