Maintain Innovation in an Economic Downturn? Yes, We Can!
In an economic downturn, the instinct of many managers is to cut back on innovation. Fair enough: investment in innovation should share the burden. There are, however, smart ways and not-so-smart ways to do this. This section will briefly discuss the traditional mechanisms of cutting back on innovation and present some new insights about how to maintain innovation in times of crisis. A key point is that next to product innovation, in an economic downturn process innovation, business model innovation and organizational innovation are necessary as well.
Cutting Back on Innovation: the Traditional View
In difficult economic times, it is only fair that the innovation function of a company should do its part in helping to save costs. There are various ways in which companies have traditionally done so. The first is to clean up their innovation portfolio. In good times, you may invest in many different innovation projects. When the economy slows down, it is a good idea to take a detailed look at them. Which projects are a luxury, which can be postponed, and which can be terminated? Can someprojects be brought to market sooner? It is only healthy to trim some ofthe fat. Take care, however, not to kill too many innovation projects, asthis will undercut your long-term growth potential. For the projects youkill or dramatically cut, pay attention to keep the relevant knowledgewithin the company, to save the investment already made, and potentiallyrestart them later. Managing innovation in challenging times also meanspreparing yourself for the upturn.
Next to cleaning up your project portfolio, you may also redirect attention from new product innovation toward incremental and process innovation. Can production processes be improved to save cost? Are all production technologies up to standard? Have all avenues for waste reduction been explored? Can existing products be changed to make them cheaper to produce?
Finally, companies should look at innovation best practices or organizational innovation. When times are good, we often neglect to pay attention to many of the basic success factors of innovation management. Are R&D, marketing, and business development collaborating smoothly? Are your staff talking to suppliers to get their input? And are they listening to customers?
Limits to the Traditional Approach
In short: the traditional approach is a mix of cutting costs and trying to do existing things better. So far, so good. However, when companies stop there, they run big risks.
First, innovation may grind to a halt altogether. Too much focus on the traditional techniques may mean you end up with an overly conservative innovation strategy that undermines your long-term growth potential. When the economy improves, you will not be in a position to take advantage of that. One lesson learned from previous downturns is that companies that continue to innovate improve their competitive position. Second, the traditional approach may destroy the passion and commitment of your innovation staff and your external partners. Cost-cutting and marginal improvement does not exactly motivate people. And long-term relationships with business partners may get damaged, even though it is a proven fact that these are important sources of innovation. Again, this undermines your company’s long-term capability to innovate. So, what else should you do?
New Insights
The newly emerging field of open innovation offers some additional techniques that will help you to cut costs, make use of your employees’, your customers’, and your partners’ creativity, and maintain innovation. The most relevant techniques are Business Modeling, Crowd Sourcing, and exploiting unused knowledge. First, you may redirect your staff to think about new business models for existing products. In times of crisis, business model innovation may be more relevant than product innovation. If existing clients stop buying your products, that does not mean they don’t need them anymore. Maybe a cheaper or more flexible version may still be of interest to them. Instead of selling a complete service, perhaps you can sell smaller packages. Such an approach requires creativity and is aimed at growth, rather than just cutting cost. Involving your suppliers and clients in the process may lead to unexpected insights and increased commitment from your business partners.
Second, Crowd Sourcing may be an option. A number of companies have been able to create successful innovations by putting their innovation challenges on the Web and asking a specified group to help solve them. Proctor & Gamble, Fiat, and LEGO are just three companies that have had success with this strategy. This is another example of organizational innovation: using the brainpower outside your organization can be a cheap way to sustain innovation. Crowd Sourcing can be applied across the innovation process. Clients and suppliers may be asked to think along in designing a new product; researchers can be asked to help solve technical issues. It is not completely free, because the process needs to be managed well. But it can definitely be a short-term cost saver that simultaneously strengthens the relationship with your business partners. Your own innovation staff will find much fun in sifting through the ideas generated in the process and building on them.
Finally and perhaps most importantly, innovation managers should look at the knowledge they already have, but are not using. A recent Atos Consulting survey found that 67% of patents are unused. Companies are ineffective in exploiting knowledge they already possess. There is money to be made here. Existing knowledge may be sold to others in many ways: from selling patents to licensing to training others in applying that knowledge. It may also be turned into new products. A downturn may provide an opportunity here. Product ideas that were not viable when the market was at its peak may now get a second chance. Business models that were unacceptable a year ago may now be profitable. Exploiting your repository of unused knowledge is a cheap way to innovate.
Obviously, none of these solutions will keep you alive in the long run. But they will help you to maintain your innovation capability during a recession. They keep your key staff motivated, they require creativity, and they help to save money. They will even help you discover unexpected nuggets of gold. In tough times, many ground-breaking ideas emerge. After all, necessity is the mother of invention.
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