The recent cancellation of Columbia University’s planned December session of its Executive Education course, “INNOVATION AND MARKETING“, came as no surprise. It is common wisdom in the business world that in times of recession, one must first cut the Training budget and then the Innovation budget. So this course received a double-whammy.
This phenomenon is quite logical. Innovation’s ultimate goal in any organization 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, even if it means letting go a few hundred or thousand “salaries” or “headcount” that they will inevitably rehire a few months later once the R-word has passed.
These companies, however, overlook 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 profits 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 people have time and the company has excess resources to invest. Or – even worse – when they panic due to a need to react to a bold competitor move.
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. I doubt that this becomes irrelevant in times of a recession.
Secondly, when done right, innovation changes the way people think (one of the reasons that Brainstorming doesn’t really work, since it works on creating an “innovation environment” rather than changing how people think and approach the topic). And changing the way people think, changes how they act. Since recession is a time when things absolutely need to be approached differently and DONE differently, I can not imagine a better time to make sure that your employees are doing this. Counter-intuitively, this makes times like now the BEST time to invest in training your people, and particularly in innovation skills.
And if logic doesn’t convince you, then maybe some empirical proof will…
Professor Jacob Goldenberg of Columbia University Graduate School of Business and Hebrew University also 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 large effect on market share. Those small companies who had increased their marketing 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.
We are entering now the final months of the year, which is the time when departments and companies decide how to spend their remaining budget. Interestingly, in times of recession, this budget does not disappear – it is usually just diverted elsewhere. Using it for innovation might just be your ticket to market leadership.
I fully endorse this perspective and would like to add my own take on innovation in a recession which I think complements the above.
I think there is opportunity in recession (yes, the r word….)but it takes a new and deeper understanding of the customer to see it. Most organisations do not have a deep or coherent view of their customers but can survive without this in the good times. In the bad times they pay the price for this neglect and are therefore forced to compete on traditional criteria, especially price.
Any significant shift in customer behaviour (however it arises, recession or otherwise…) is an opportunity to re-connect with our customer and challenge prevailing assumptions about what they want and how they want it delivered.
In the B2B world it is a golden opportunity to re-position from a vendor to a solution-provider, moving-up the value chain and elevating the customer relationships. This is something many organisations state they want to do but find hard to make happen in the good times as their priorities are elsewhere (fulfilling orders and growth strategies) and their customers lack the ‘burning platform’ necessary to make them receptive to these new ideas. In a recession it is a brave or foolish manager that refuses to consider a new and compelling value proposition.
This change requires that we understand and actively engage with our customers and those best equipped to engage in this way and to adapt what they provide and how they provide it stand to gain the most. Victory can go to the knowledgeable and the responsive and not simply to those that can best compete on price.
Understanding the customer’s pain is key but don’t assume the pain points are the same as before but just more painful; there will be new needs and identifying these is the place to start. The opportunity is to broaden and elevate the discussion and jointly agree to shift the goalposts and thus take the relationship to a deeper level. This will take time but if correctly targeted and managed it will pay and change the relationship for ever.
Typically there are opportunities to take business away from adjacent spend areas and competitor’s who fail to see the opportunity. In good times customer’s may not feel consolidating spend is worthwhile or they prefer to spread the risk across suppliers but these concerns go out of the window when survival, cost and value come to the fore. Where previously customers preferred to keep certain activities in-house they may now be open to outsourcing them. Where they preferred to own assets they may now be willing to share them with competitors. Where ‘Not Invented Here(NiH) ruled they may now be open to Was Invented Somewhere Else (WiSE). The deeper the recession the more open they will be to re-consider previous ‘sacred cows’ and change the way they do business across their entire organisation.
So, my advice is:
1.Spend more time with your major customer’s and get to know how they are impacted by the downturn and current plans to deal with it-look for new insights and challenge assumptions;
2.Use these insights to identify new ways to help them beyond current offerings and lower prices and explore areas that they may have previously rejected but may now be open to – finding new sources of value is key.
3. Re-visit your strategy and re-orient it towards the new market conditions – success will go to those that think the best, the agile and the courageous - and this may be a better time to change direction than you previously thought, both your own and your customers’.
Brendan Dunphy at http://www.brendan-dunphy.co.uk and http://www.HowToFarmLightning.com
Brendan, thanks for your comments. I heartily agree that this is a great time to strengthen relationships with clients, especially B2B or OEM. But because these same clients are also facing the impact of the recession, they will need a good reason to dedicate their valuable time to meeting with you. Just chatting in order to see if you can uncover new unmet needs, which may eventually give your client some benefit (if you find a way to supply a solution) – is obviously good for you. But it can be difficult convincing your client why this is worth her time.
I suggest that you come prepared. Many companies have lists of innovative ideas filed away, which they don’t know what to do with. Why not set up a meeting to review with them your existing new solution ideas to check whether you have anything already “on the flipchart” that can help them?
A better option is to review your existing idea list plus actually working jointly to create new services already from the idea generation stage. Jointly generating ideas for services that are specific for that client – with a session sponsored by you – should get their attention and willingness to invest time and effort. In addition to really creating new services that already have a known client, this is a great way to get unfiltered “voice of the customer”, if properly facilitated. We call this a MultiFocus Group™ (MFG).
The point is that this is a time to really PARTNER with your clients to both strengthen your mutual relationship and to meet both of your current business goals, rather than working in parallel in a “classic” client-supplier relationship.
One interesting challenge in a recession is to develop an effective set of communication pieces with the purpose of educating clients to consider not closing all the faucets, but to reallocate resources.
Wouldn’t that be a wonderful initiative we could create together?
May be this could be part of our To Do list on December?
Cheers!
Fabian
This is very interesting and true. It has always been my sentiment that saving or cutting cost is a lot harder than innovating and expanding. I have forward this post to my friends and hop they will take note.
Innovation is what distinguishes a leader from a follower. Organizations electing to cut innovation in times of recession maybe temporarily saving a few $$$ but hurting themselves significantly longer term for the times they’ll most need the innovative arm to get back to business; strengthened and with more thrust.
I’m surprised that academic institutes also take the same route and view this as weakness. Academic institutes, especially those who deal with sciences and technology should be driving innovation, not treat it as a bonus or luxury – this is the bread-n-butter.
very good message i will forward it to my seniors also
Let me offer a mental model of innovation to help identify strategy is recession times.
I would start with some defintions:
1. “Value” would be a ratio of “functionality” over “cost” (V=F/C).
“Functionality” would reflect practical “benefit” - and we can stretch it to encompass aesthetic and emotional benefit.
2. “Cost” would be the sum of resources to produce, maintain and discard goods or services throughout their life cycle, not just the money to purchase them. For example light bulb “cost” includes also the power consumption, the heat emission harming the environment, space it consumes, recycling cost etc. A car’s fuel efficiency would be calculated “from well to wheels”.
3. Now if we agree that the essence of innovation is to increase value, we can see several strategies: Increase numerator while keeping demominator constant (closed world solutions), Increase numerator much while increasing denominator by little etc.
I’ll let you figure how many strategies are there… just play with above formula…
4. The strategy of “keep numerator constant, reduce denominator” is the sought “cost reduction” during recession.
Therefore cost reduction is not “opposite” to innovation, it is inherent ingredient of it. “innovation for cost reduction” should be positioned as an attractive value proposition.