How To Keep Innovating In An Economic Downturn

As we appear to be residing in a relentless financial downturn, leaders discover themselves between a rock and a tough place, attempting to cut back prices and foster development on the identical time. This dichotomy delivered by the monetary strain is sadly pushing many leaders and high managers in the direction of suboptimal choices that are inclined to focus extra on survival and never sufficient on investing sooner or later. And for good motive: chopping value is predictable, whereas future development isn’t.

We have seen this taking place over the last financial disaster, when merely 10% of corporations carried out higher on the finish of the disaster than they did earlier than it. Understandably, discovering the very best methods to deal with monetary strain whereas investing sooner or later throughout tough occasions is without doubt one of the greatest challenges for corporations.

We’ve additionally seen throughout us how ventures deemed dangerous or experimental are shut down throughout robust occasions and the way consideration is diverted to areas that may ship quick outcomes. Innovators are compelled to surrender on initiatives, tasks, and sources. The draw back of this method is that these quick outcomes will patch issues for survival, however in the long term the group suffers.

In this context, innovators surprise the best way to get concepts throughout, the best way to proceed tasks, what back-up options to search out and the best way to preserve innovation afloat.

To reply these questions and enable you to higher cope with the scenario, we wrote this text that goals to elucidate why innovation in an financial downturn is essential not only for survival, however for long-term success, and the best way to go about it. We’ll additionally present a collection of sensible ideas and examples that may assist tackle the adjustments, embrace new alternatives, and navigate these difficult occasions.

So, with out additional ado, let’s get to it.

Why Is Innovation Important Throughout An Financial Downturn?

As most of you would possibly know, innovation is a dangerous enterprise so doubling down on innovation in a downturn, sounds counterintuitive. Giants like Apple, Google or Samsung can clearly afford to speculate massively in innovation even in an financial downturn. They know they are going to reap the advantages with out risking as a lot as smaller organizations.

Yet, most organizations don’t have the sources of those giants so for them this answer just isn’t so evident. However, even when doubling down on innovation just isn’t but possible for small and medium organizations, it doesn’t imply they need to sacrifice their future due to some rash choices.

Innovation continues to be possible and will nonetheless play a task in your strategic priorities, even in a downturn. In reality, constraints can flip into nice alternatives for innovation, so frugality can truly work to your benefit. As CFOs will scratch their heads attempting to give you the very best options for subsequent 12 months’s funds, you’ll have to search out methods to assist their choices and work round these constraints.

Now, you would possibly ask your self: is it value it? Why shouldn’t you simply hand over on innovation when occasions are robust? Here are only a few of the arguments that designate why dedication to innovation can convey nice outcomes even once you’re going through monetary difficulties.

In all circumstances, leaders will and will have strategic priorities on high of their minds. A downturn can simply change your working setting, so if you wish to keep within the sport and thrive, you might want to discover methods to adapt to that new setting, whereas holding your eyes on the prize and specializing in the longer term.

Usually, you want innovation for that, which signifies that you both adapt to present challenges or lag behind the competitors. As not all organizations are prepared to take the chance to shift gears and alter route, that’s the place you possibly can outperform opponents.

Previous recessions confirmed that corporations that invested in innovation by means of disaster outperformed their friends. In reality, there may be proof that efficient capital allocation performs a giant position within the end result.

McKinsey study on companies during crisis

As McKinsey factors out, organizations that centered on innovation even through the 2009 disaster, outperformed the market common by 30% and their development continued to speed up the next years as nicely.

Additionally, an Accenture examine revealed how expertise leaders, corporations that invested closely in expertise through the COVID-19 disaster, have been rising at a sooner price than their opponents. These leaders had been proven to undertake progressive applied sciences sooner and to reinvest extra steadily as they redirect their IT budgets to innovation.

Accenture study on innovation

Companies that outperformed their competitors even after an financial downturn, understood the place the world was shifting at the moment, and the way innovation would assist them surpass the disaster. Sometimes, shifting forward in an financial downturn additionally means to chop prices, however that ought to at all times be executed whereas contemplating long-term priorities.

For instance, Delta Air Lines, one of many main airways, managed to get again to their main place even after chapter. They efficiently emerged from the disaster in 2007 by means of a collection of daring choices from leaders who embraced progressive pondering.

