Innovating in a recession: a low-cost guide

Citation

Gerardi, A. and Dominiquini, J. (2009), "Innovating in a recession: a low-cost guide", Strategy & Leadership, Vol. 37 No. 3. https://doi.org/10.1108/sl.2009.26137cab.001

Innovating in a recession: a low-cost guide

Article Type: CEO advisory From: Strategy & Leadership, Volume 37, Issue 3

With the economy in shambles and many companies retreating into survival mode, a few leaders like Arvin Sodhani, President of Intel Capital, one of the largest corporate venture organizations in the world, have embraced the unconventional wisdom that innovating in a recession is not only necessary, but urgent. His warning to overly cautious leaders: “Innovation does not stop during slowdowns. Nor should you! Innovation attracts customers … ”

While it is tempting to cut resources, slow down product launches and refocus on the core, companies that continue their commitment to innovation are more likely to reap great rewards. And not only is innovation more critical in a down economy, it is also more valuable. A British study of 1,000 businesses showed that over the last 30 years, innovation investments in a recession generated a 24 percent return on capital while cost cutting only garnered 0.6 percent.[1]

Consider some innovation breakthroughs of previous recessions:

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  Though Procter & Gamble’s sales and earnings were decimated during the Depression, the consumer goods giant still launched the first radio soap opera nationally and its first synthetic detergent brand, Dreft.

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  During the1980-82 double-dip recession, Ted Turner founded CNN in 1980. MTV launched in 1981, the same year that American Airlines introduced its miles-based loyalty program.

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  Just 42 days after the 9/11/01 attack on the World Trade Center, Apple unveiled the first iPod, which transformed the music landscape and became the model for successful business innovation.

We attribute this track record to smarter, more focused innovation. The issue is not just whether we should innovate in a recession, but how we can do it most effectively at a time when resources are scarce. Three techniques for doing so, while lessening the risk are:

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  Create an “Inspiration Spiral”: Promote more opportunities for connecting with real customers and gaining inspiration from them. One way is through an Inspiration Spiral, where an inspiration “spark,” such as an event, content, or initiative, generates new ideas and energy. Boston Beer’s Samuel Adams brand does it through the LongShot contest for the best homebrew recipes among customers and employees. Winners are mass-produced and sold in a mixed six-pack the following year. The initiative provides ongoing inspiration to foster new and interesting elements into everything Sam Adams does and creates.

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  Commit to a test and learn approach: This approach is a cost-effective path to innovation that offsets risk. It means getting a range of closer in and more breakthrough ideas into prototype and market test stages as quickly as possible, testing key assumptions to scale before committing major resources, and carefully iterating concepts based on initial results. P&G, for example, has learned to spend hundreds of dollars, instead of thousands on these prototypes, keeping the focus on maximizing the learning/investment ratio. Practicing “innovation on the cheap” has enabled P&G to be a more effective and efficient innovator – an approach that works well in challenging times when every budget item is being scrutinized in order to maintain profitability.

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  Develop idea exchanges: By creatively trading ideas, insights and learning with peers outside your own company, you’ll forge important connections that stimulate innovation. The Google/ P&G employee swap program, for example, allows P&G employees to learn about Web 2.0 and e-marketing from Google associates, who, in turn learn about marketing the P&G way. This exchange has opened new vistas for each company at minimal cost – a smart and fiscally prudent way to infuse fresh perspectives throughout the organization. Another example is Threadless, the community-centered online and bricks-and-mortar apparel store, which employs an open source model for “designers” who create its products.

Innovation is the lifeblood of a business and its brands, a critical way to entice and keep customers, and ensure competitiveness in a dynamic marketplace. Businesses that find ways to continue to foster innovation in their systems and cultures despite the hard times will come out ahead in the end.

Anthony Gerardi, Jennifer DominiquiniAnthony Gerard (agerardi@prophet.com) is a partner and Jennifer Dominiquini (jdominiquini@prophet.com) is an associate partner of Prophet (www.prophet.com), a global strategy, innovation, and design consultancy headquartered in San Francisco.

Notes

1. Profit Impact of Market Strategy, a British study of 1,000 businesses during the past 30 years, found that companies that spent more on innovation during a downturn saw return on capital employed rise 23.8% during the recovery, compared with 0.6% for those that slashed spending, cited in ”Innovate in a recession? Yes, it can be done,” Advertising Age, February 25, 2008.