Innovative cure to treat stagnation

Innovative cure to treat stagnation

A growing number of the world’s economies are struggling with slow growth, more often than not caused by declining investment as elevated uncertainty deters businesses from putting their money to work.

Page two of the latest report from the Conference Board, a respected international think tank, providing an outlook for the global economy in the years ahead, contains only one sentence, but rendered in a large font: The main challenge for the global economy in the short term is that the accumulation of uncertainties has created a wait-and-see attitude among businesses toward investing in sustained, high-quality growth.

On the one hand, such attitude is not surprising. The Conference Board projects that the annual global growth rate will stay at around 3 percent for the rest of the decade. That is below the 3.6 percent rate seen between 2010 and 2015 and well below the 4.6 percent in the decade before the crisis (1996−2007). Projections by other leading think tanks and international institutions are also gloomy. When global growth is slackening and prices refuse to rise, the root cause is usually thought to be demand-related. And when demand remains weak with no signs that the trend will reverse any time soon, investment that invigorates supply also slows down.

On the other hand, businesses cannot simply ‘try to live with it’, as the life blood of every business enterprise is growth, and growth is driven by nothing other than investment. In this context, freezing investment until better times is a dead end – a self-fulfilling prophecy. No investment means no returns in the future and no demand stimulating further investment, a closed loop.

Where then should we look for a business rationale for investment in times of bleak prospects for demand growth and an erratic business environment?

I have dropped some hints on this blog before, so let me just give you a brief rundown. The remedy for a lack of effective demand is investment in innovations that satisfy latent demand. When an innovation is commercialised, latent demand becomes effective demand − the readiness to buy that manifests itself in the spending of income. In economics everything has a price, though. Investing in innovation may solve the demand issue but only on one condition − that the innovation achieves a commercial success, which is anything but easy to accomplish. In practice, innovation projects are subject to that kind of uncertainty (of cognitive nature) which determines their success or failure (rather than just causing delays as in the case of conventional projects). Unlike uncertainty of the external environment, which is unmanageable to businesses, uncertainty inherent in innovation projects can be managed, and it can be managed effectively, both during the building of a project portfolio and at the project execution stage.

The Conference Board gives similar advice to firms in its report: “As the global economy has now entered its sixth year of stagnation and prospects for rapid acceleration remain slim, what can businesses do to increase their chances of overcoming the headwinds? Invest in breakthrough strategies, leverage digital technology, and fight the wait-and-see attitude, which slows progress in uncertain times”.

Consistent growth and investment in strategic projects are also close to us at PKN ORLEN. We have completed the construction of a gas-fired CHP project in Włocławek (it has yet to undergo the formal acceptance process), and we are building a power plant in Płock. They are examples of projects that take a long time to complete and have long operational life times typical of our industry. We have embarked on them to maximise production efficiency and resilience to feedstock price fluctuations and changes in the climate and environmental protection regulatory framework.

In common with other major market players, PKN ORLEN seeks out investment opportunities outside its core business, and exploits new tools and solutions to support its growth. In addition to harnessing the power of crowdsourcing (we held our first international crowdsourcing competition this year, we are expanding our relationships with startups. To support this process, we have built Innowacje@orlen, an easy-to-access platform creating a bridge between us and other businesses, including startups, from around the globe. It incorporates a set of tools enabling potential partners to reach us and share their ideas. Selected projects will be supported under the corporate acceleration programme, and the best solutions will be implemented as pilot projects at our facilities and service stations, which is only a step away from the ultimate product commercialisation. The alliances we have forged with startup companies will allow us to leverage the synergies created by combining the agility, flexibility and innovative thinking of our partners with the potential of our own resources. It follows from the market practice and the lessons learnt by market leaders in the field of innovation that corporate acceleration programmes are an effective tool for implementing innovation strategies and building a culture of innovation in big companies which have made the first step into this new, largely unexplored territory. This was by the way one of our recommendations published recently in the “Game of Innovation” report.

All innovators are strongly encouraged to visit and share their ideas.