They incentivized workers by means of a profit-sharing program and stock-ownership plan, they solid new partnerships and consolidated current ones, and possibly probably the most unconventional determination of their business, they purchased an oil refinery which down the road, decreased the gasoline prices for the corporate. Of course, a number of robust choices had been additionally made as they needed to restructure the group from the bottom up. Even so, once they did this, they thought-about the long-term success, not simply the fast wins.

Speaking of short-term and long-term initiatives, this takes us to the following level: the balancing act organizations have to grasp in the case of funding for short-term and long-term tasks.

  • Long-horizon Tasks Preserve The Innovation Portfolio Balanced

The three horizons of development is a mannequin created by McKinsey to raised handle and construction innovation tasks within the short-term and within the long-term. We coated the subject of an innovation portfolio and the best way to finest handle it, so we received’t go into an excessive amount of element right here.

In brief, the thought of the three horizons mannequin, is that it means that you can create a portfolio to handle innovation as an asset which permits long-term development. The long-horizon improvements that we discuss right here, are principally the tasks within the horizon three, which might be anticipated to provide leads to greater than three years.

three-horizons-of-growthWorking concurrently on tasks inside all three horizons permits corporations to maximise their development potential. However, because the Harvard examine suggests, less-mature corporations discover it harder to spend money on long-horizon tasks, as financing tasks that would take years to convey outcomes places them in a extra susceptible place.

This is very true once they face financial strain. The long-horizon tasks are the primary to go and this results in an unbalanced innovation portfolio. This leaves them with the short-term tasks, the fast wins that often convey decrease, incremental outcomes in comparison with the long-term improvements.

Maintaining a balanced portfolio in a disaster turns into much more tough. As the monetary strain adjustments the dynamic of the group and the context by which it operates, new priorities should be set in addition to a change in useful resource allocation.

Instead of a 70-20-10 mannequin, it is likely to be that you’ll have an 85-10-5 mannequin. Even should you might need to kill among the long-horizon tasks attributable to monetary consideration, you possibly can nonetheless consider options that can guarantee long-term development.

The Harvard examine cited above additionally advices that other ways to steadiness portfolios are wanted. Organizations ought to make adjustments of their technique, governance, engagement, and incentives.

David Arnoux, Growth Tribe CEO and co-founder explains how they tailored the McKinsey mannequin to create their very own sources and align each enterprise innovation and enterprise development in addition to steadiness their innovation portfolio.

In brief, they allocate 75-90% of sources to optimize the H1 tasks, 5-15% to H2 undertaking and 1-2% to H3 tasks. To attain this proportion allocation, they use a scoring system that enables them to check and validate concepts, to research the influence, execution threat and monetary influence these tasks might have.

  • Playing Offense, The Profitable Technique For Midsize Corporations Too

The first response in occasions of disaster is to play protection. The strain of the unknown in addition to the expectations from stakeholders can flip into less-than-optimal choices. The totally different research offered right here thus far confirmed that taking part in offense and investing in innovation, is in truth the profitable technique.

In defensive mode, once they face a number of exterior strain, leaders scale back operational prices, shrink budgets for all departments, restructure, and postpone investments in coaching, instruments, or new expertise. All this may finally result in a drop within the morale of workers, which in flip can have an effect on their efficiency and functionality to execute their day-to-day job, not to mention give you progressive concepts.

On the opposite hand, to play offense would imply that leaders and finance departments are nonetheless prudent, however don’t have an effect on the areas which might be important for future development. And this may be executed in organizations of all sizes. You don’t should be Apple or Google to spend money on innovation in occasions of disaster.

Obviously, that is simpler mentioned than executed. The vital questions come up: the best way to prioritize investments, the place to chop what, and what technique works finest? You might need guessed that it will depend on the business, market, and specifics of the group. Still, based mostly on our analysis and expertise, we will present a listing of sensible recommendation that may enable you to preserve innovation afloat even throughout tough occasions.

Best Practices To Maintain Innovating In An Financial Downturn

Even with the recession information looming over our future, there may be nonetheless some excellent news. So far, every recession has been adopted by a interval of development and prosperity. This is to not say we should always relaxation on our laurels. Each disaster got here with its personal challenges and alternatives, and finally, every path requires totally different choices too. Optimism might do us good, however the robust choices are forward of us, and a part of these choices ought to contain some progressive pondering too.

