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How crises cause industry disruption and innovation

Mar 27, 2020

First in a three-part series

Part 2: How manufacturers have responded to COVID-19
Part 3: 6 predictions: What manufacturing could look like after COVID-19

The COVID-19 coronavirus is causing huge disruption across the globe. It’s shutting down supply chains, creating the need for quarantine zones, triggering significant stock market volatility and causing medical supply shortages. The manufacturing industry is feeling the ripple effects.

But this isn’t the first time the world has experienced a crisis of this magnitude. And if we look back, we see one big outcome sticking out at us: innovation. Every time there’s been a crisis — from a pandemic to a recession — there’s been an equal challenge to innovate.

Let’s look at some examples:

1. Severe acute respiratory syndrome (SARS)

We’re not just mentioning SARS because it was the first coronavirus. It makes this list because it changed the retail industry forever.

Why and how? The SARS outbreak began in November 2002 and ended in July 2003. During that period, over 8,000 people were infected, with a case fatality ratio of 9.6%. This fueled anxiety over traveling and especially over human contact. But what came out of those fears? The true rise of e-commerce giant Alibaba.

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Alibaba was founded in China in 1999 and first became profitable in 2002. But it was in the wake of SARS, which caused quarantines and travel bans, that people began realizing the benefits of online shopping. In 2003, Alibaba was perfectly positioned to fill that need, connecting suppliers and buyers with a few clicks of a button. It quickly came to dominate the Chinese e-commerce market. Ten years later, in 2013, Alibaba’s $248 billion in total transactions outnumbered Amazon and eBay’s combined.

2. The financial crisis of 2007-08

Four years after SARS, the world was thrown into the worst financial crisis since the Great Depression. Companies went out of business; people lost their jobs, pensions, 401(k)s and even life savings; and many people lost their homes.

The need to supplement lower personal incomes was the driving force to start using what assets people did have, and thus the gig worker was truly born.

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Airbnb was founded in 2008 and Uber in 2009. With the help of disruptive technology, a whole industry developed to leverage people who had a car that could act as a taxi, enabling them to earn money during a time jobs were scarce, or who had space in their home they could rent for much cheaper than a hotel room, enabling them to meet their mortgage payments. Necessity was truly the mother of invention.

3. Falling manufacturer margins and a shrinking workforce

This last example isn’t one big event you can pin a start date to. It’s been a growing trend heavily interconnected with other trends, evolving expectations and a changing way of life.

You have the ongoing retirement of baby boomers; the continual push of high school students to enter four-year colleges and turn their noses up at traditional industries like manufacturing and construction; and the simple fact that there aren’t enough Gen Xers, millennials and Gen Zers to fill all the jobs in the roaring economy we were enjoying before the COVID-19 crisis showed up.

Then you have falling margins pushing manufacturers to cut costs and search for ways to do more with what they have.

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All that together was the perfect recipe for Industry 4.0: the subset of the fourth industrial revolution that’s making manufacturing smarter and more efficient. You’ve got the rise of the cloud, the industrial internet of things, heavy automation (even “lights out” manufacturing), and the ability to convert real-time data into intelligence.

Manufacturers began connecting every machine on the shop floor and receiving hundreds of thousands of real-time data points. They used that data to predict downtime and get machines serviced before a surprise halt in production.

Technology allows manufacturers to make better decisions about what lines are more profitable and what customers to accept or pursue in the future, and the ability to move personnel from repetitive tasks into jobs that require the human brain’s ingenuity. They’ve fought falling margins and a shrinking workforce with automation and productivity/efficiency gains.

Just like in any other crisis, they’ve survived and thrived.

Industry disruption: Past, present and future

So, there’s proof that in times of crisis, people not only band together to get through it but also respond in unique ways. Innovation and disruption become necessary, and it’s fascinating to see it happen over and over again.

It will happen now with COVID-19 affecting so much of the world. And that’s why in part 2 of this series, we dive into manufacturing’s response so far to COVID-19, and in part 3, we take a look at what manufacturing might look like afterwards, with six big predicted impacts and innovations.

Author(s)

Mark Stevens
Mark Stevens
Principal
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