The COVID-19 pandemic has doubled the share of innovation-active companies

The earlier companies reacted with innovations to the economic challenges of the COVID-19 pandemic, the better they survived the crisis. Whether they initiated a business model, product, service or process innovations hardly mattered.

This is the result of the latest IfM study, "The impact of SMEs' innovation activities in times of crisis on their economic development," with more than 1,100 small and medium-sized enterprises (SMEs) participating.

A quarter of the surveyed entrepreneurs said they had been severely affected by the crisis in the first two years of the pandemic, especially companies from the hotel and restaurant business and the arts/entertainment/recreation sector. In response, they adapted their products and services and/or offered them online. However, many companies reversed these innovative adjustments in the hospitality sector when the pandemic subsided in 2022.

In contrast, many entrepreneurs in other sectors held on to the changes and integrated them permanently into their business model. "Compared to the pre-COVID-19 period, the pandemic doubled the share of innovation-active companies," reports study leader Dr. Christian Schröder. "Business model innovations showed the relatively strongest increase: Their share almost tripled. Whereas three out of four companies realized process innovations.

Delays and stops in ongoing innovation activities

However, there were also negative effects on innovation activity: Innovation projects already being implemented when the crisis hit were often delayed—and sometimes even abandoned. In their study, the IfM researchers advocate flexibility in existing programs for innovation funding in crisis times.

"Economic policy has done the right thing by extending the submission deadlines for funding applications and making project durations more flexible. This enabled entrepreneurs to push forward eligible projects next to crisis-induced adjustments—and at the same time, it was right to terminate the funding of approved projects which were delayed by the crisis, but maintain the funding approval," says Dr. Christian Schröder.

Provided by Institut für Mittelstandsforschung (IfM) Bonn