Innovation Under the Threat of a Recession?

Cutting budgets of new projects, whether they are under the bucket of “innovation” or not is commonplace in times of economic uncertainty. This phenomenon is quite logical, especially for those classified as “innovation”.  Innovation’s ultimate goal, after all, is to spur growth.  In a period when growth is pretty much out of the question, investment in innovation seems capricious.  Companies need to become more insular, stop the bleeding, cut the “luxuries” they have become accustomed to in times of plenty, and weather the storm.  Not to mention the shareholders breathing down the Board’s neck to show some sort of profit margin.

The problem, however, is that these companies are overlooking two essential aspects of innovation.  Firstly, while the output of innovation should always be value-add (usually equivalent to “growth”), innovation should never be applied to issues that are not strategic to the company at that time.  This is one of the ways that many companies inadvertently marginalize innovation: they imply that while the current projects circulating in the company are there to keep margins steady, these extra projects are for growth.  “Innovation projects” are then perceived as nice-to-have additions to one’s everyday work (unless you happen to be the unfortunate one who received the extra work brought on by these projects.  Then they are not-so-nice-to-have).  Thereby, management separates innovation from the core activities of the company and only innovates when the company has excess resources to invest.  Or – even worse – when they panic due to a need to react to a bold competitor move or other market threat.

But this is not where innovation efforts should be placed.  Innovation should be applied to tough projects and processes that are already occurring in the organization.  It should be used to improve them – to make them more efficient, more effective, or to leverage them for growth.  Innovation should not be invasive, it should be a tool for getting the most out of what is already happening or what you already have.  It has become somewhat of a slogan for us in recent years: “Don’t do innovation; innovate in what you do”.

I doubt that “thinking and acting differently to achieve your goals” becomes irrelevant in times of a recession.  Perhaps the opposite is true?

Interestingly, for those bold enough to resource traditionally-defined innovation efforts, the research shows that this is the time for even more substantial ROI.

Professor Jacob Goldenberg of Columbia University Graduate School of Business pointed out to me that research shows that times of recession are when true change happens in the marketplace.  When the market is strong, the large companies and small companies typically both grow by gaining more customers – but at a rate proportional to their current market share.  When the market is small is when there is an opportunity to convert just a small group of customers from the competitor’s offering, thereby having a greater effect on market share and the balance of power post-recession.  Those smaller companies who had wisely increased their expenditures during a downturn, taking an aggressive approach, are those who were able to come out of the recession market leaders.  This implies that market leaders must take a similar approach simply to ward off their competition and retain their position in the future.

So, is a recession the right time to invest in innovation?  Common wisdom says no.  Then again, innovation isn’t about doing what’s common.