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How To Innovate Through A Recession. Don't Make The Classic Mistakes In Cutting Back.

Posted by: Bruce Nussbaum on January 30, 2008

It’s clear that the US and probably the global economy is heading toward a sharp downturn and possibly recession. Fourth quarter US GDP growth was a mere 0.6%, the worst since 2002. CEOs everywhere are getting more pessimistic. They are preparing to cut costs and many will be tempted to cut costs associated with innovation—talented people, R&D, new product development and social media information technologies that create global collaboration and integrate consumers into the company.

This is the moment when CEOs make classic mistakes for short-term gains that undermine the competitiveness of their companies. Smart companies like Apple use economic slowdowns to focus on what’s next. They provide enough funding to innovate through recession and come out with new growth strategies that take their competitors by surprise. iPod/iTunes anyone? Apple retail stores? Both came out following

economic downturns.

McKinsey has published a great series of innovation reports that show the how of innovation in terms of leadership and talent. One of my favorites tells CEOs how to execute innovation. The language is consultant-eeze but there is meat in the suggestions. We all know by now that top managers pay homage to the idea of innovation but don't really know how to execute. With the coming slowdown, they may be even more unwilling to try. This report, called Leadership And Innovation, offers specific things CEOs should do. Yup, some are obvious, indicating how far corporations have to go.

Here are a few suggestions for CEOs from the report:

"Define the kind of innovation that drives growth and helps meet strategic objectives. When senior executives ask for substantial innovation in the gathering of consumer insights, the delivery of services, or the customer experience, for example, they communicate to employees the type of innovation they expect. In the absence of such direction, employees will come back with incremental and often familiar ideas.

Add innovation to the formal agenda at regular leadership meetings. We observe this approach among leading innovators. It sends an important signal to employees about the value management attaches to innovation.

Set performance metrics and targets for innovation. Leaders should think about two types of metrics: the financial (such as the percentage of total revenue from new products) and the behavioral. What metrics, for example, would have the greatest effect on how people work? One company required that 20 percent of its revenue come from products launched within the past three years. Another established targets for potential revenues from new ideas in order to ensure that they would be substantial enough to affect its performance."

None of these suggestions is particularly expensive. It's all about focus. Losing focus is a classic innovation mistake made in recessions.

There is a second McKinsey report called Making Talent A Strategic Priority that is fasacinating. The rise of Asian Universities (again) is generating a new source of talent for the global economy--talent that corporations need to tap to be competitive. In many cases, it is a source of talent that is less expensive than that in the US and Western Europe. In some cases, it is as expensive if not more so.

Investing in the search for talent around the world, finding it, integrating it into teams--all are critical for innovation. Not spending money on talent in tough economic times undermines competitiveness. It's a classic innovation mistake made in recessions.

What are other innovation mistakes made in recession--that we should all avoid?

Reader Comments

RitaSue Siegel

January 31, 2008 1:01 PM

The war for talent continues. There has been no slowdown in this regard.

Kevin Dugan

January 31, 2008 6:04 PM

Bruce - I think it applies to marketing as well as innovation.

Recessions provide smart marketers the opportunity to gain market share. Kraft and Kellog for example are boosting ad spending according to news reports.

And while I'm not sure folks should boost spending in this regard during a recession, I do think that knee jerk cost cutting needs to be avoided across the board.

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Want to stop talking about innovation and learn how to make it work for you? Bruce Nussbaum takes you deep into the latest thinking about innovation and design with daily scoops, provocative perspectives and case studies. Nussbaum is at the center of a global conversation on the growing discipline of innovation and the deepening field of design thinking. Read him to discover what social networking works—and what doesn’t. Discover where service innovation is going and how experience design is shaping up. Learn which schools are graduating the most creative talent and which consulting firms are the hottest. And get his take on what the smartest companies are doing in the U.S., Asia and Europe, far ahead of the pack.

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