Innovating in a recession
In the October 3rd issue of The Economist, probably the only "dead tree" magazine you really ought to read, the Schumpeter column is entitled Thriving on adversity. In the article, the author points out several ways to thrive during a recession. One group of consistent winners is identified as those with a "record of innovation". The article goes on to quote Craig Barrett, the former CEO of Intel, as saying "You can't save your way out of a recession; you have to invest your way out." The article goes on to point out that P&G is opening a number of new factories and investing heavily in new ideas right now, and IBM is holding a number of innovation jams to squeeze ideas out of employees. Note that these leaders are actively involved in innovation during the recession.
Take special note of Craig Barrett's statement - "You can't save your way out of a recession; you have to invest.." Barrett is acknowledging what innovators already know. Even in a time of reduced spending and tightened budgets, consumers expect the market to change and present them with new ideas. Those ideas and products may meet immediate needs (lower costs with the same quality) or longer term needs (new products and services that meet unexpected needs). What the consumer does not expect is that product and service development will sit still. Those that fail to innovate and invest during the downturn will have last year's models that don't meet consumers needs and expectations.
The article goes on to make one other point - there ought to be a huge range of skills available in this market at very inexpensive prices. During the Great Depression, Dupont invested heavily in R&D and hired unemployed scientists. In just a few years over 40% of their sales were from products less than 10 years old. In this market, there are hundreds of people available with the skills you need to innovate and increase the pace of change in your company. Furthermore, if you aren't innovating during this period, you can bet that the folks who don't have jobs and don't see a future in a larger organization will create new, smaller companies to create new products and services aimed at some segment of your customers. So, you can choose to take on some of this talent and speed your own development, or watch as that talent forms new companies to compete with you.
When all bets are off, most individuals and firms will consider anything to succeed. In a downturn, where the future is relatively uncertain and consumers are hesitant and skills are plentiful, now is the time to act. There's no better time to innovate than right now, anticipating the eventual upturn in the economy and laying the intellectual foundation for new products and services.