Innovation in times of crisis: a systematic literature review

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Innovation in times of crisis: a systematic literature review

R. Smara

Abstract

Today the world faces significant economic and financial crises, which have drawn firms into high levels of uncertainty and directly influences their innovation strategies. The literature on organizational decline reveals a lack of agreement about the effects of decline on innovation. This study aims to shed light on how economic crisis affects innovation and to provide a comprehensive picture of the innovation constraints and determinants with a focus on environmental factors. To add to the extant knowledge in the area of innovativeness in crisis, a systematic literature review using the Preferred Reporting Items for Systematic Reviews and Meta-Analyses was conducted. 70 conceptual and empirical research articles published in the period 2000-2021 from highly ranked journals according to the Association of Business Schools rating were reviewed. The article presents three identified patterns related to a firm's innovation behaviour in crisis: аcyclical behaviour in which most of companies reduce their costs and become more unwilling to engage in innovation activities, a neutral behaviour with a view to keep the status quo, and a counter-cyclical behaviour when companies tend to boost their innovation activities. The three innovation behaviours are contingent on several factors that hamper innovation. Furthermore, the findings suggest that innovation positively affects the performance of firms in the context of crisis and this impact is contingent upon the level of environmental turbulence. This review contributes to the extant knowledge on the adaptation of firms to adverse environments. The study offers a nuanced understanding of the main innovation strategies to respond to the economic downturn at the firm and country level, highlights benefits of innovation in highly turbulent settings and gives a detailed description of factors that play an important role in counteracting the negative effect of crisis on firms' investment in innovations.

Keywords: innovation, innovativeness, crisis, R&D, innovative ambidexterity, systematic review.

Аннотация

Р. Смара

В настоящее время мир сталкивается с серьезными экономическими и финансовыми кризисами, ведущими к возрастанию неопределенности бизнес-среды, что оказывает прямое воздействие на стратегии фирм в отношении инновационности. При этом в научной литературе нет согласованной позиции в отношении влияния кризиса на инновации. Цель данной статьи - систематизировать имеющиеся знания об инновационности фирм в кризисные периоды и идентифицировать факторы, способные сдерживать или стимулировать инновационную деятельность компаний. Исследование основано на систематическом обзоре литературы по протоколу PRISMA. Для анализа было отобрано 70 эмпирических и концептуальных статей, опубликованных в высокорейтинговых журналах списка Ассоциации бизнес-школ в 2000-2021 гг. В результате были выявлены три подхода к организации инновационной деятельности фирм в условиях кризиса: циклический, при котором большинство компаний сокращают свои расходы и становятся менее склонными к инновациям; нейтральный, направленный на сохранение статус-кво; контрциклический, когда компании стремятся активизировать свою инновационную деятельность. В работе рассмотрены факторы, от которых зависит применение указанных подходов. Кроме того, анализ литературы показал, что инновации положительно влияют на результативность компаний в условиях кризиса, а взаимосвязь между инновационными стратегиями и успешностью бизнеса зависит от уровня турбулентности внешней среды. Обзор вносит вклад в литературу об адаптации фирм к неблагоприятным условиям. В частности, рассмотрены вопросы повышения эффективности инноваций во время кризиса, уточнены основные инновационные стратегии на уровне компаний и стран в период экономического спада, определены преимущества инноваций в нестабильных условиях и описаны факторы, противодействующие негативному влиянию кризиса на инвестиции фирм в инновации.

Ключевые слова: инновация, инновационность, кризис, исследования и разработки, инновационная амбидекстрия, систематический обзор.

Main part

In his seminal article, J.A. Schumpeter [Schumpeter, 1939] emphasizes that innovation is an essential factor in the long-term success of firms and it lies at the very heart of the economic evolution. Since that time, this topic has attracted a great deal of attention [Damanpour, 1987; Subramanian, Nilakanta, 1996; Prajogo, Ahmed, 2006; Schot, Steinmueller, 2018]. Innovations can be classified into three categories: 1) product innovations (changes in product by providing a new good or service [Howells, 2000]); 2) process innovations (change in production processes by implementing new methods

This research has been conducted with financial support from the Russian Science Foundation grant (project No. 21-78-10024, http://rscf.ru/project/21-78-10024).of organization and combination of inputs in the production process [Berchicci, Tucci, Zazzara, 2014]); and 3) organizational innovations (provision of a new or improved organization of resources within the company [Brancati et al., 2021]).

Based on this, we generally refer to two distinct innovation activities of a company: product innovation, which generally refers to a new product that is introduced on the market and used, and process innovation, which refers to new processes introduced in an organization in order to improve the quality of the product, to enhance the production methods or to lower the production costs [Berchicci, Tucci, Zazzara, 2014]. Following M. Benner and M. Tushman, it is possible to classify these types of innovations into two categories: exploratory innovations, which are radical innovations aimed to satisfy the needs of customers or emerging markets, and exploitative innovations, which are incremental innovations aimed to meet the requirements of existing customers or markets [Benner, Tushman, 2003]. The notion of ambidexterity has been emphasized in most studies [Gibson, Birkinshaw, 2004; He, Wong, 2004] which assert that organizations must become ambidextrous and develop exploratory and exploitative innovation capabilities across different organizational units [Tushman, O'Reilly, 1996; Benner, Tushman, 2003].

