For many organizations, preparing means taking many predictable steps: slashing resources, shutting down long-term innovation investments and shifting focus to short-term priorities. But a challenging economic environment calls for the need to innovate more, not less. Business leaders should look to capitalize on recessionary cycles to set a strategic course for sunnier days.
In good times – and especially in bad – innovation remains a critical lever for organizations to achieve their long-term strategic objectives. But when the economy tumbles, it is especially important that companies approach innovation in a strategic and thoughtful way because the margin for error decreases as times get tough. A strategic innovation plan will help companies do more with less and continue to move forward.
Organizations that prioritize innovating in a downturn will find that a constrained environment can actually foster creativity that leads to powerful waves of long-term growth. To ensure that the next economic downturn coincides with an innovation upturn for your business, consider these 12 action steps:
Drive the innovation agenda. Truly successful innovation efforts always start at the top. CEOs must drive the innovation agenda during and through a downturn. Rather than slashing innovation budgets in a recessionary economy, CEOs should encourage management and teams to prioritize market-leading products and services in line with the business strategy.
Innovate with purpose. When facing a downturn, organizations would do well to prioritize investments in a way that moves beyond just profitability and centers on its core purpose. A report by the Economist Intelligence Unit revealed a distinct connection between purpose and innovation. Sixty-three percent of executives from across three global industries believed that having a sense of purpose and aspiration beyond their day-to-day commercial mission made their company more innovative and more able to disrupt or respond to disruption.
Be ruthless in prioritizing. Strategically prioritize innovation investments in a downturn. When resources are scarce, avoid “walking dead” projects and instead be ruthless about making decisions on when to pull the plug. Leaders should be asking key questions such as “How much risk remains?”, “What’s the upside potential of the investment?” and “What is the true cost of the next round of tests and what learning will they provide?” Conduct a portfolio scan to uncover projects that are over budget, support unprofitable business lines, or are just not a good match with current or future customer needs.
Avoid the temptation to prioritize short-term efforts that promise immediate payback over longer-term efforts with more questionable payback. Potential rather than performance alone is the right guide for innovation decisions. Focusing solely on the immediate, core business can lead companies to diminishing returns from investments while missing great growth opportunities. Innovation isn’t just about creativity and generating new ideas. It starts by aligning innovation investments with the firm strategy – critical when making priority decisions and outcomes that matter to clients and the bottom line.
Focus on “adjacency innovation”. In a downturn, business leaders must figure out how to do more with less, which requires different thinking about innovation management. Rather than make big bets on a single, radical innovation, companies can consider allocating resources to an “adjacency innovation,” which can be less risky but still generate good pay-offs. Doing so requires using core competencies to move beyond the current business into a space that is adjacent. Examples include taking an existing product to a new customer segment or serving an existing customer with a new product.
Move with your customers. Challenging economies expose unmet customer needs, making it a good time to identify opportunities for product or service development. Use this time to listen closely to the market, co-collaborate with customers and respond with ideation and development efforts where the market is speaking most loudly.
Economic downturns can shift customer needs and buying habits, which may or may not be permanent post-economic recovery. As a result, relying on self-reported data garnered by traditional consumer research may not provide enough insight. Instead, make sure your innovation strategy includes building and testing scenarios that elicit unstated and as-yet-unrecognized customer needs in the near and long terms. Use the insights to shift investments to projects that help customers address their pain points, and position your offerings to satisfy their needs in the upturn. In short, make sure your company is a problem solver in tough times.
Explore new markets. When casting your net in down cycles, remember to fish where the fish are. Consider the case of Groupon which launched its platform in November 2008 that allowed companies to reach consumers with easily accessed promotions and deals. Successfully filling a need for both consumers and businesses, Groupon effectively created a new category by seizing on a cultural and economic flashpoint, which resulted in one of the largest public offerings at the time.
Apply process innovation to reduce costs. Don’t limit your innovation thinking to new products or business models. Recessionary cycles can also be a good time to focus innovation efforts on reducing operating costs. Process innovation can improve production or delivery methods or result in significant changes in techniques, equipment and software. Increasing service while increasing margins can help you prepare for post-recession growth.
Fail cheaply. It is a given that companies that are truly innovative will have failures. Those who don’t are simply playing it safe. So embrace failure as part of the process, just make sure you do it as cheaply as possible. During a downturn, it’s especially critical to embrace the “build it, try it and fix it” mentality.
Expand partnerships. In Asia, they use a great expression: “Before you can multiply, you must first learn to divide.” The idea is that if you want to grow your business, you must learn to partner with others and give them a vested interest in your success. Downturns demand a more collaborative approach to innovation. Partnerships with universities, innovation partners, suppliers, research labs, governments and even customers offer good opportunities to share costs, spread risk and combine resources.
Invest in technology to drive repeatable innovation. The innovation process should be sustainable, not accidental, especially during a downturn. Using the right technology, companies can ensure their innovation is a repeatable process. Aggressively scout technology and develop a broader partner and supplier network to identify and vet opportunities. Consider using short-term or ad-hoc teams to scan opportunities across your business ecosystem.
Closely track Return on Innovation. In a sluggish economy, there’s less room for error. Measuring closely the return on innovation efforts is critical to ensure any investments yield results that meet customer demand.
Address innovation gaps. Now is the time to undertake a sober assessment of the strengths and weaknesses of your innovation system. Fix the capability gaps now so you can launch projects with fewer resources. When the upturn comes, this work will also pay dividends in terms of speed to market, quality of execution and capacity.
With the next economic downturn likely around the corner, now is the time for companies to unleash their creativity. Innovation thrives in the face of limited options. In fact, history has proven that necessity truly is the mother of innovation. Businesses intent on achieving long-term growth objectives need to build it bigger by innovating in and through a downturn. Those companies that emerge from recessionary cycles stronger and ahead of their competition understand the true value of innovation. Use this time to widen the gap.