So, we’ll subsequent have a look at among the finest practices that may enable you to preserve innovation afloat regardless of the tough occasions.

  • Turn Constraints Into Alternatives

You don’t should construct all the things by your self, and that holds true much more in a downturn. If some tasks are threatened to be shut down or they’re affected by restructuring or financial savings, you possibly can search for options exterior the group.

Facing monetary struggles can convey a collection of constraints, however as talked about earlier than, these may be opening doorways to new alternatives. Maybe now it’s the time to find collaboration alternatives that weren’t doable earlier than. As different organizations is likely to be going through comparable threats, they could possibly be additionally seeking to assist their tasks by means of partnerships.

For these which might be within the place to do it, there may be additionally the choice to amass new ventures and small corporations. In a disaster, the valuation often goes down and that may be a superb alternative to develop your portfolio or discover services or products that may complement yours.

For instance, AstraZeneca, the pharmaceutical large, made fairly just a few of those strategic strikes not too long ago. In 2022 they acquired biotech agency TeneoTwo to broaden their hematology portfolio, teamed up with Alveofit for lung illness administration, and began a collaboration with Thorne HealthTech for progressive AI-driven applied sciences.

biotech partnerships

While smaller organizations won’t be within the place to make acquisitions, they will nonetheless search for appropriate partnerships, by creating or adhering to native innovation ecosystems or by means of varied open innovation initiatives. There can be a possibility in committing to ship progressive outcomes to prospects, which in return might help share the prices and preserve the undertaking alive. 

  • Focus On Strategic Priorities

With every determination, leaders (ought to) take note of strategic priorities that can transfer the group ahead. If you need your concepts and tasks to be a part of these priorities, you must make it possible for the innovation efforts align with the general enterprise targets.

When COVID-19 hit, many organizations modified gears and invested massively in digitization, as that was the brand new precedence that mattered in that context. However, in a monetary downturn the route won’t be as clear for all organizations. What ought to they give attention to, what are the brand new priorities, the best way to finest overcome the scenario?

Innovators have to align the innovation technique with the enterprise targets by working carefully with high administration. Through shut collaboration they will form the imaginative and prescient for the longer term and discover methods by which innovation can assist that imaginative and prescient. Innovation shouldn’t be the tip objective, however fairly the means to an finish, the instrument that may assist obtain higher issues. Through open collaboration and clear communication, innovators may also achieve the belief of determination makers.

Working carefully with high administration can flip your innovation initiatives in several route that originally meant, particularly throughout a troublesome financial scenario. An innovation technique is supposed to information your motion in the direction of areas which have the best enterprise influence, however it must also present sufficient flexibility to adapt to new conditions.

So, you might want to evaluation and fine-tune the prevailing innovation technique to match the brand new priorities. You might, for instance, focus extra on options that save prices and clear up inefficiencies, if that could be a precedence. Or you possibly can reap the benefits of this example to recommend concepts that beneath regular circumstances wouldn’t have been well-liked.

A frontrunner won’t be prepared to trigger that inside havoc when enterprise goes nicely, however when the strain is rising for everybody, it’s simpler to make these robust choices.

As innovation managers or as somebody working with innovation, it’s important to debate with management and present how your work and the tasks envisioned for the group might help obtain the targets even within the new context.

For instance, when the financial disaster hit in 2008-2009, Samsung was main the consumer-electronic market, however it was lagging behind in technological development. In occasions of disaster, shoppers lower on spendings deemed pointless like expertise. However, in addition they turn into extra conscious of the worth/high quality ratio and select long-term investments over low-cost ones that may final much less.

To get a aggressive benefit, Samsung shifted their focus to technical innovation and R&D, investing closely in bettering the standard of LCDs, semiconductors, and cellphones. As their enterprise technique and enterprise targets developed, so did their innovation technique. During the disaster, they spent over 7 billion {dollars} on analysis and growth, with 25% of workers concerned in R&D work, which allowed them to stay aggressive.

  • Involve Workers In Cost-cutting Choices

The give attention to innovation doesn’t take away the necessity to scale back prices or lower down on funding in different areas. Sometimes there is no such thing as a approach round it. However, you possibly can uncover new alternatives once you seek the advice of together with your workers as they will convey up some concepts on the best way to lower or spin out sources which might be now not strategic or related.