The world today faces considerable economic and financial crises, which create high levels of uncertainty. The 2008 financial crisis was broad, deep, and long [Archibugi, 2017], making business opportunities less precise [Archibugi, Filippetti, Frenz, 2013b] and generating significant downward shifts in demand levels [Cerrato, Alessandri, Depperu, 2016]. The ongoing COVID-19 pandemic has reached almost every country in the world and became the second-largest global recession in history, followed by rising geopolitical tensions. Companies have been greatly impacted by the drop in demand for goods and services, as well as supply disruptions [Krammer, 2022]. Due to high levels of turbulence and instability in crisis environments, firms are forced to cope with these changes [Grewal, Tansuhaj, 2001], changing strategy and behaviors to be able to survive and avoid deteriorating performance [McKinley, Latham, Braun, 2014].

In response to a crisis, the behavioural theory of the firm suggests risk-seeking behaviour and strategic changes firms engage in to restore an adequate performance level. On the other hand, the theory of threat rigidity argues that if performance is so low to threaten survival, firms may become risk-averse, refrain from any strategic change, and emphasize cost reductions and resource-saving [Colombo et al., 2016]. The ability of the firm to manage and adopt behavior and strategy that assist leaders in turning crisis-induced changes into opportunities is critical for organizational outcomes [Wenzel, Stanske, Lieberman, 2020; Klein, Todesco, 2021].

Severe recessions are primarily characterized by a significant decline in demand. Experts recognize that negative demand shocks affect investment [Filippetti, Archibugi, 2011; Armand, Mendi, 2018], and the lower profits experienced during recessions are expected to limit the ability of firms to invest in innovation [Madrid-Guijarro, Garcia - Perez-de-Lema, Van Auken, 2013]. The Schumpeterian tradition, centered on investment in innovations, asserts that economic growth is conditioned by attempts to introduce new products and processes to the market, while in an unfavourable economic context investments are likely to be reduced [Freeman, Clark, Soete, 1982].

A number of studies highlight a significant effect of increased innovation expenditures on economic growth [Dobrzanski, 2018], while the fall in aggregate expenditure leads to a reduction in the proportion of companies investing in innovation [Armand, Mendi, 2018]. Following D. Archibugi and colleagues, «innovation related investment is captured in a wide sense, incorporating not only expenditures on in-house R&D but also technology embodied in the purchase of machinery, equipment and software, licenced - in technology (patents or other know-how), training of staff in support of innovation, and expenditures on design of products, process and services» [Archibugi, Filippetti, Frenz, 2013b, p. 1250].

Crisis response is a growing field because crises represent both threats and opportunities for companies; therefore, companies are searching for novel models of strategic behavior aimed at overcoming threats to maintain competitiveness and seek new opportunities [Krammer, 2022]. There are various types of firm behaviour in crisis and decline [McKinley, Latham, Braun, 2014]: responding with existing resources to ensure shortterm survival or investing in innovative activities to build capacity to ensure long-term survival [Lavie, Stettner, Tushman, 2010]. Conceptual and empirical research has been conducted to shed light on the strategies to be implemented in periods of crisis [Klyver, Nielsen, 2021; Krammer, 2022]. A strategy of innovation proves to be effective during times of crisis and helps create optimistic prospects for the future [Klyver, Nielsen, 2021]. In addition, a recent study by S. Krammer [Krammer, 2022] found that innovators, especially younger one, are more likely to adapt to COVID-19 than non-innovators.

A large and growing body of literature has investigated the impact of the economic downturn on innovation, innovation related expenditures, and on investment in innovation projects [Filippetti, Archibugi, 2011; Paunov, 2012; Archibugi, Filippetti, Frenz, 2013b]. Detailed examination of innovation investments showed that the crisis sharply reduced the number of firms willing to increase their innovation investments from 38% to 9% [Archibugi, Filippetti, Frenz, 2013b]. In another major study [Archibugi, Filippetti, Frenz, 2013a], the authors found that the crisis led to a concentration of innovative activities within a few new firms and those already highly innovative before the crisis. Furthermore, in [Paunov, 2012] it was found that in response to the global financial crisis, one out of four companies has halted its innovation investment projects.

It has been argued that the effects of the economic downturn on innovation are not the same across companies and countries [Filippetti, Archibugi, 2011], some companies will continue to invest in innovation during a recession, others will not [Archibugi, Filippetti, Frenz., 2013a; 2013b]. Considering period of crisis, top managers, owners and policy makers need to understand the factors able to neutralize the effect of the economic slowdown on investment in innovation [Filippetti, Archibugi, 2011; Manez et al., 2014; Amore, 2015], and understand all the aspects that influence the persistence of innovative activities [Antonioli, Montresor, 2021]. Some firms have survived over the crisis and emerge as winners; they conduct innovation and increase their investment in spite of the adverse macroeconomic environment [Archibugi, Filippetti, Frenz, 2013a]. This article sheds the light on the key characteristics of these companies. The question of how firms react and respond to crises by adapting their innovation strategies remains relevant. This study therefore sets out to identify the type of innovation, which persists in times of crisis as well as the emphases of managerial attention in an economic downturn. To date, there has been significant advancement in understanding the performance implications of innovation and the impact of the external environment on innovativeness and performance [Jansen, Van Den Bosch, Volberda, 2006; Osiyevskyy, Shirokova, Ritala, 2020]; this study attempts to identify how certain environmental factors shape innovation-performance relationship.

