Companies & Industries

How to Innovate After a Recession


The Tuck School's Vijay Govindarajan outlines a three-pronged plan for making innovation flourish in a post-recession environment

I have been studying recession for years. The current Great Recession, while highly unfortunate, is not an unprecedented event. We have had many recessions in the past. Based on my study of them, I can make several observations. First, expansion always follows recession and lasts longer than recession. For instance, a 16-month recession after the dot-com debacle was followed by seven years of expansion. Second, after the recession is over, the competitive landscape fundamentally changes—there are new winners and new losers. That leads to the third observation: The winners invest in innovation during recession, while the losers fail to do this. The best time to prepare for expansion is during recession. True, these are tough economic conditions. Resources are scarce. I recommend a three-pronged strategy for pursuing innovation, even during extraordinarily difficult times. First, set aside a percentage of resources (both people and dollars) for innovation, and ring a fence around these resources. Second, take a hard look at all the projects under way in your company and stop the ones that show little future prospect. You can release resources by shutting down "low-probability-to-succeed" projects. Third, be very disciplined about implementing innovation initiatives. It is the third step—making innovation happen—that seems to be the most difficult. When I work with executives in Fortune 500 companies, I repeatedly hear that they struggle to make innovation happen. Right now innovation is more important, not less important. Why can't organizations execute innovation, especially since Fortune 500 companies have such vast resources and capabilities? The true challenge: execution

There is just one problem: Business organizations are not built for innovation, but for efficiency. Organizations today are only modestly more prepared for the challenges of innovation than they were fifty years ago. While most companies have plenty of creativity and technology, they lack the managerial skills to convert ideas into reality. I liken innovation to an ascent of Mount Rainier. Most climbers focus their energy and enthusiasm on attaining the summit, leaving few resources for the less glamorous, more dangerous part of the expedition—the descent. Similarly, companies devote their energies only to reaching the innovation summit—that is, identifying, developing, and committing to a brilliant idea. Getting to the summit can seem like the fulfillment of a dream, but it is not enough. After the summit comes the other side of innovation, the challenges beyond the idea: execution. Like Rainier, it is the other side of the adventure that is actually more difficult. There is too much emphasis on ideas and not nearly enough on execution. As a result, most corporations have more ideas than they can possibly move forward. Too many promising ideas on paper never become anything more than … promising ideas on paper. I have spent the past decade studying innovation within established organizations. I have studied companies in wide-ranging industries—Aetna (AET), ABB (ABB), BMW (BMW:GR), GE (GE), Harley-Davidson (HOG), P&G (PG), Mattel (MAT), Hasbro (HAS), Timberland (TBL), Deere (DE), WD-40 (WDFC), and 3M (MMM), to name a few. In the process, I have compiled perhaps the most extensive library of innovation case studies in the world. I have come to the conclusion that established organizations should be capable of executing any innovation initiative. Building a special project team

To be successful in execution, each innovation initiative needs a special kind of team and a special kind of plan. Here are the steps for building the project team: Divide the labor. Decide how responsibilities for executing the innovation initiative will be split between the two components of the project team: The Dedicated Team, which works exclusively on the initiative full-time; and the Shared Staff that work on the initiative part-time while maintaining ongoing operations. Assemble the Dedicated Team. Determine who will serve on the Dedicated Team and how to define their roles and responsibilities. Manage the partnership. Establish clear expectations for each partner, design incentives for collaboration, and mediate the inevitable conflicts that will arise between the two. Conducting the innovation experiment

Here are three steps for planning an innovation initiative and evaluating its progress: Formalize the experiment. The basic principles for learning from experiments are familiar; stick to them. Break down the hypothesis. All but the simplest innovation initiatives are really compound experiments. There are two or more uncertain conjectures. Learn to test critical assumptions at a low cost. Seek the truth. Myriad pressures in organizations push people toward interpretations of results that are comfortable and convenient, rather than analytical and dispassionate. These pressures must be understood and overcome. I invite executives to share experiences in executing innovation. What are your struggles? What solutions seem to work?


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