Innovation during a recession

Posted by Andres Romero at 1:41 PM

As the whole world faces the challenges of an economic recession, firms performance is heavily scrutinized as there is a huge pressure to show positive results. As a result from this pressure, firms are forced to try find ways to cut costs and improve margins given the smaller market they have to compete for. But it is during this difficul times that firms need to think very carefully before cutting down on their investment in product development. This is the time when consumers demand more from the brands they buy and are not willing to splurge on products or services that do not add significant value, however this is manifested. Therefore, an opportunity for new products or brands is created as consumers more than ever are willing to change their behavior and try new options in order to adjust to the economic difficulties.

It is not a new idea to say that when the economic outlook is complicated marketing efforts are more necessary in order to remain competitive. Innovation and product development are not indifferent to this idea. To illustrate this better, just look for a moment at the differences between the developed countries with the rest of struggling economies. Most of the underdeveloped countries justify the lack of investment in research and technology on the fact that there are more immediate needs to satisfy and allocating funds to R&D would be considered a luxury. This mindset creates a never ending loop in which the economy never generates additional sources of income and in consequence, will never overcome its underdeveloped state.

As consumers are more protective of every dollar they spend, firms must provide them products and services that go beyond the mere elemental proposition. Instead they will opt for brands that offer significant additional value, making their lives easier, helping them go through the difficult time. New products that can deliver on this promise will attract consumers’ attention and adoption while creating strong relationships that will far outlive the recessive period.

 

9 comments:

  1. Miles said... November 1, 2008 at 1:49 PM

    Could this take the form of a further shift within firms towards "economizing innovation" - finding ways to deliver products already known to be of high quality and/or value at lower prices? Clearly, outsourcing is a well-known version of this. In the product development realm, it may be that firms begin tightening control on stage-gating and create failure thresholds that shelve new products faster.  

  2. Principlessa2222 said... November 2, 2008 at 6:17 PM
    This comment has been removed by the author.
  3. Anonymous said... November 3, 2008 at 9:29 PM

    I like your anology of a downward spiral. I can imagine it is hard for companies to invest in innovation, which can be tough to show an immediate return on investment. In your research, have you come across any examples of companies pushing innovation during tough economic times?  

  4. Aric Rindfleisch said... November 4, 2008 at 12:11 PM

    You raise an important issue. I am sure that many firms will feel pressure to cut back on their R&D investment. Perhaps this may encourage more firms to seek lower cost forms of innovation such as customer co-creation?  

  5. Andres Romero said... November 6, 2008 at 1:41 PM

    Thanks for the comments.

    Companies must find the way to do more with less. Either through co-creation or alternative forms of innovation in order to remain competitive. I believe that those firms that decide to cut in this area or simply decide to "play it safe" will be missing out on interesting growth opportunities.  

  6. Kirtman said... December 1, 2008 at 1:49 PM

    I agree Andres; companies have for a long time relied too much on line extensions and "safe" innovation. I think in a bad economy, there is an opportunity for a company to take a risk and invest heavily in R&D and come out with a truly breakthrough product while other competitors are doing "safe" innovation. That type of innovation leads to only short term growth and reveals the real problem with CPG companies: there is too much focus on short term growth and market share. The company that sees this down economy as an opportunity to showcase "real" innovation would be in a position to win in the short and long term.  

  7. Schwald said... December 1, 2008 at 6:08 PM

    Unfortunately, if history repeats itself, I believe companies will continue to innovate in a "safe" manner. Most companies do not see the ensuing economic environment as a place to be risky. I am more apt to believe that they will fool themselves into believing that they are continuing to innovate but shy away from methods that don't have what they consider to be reliable ROI or any type of co-creation that opens their company up to comeptitors and the public. Do you know of any successful companies that take these risks in tough times?  

  8. Andres Romero said... December 9, 2008 at 12:06 PM

    I cannot think of specific examples to expose here but it comes to my mind how some of the biggest breakthroughs in the history of mankind have come as a result of the pressure of the circumstances. For example just in the 20th century, how the US blossomed as an industrial power after the 1929 depression or the major advances in technology, politics and logistics resulting from the 2nd world war. Tough times call for creative thiniking and mind shifting from established paradigms.  

  9. Jeffrey Xie said... December 18, 2008 at 5:28 PM

    I love this topic. we'd better talk more about the current issues and related thoughts. it is very meaningful...  

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