Innovation in times of crisis: A systematic literature review

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: а cyclical 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.