Innovating through a recession

For companies, innovation is a risky and expensive activity and recessions are about survival. Consequently, many companies react to recessions by slashing innovation budgets and focusing on cost cutting and their core competencies. Yet there is a strong body of opinion that investing in innovation is more important than ever during a recession.

 

The main argument behind this view is that companies without a healthy innovation pipeline will fall behind the competition as soon as the economy turns upwards again. Additionally, the constraints imposed by a recession may inspire greater creativity, and being forced to prioritize innovation strategies may provide the impetus needed to overcome the common reluctance to “kill” fruitless projects, meaning that companies invest their R&D dollars more wisely.

 

However, for all but the strongest companies, a recession will inevitably provoke a change of focus in innovation strategy to improve survival chances. One approach is to increase investment in open innovation while reducing internal R&D investment. Another is to focus innovation more heavily on processes than on products: the cost savings from streamlined processes will benefit the company and its customers in good times as well as in bad. Perhaps only a minority of companies will be in a sufficiently strong position to continue to invest in innovation in a similar way during a recession as during easier economic times, and those few are the ones that are likely to leapfrog the competition as soon as the economic cycle begins to recover.

 

If recession is approaching in Europe, should we expect that companies in the FMCG sector are likely to change the focus of their innovation towards cost-cutting, process innovation, and perhaps open innovation? Which companies will be affected the most strongly? Is it the largest companies that are likely to have sufficient reserves to be able to continue to invest in scoping diverse new areas? Alternatively, is company size or strength a relatively insignificant factor relative to the effect of industry sector, with some industries hit very much harder than others by an economic downturn?

September 9th - 2008 Oakland

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