There are additionally conditions once you want options for particular issues and your workers might need the solutions. For instance, KLM was struggling for years to search out the finest approach of decreasing the turnaround time of their aircrafts with out extra prices. A shorter turnaround time means maximizing the airplane’s capability to fly. However, determination makers and groups concerned within the course of couldn’t get aligned on the best way to finest go about this.

klm ideation

So, as a substitute of taking a top-down method they went for the bottom-up one. They introduced collectively workers who had been actively concerned within the course of to work on an motion plan. Their ideation course of, testing and implementation led to a profitable end result which lowered the turnaround time from 50 minutes to 35 minutes with none extra investments. This resulted in a optimistic monetary influence and the mannequin of engaged on this downside was later applied for different aircrafts.

If a small workforce had such a big effect on such a big group, think about what you are able to do once you scale such initiatives all through a complete firm. Working face-to-face, like KLM did on this case is crucial, particularly in smaller groups. However, when the size, construction and urgency of the scenario change, you have to extra environment friendly instruments like an thought administration software program that may additionally scale together with your wants.

There appears to be an ongoing debate on whether or not we already are in a recession or not. The reply will depend on the place you stay, and whom you ask. Regardless of the viewpoint, in the long run it’s a matter of “how worse it will get and when”.

So, understandably, value discount is already high of thoughts for a lot of leaders. However, it’s not nearly leaders who have to take motion. Innovators throughout organizations even have to determine the best way to assist CFOs in reassessing priorities.

If we have a look at a current Gartner survey we see that 85% of CEOs plan to prioritise funding in digital capabilities and 94% need to keep and speed up the digital transformation pushed by the pandemic. Such actions might help corporations scale back the prices of doing enterprise and permits them to discover disruptive improvements.

So, the query is what innovation technique would finest align with these priorities. Is there a undertaking that may be altered to behave as a security web, or are there any concepts that would assist diversify the sources of income?

For instance, Amazon created the Amazon Web Services enterprise by means of which corporations lease servers from Amazon knowledge facilities, offering the corporate with one other quickly rising and worthwhile income. E-commerce is at all times a kind of industries hit tougher throughout recession, so naturally Amazon was additionally sure to be affected by the 2008-2009 financial disaster.

However, AWS properly complemented the corporate’s development. What was an extra stream of income has now turn into probably the most profitable cloud infrastructure firm, with greater than 30% of the market.

Some of the obvious options is likely to be proper in entrance of you, however it’s not at all times simple to entry that info. Here’s the place an thought administration software program can once more enable you to.

You might, for instance, set up thought campaigns and challenges to uncover new alternatives to enhance processes or merchandise, save sources, scale back waste, prices, or errors, discover new income fashions, differentiation strategies, new markets or providers, and far more.

To enable you to out, we created an in depth listing with 35 methods you should use an thought administration software program to drive enterprise outcomes. You can revisit this everytime you really feel such as you would possibly want the enter of workers, however you’re unsure the best way to method the subject.


To finish on a optimistic notice, let’s do not forget that all crises and recessions have been adopted by a interval of prosperity and development. So, take a better have a look at the behaviors that led to success after recession and see how one can act strategically to outlive, adapt, and hopefully, thrive.

The survivors of the dot-com bubble Netflix, Facebook, Nvidia and others, grew to become the best wealth creators of our days as a result of they seized alternatives and remained versatile. Those 10% of corporations that carried out higher on the finish of a disaster had a number of issues in frequent. They took benefit of the scenario, they tailored to maximize alternatives, they centered on strategic issues, they usually had a wholesome steadiness of creating 1000’s of robust choices whereas holding their eyes on the prize by means of investments sooner or later.

Can you identify extremely profitable organizations that haven’t allotted any sources to innovation when the occasions had been robust? We can’t consider any.

If you need to be taught extra on the best way to make innovation occur and navigate the challenges, we created The Innovation System program along with our prospects who work each day on innovation. The on-line course is a teaching program that dives deep into all issues company innovation by means of 26 video lectures, workout routines, instruments and templates.

If you need to be taught extra in regards to the makes use of of an thought administration software program and the way it can profit the way forward for your group, book a demo with certainly one of our workforce members!


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