For this context, this study followed a systematic review strategy. It provides a comprehensive and clear overview of the literature on a given topic and identifies gaps in our current understanding of a field. Furthermore, it can be explained as a search method or process to identify and appraise relevant research, as well as for collecting and analyzing data from prior research, by identifying empirical evidence that fits the pre-specified inclusion and exclusion criteria allowed to answer particular research questions using explicit and systematic methods when reviewing articles and all available evidence [Snyder, 2019].

This paper reviews and integrates the existing literature on innovation in times of crisis according to the Preferred Reporting Items for Systematic Reviews and MetaAnalyses (PRISMA) to develop a research framework which unites determinants, moderators, and outcomes of innovation in times of crisis. The reason for choosing PRISMA over other existing protocols is its comprehensiveness and its ability to increase consistency between reviews [Liberati et al., 2009]. The main objectives are to explore the behaviour of firms in their ability to maintain and advance innovative activities, to examine the barriers and determinants of innovation investment in times of crisis, to provide a comprehensive picture of the determinants of innovation persistence, and to understand how firms may respond when a new economic downturn occurs. This review provides insights into four important research questions.

RQ1. What is the impact of economic crises on innovation and investments in future innovation projects?

After searching for appropriate keywords, the relevance was assessed by checking abstract and deep reading of articles, and then the quality of papers was evaluated by focusing on peer reviewed and high quality journals. 70 papers were generated that focused on innovation in a crisis environment. This study compiled papers from highly ranked journals according to the Chartered Association of Business Schools (ABS) list published during the period 2000-2020.

The literature review results allowed identifying three patterns related to the innovation behaviour of a firm when the environment undergoes abrupt changes. These include retrenchment behaviour in which most firms react by reducing their investment in innovation, downsizing innovation related expenditures, preserving behaviour by maintaining innovation activities and continuing projects and commitment behaviour in which few companies seem willing to exploit the crisis situation by investing more in innovation, increasing their innovation activities and expanding their innovative related expenditures [Paunov, 2012; Archibugi, Filippetti, Frenz, 2013a; 2013b; Armand, Mendi, 2018].

The behaviour towards reducing investment in innovation depends on various factors that hinder innovation, such as financial constraints [Mazzucato, 2013; Manez et al., 2014; Lee, Sameen, Cowling, 2015], lack of knowledge [Lichtenthaler, 2009; Zouaghi, Sanchez, Martinez, 2018], specific characteristics of the firm [Archibugi, Filippetti, Frenz, 2013b; Antonioli, Montresor, 2021], weakness of the national innovation system [Filippetti, Archibugi, 2011; Umemura, 2014; Kapetaniou, Samdanis, Lee, 2018], and market constraints [Gang, Choi, 2019]. The development of the financial system, the skills and quality of human resources, a robust national innovation system, and an R&D department seems to be the main factors neutralizing the effect of the crisis on firms' innovation investments. In addition, international alliances can be an effective method to make innovation a dominant model when a crisis occurs. The study results suggest that, in general, innovation positively affects firm performance in a crisis context and that this relationship is contingent on the level of environmental disruption.

This paper is organized as follows. The methodology for the literature review is presented in the first section. Then, in the second section, a description of the general characteristics of the reviewed studies follows. In the third section, themes related to the topic are identified. The fourth section contains discussion, theoretical and practical implications, future research directions. The fifth section concludes.

The approach followed in this study is a systematic literature review, which identifies and extracts relevant information about the area of interest from all published research and evaluates a large body of literature [Tranfield, Denyer, Smart, 2003]. The review had the following objectives namely: 1) to analyze relevant articles identified on innovation in times of crisis; 2) to develop an integrative framework for a comprehensive understanding of innovation research in the context of the crisis; 3) to identify critical gaps in the literature and suggest directions for future research.

A systematic review is conceived to summarize evidence accurately and reliably and analyze the quality of published peer-reviewed journal articles according to the PRISMA [Liberati et al., 2009]. Following A. Liberati and co-authors [Liberati et al., 2009], a systematic review is intended to gather evidence in an accurate and reliable manner and to analyze the quality of articles published in peer-reviewed journals. Sample identification, selection, eligibility assessment and analysis of studies included in the review are the four phases of the PRISMA protocol.

To conduct this literature review, four steps will be followed: 1) development of inclusion and exclusion criteria to select studies; 2) identification of relevant and quality studies; 3) assessment of relevant literature; 4) presentation of results.

Establishment of inclusion and exclusion criteria. Table 1 lists the inclusion and exclusion criteria used to select and evaluate studies included in our systematic review.

Table 1. Inclusion and exclusion criteria