Recession is your chance to pass the competition (or fall behind).
With each recession it is ‘déjà vu all over again’ as we debate: is innovation an investment to make in a recession? The answer is yes – in fact innovation investment in a recession is essential and can be very rewarding. Not investing in innovation during a recession can be detrimental to your health. The Kinsey Quarterly (June 2002) published research that tracked nearly 1,000 US industrial companies from a range of sectors from 1982 to 1999 which included the recession of 1990-91. McKinsey’s analysis revealed that lagging companies that became leaders post-recession invested proportionally more than their competitive set in innovation, and leading companies that retained their leadership position spent proportionally more on R & D during the recession than their peers who lost leadership positions.
What investments should be made during a recession to gain competitive advantage in a recovery? In his research of 1,000 companies published in Strategy and Leadership in 2003, Keith Roberts (Managing Director, PIMS Associates) offers that during a recession, spending should focus on ‘good costs’ identified as marketing, innovation and product quality. Spending on ‘good costs’ he argues has little or no negative impact on profitability during a recession and a strong positive impact during recovery. Conversely, spending on ‘bad costs’ should be resisted because investing in reducing manufacturing and administrative overhead have little positive impact during a recession and a poor impact during recovery. Roberts’ argument for avoiding ‘bad costs’ is that the benefits derived from cost-cutting can just be competed out in price competition to fill capacity once the market recovers.
So, product development and management professionals — don’t waste a perfectly good recession! With budgets to defend, here are four ways to make the case for what you need to succeed.
Make the case for managing the front end with urgency
Time matters. This recession will not last. Time is a non-renewable resource. Once spent, it cannot be saved. So spend it productively. Everyone understands time. It is easy to measure and a largely untapped resource at the fuzzy front end. Normal accounting methods fail to put the value on time that it represents in today’s competitive environment. Smith and Reinertsen in their 1995 book “Developing Products in Half the Time” argue that focusing on cost alone creates a hidden bias that leads to bad decision-making and that slows down every aspect of product development.
Make the case for less is more at the project level
Hand in hand with managing time at the front end with appropriate urgency, is the case for managing focus — the kind of focus that permits your most valuable innovation resources, your people, to focus. Focus starts with the C-suite setting strategy. In a recession there is a tendency to do more with less. It is counter-productive anywhere in the new product development process to staff new product development projects by overloading your human assets. Effectiveness goes up when an individual has significant responsibility for two projects and decreases after that, sometimes precipitously, if an individual is staffing 4 or more active projects. Research suggests that new product development teams succeed more if they do less.
Take advantage of user needs being more acute and visible during a recession
A recession is a good time to invest in new business. In a recession consumer and customer pain points become more acute and visible, lead users become more prolific and more people become lead users during a recession. Remember, lead users are those consumers and customers all along your value chain that inventively and creatively find ways to accomplish desired outcomes in straightened circumstances.
During a recession, compensatory behaviors, discontinuity, disequilibrium, disintermediation and dissatisfaction are easier to see and present opportunities for new products and services.
Look no further for compensatory behavior than how Angie’s List lets our fingers do the walking in a whole new way (sorry Yellow Pages). Look no further for disequilibrium than the way music is now purchased thanks to Apple. Look no further for disintermediation than what has propelled Zappos to the forefront of online retailers – the consumers’ appreciation of the inclusion of an extra box with pre-printed label to facilitate returns. Look no further for discontinuity than CoinStar’s Red Box, the $1 video rental machine at grocery stores that is the opportunistic challenge to NetFlix’s once disruptive business model.
Make the case for getting out from behind the desk during a recession
During a recession, the default mindset is to stick close to home staying put at the desk or lab bench. Success at the fuzzy front end is not served by that behavior. Innovation is served by the stimulus of attending events that bring new people and fresh content together. That exposure recharges the batteries, presents fresh solutions for solving problems, allows soak time for improved decision-making, identifies useful resources and delivers the blinding flash of the obvious – those ah-ha moments from which breakthrough ideas can be traced.
* Thanks to Product Development and Management Association (PDMA) member Geoff Waite of Sagentia, a global technology and product development company, and his presentation, Innovation Portfolio Strategy in Today’s Economy: Why waste a perfectly good recession? made at PDMA’s Cincinnati Tri-State chapter’s annual conference in 2009.