Five Rules to Successfully Innovate During a Downturn

Companies should focus on saving cost and treading cautiously amid downturns, right? Yes, but this is also the time to re-strategize and re-invent. Innovations and investment in R&D (where possible) should become an important consideration during these tough times. This would help in being cost-effective, increase efficiency, and realize long-term benefits. Here are a few tips for companies in this regard.

We are currently in the midst of the worst pandemic of the century, and by all accounts, could also be facing the greatest financial crisis since the late 1920s. Most CEOs and CXOs at this time are calibrating and recalibrating their strategies to deal with the negative impact of COVID-19 outbreak and the resultant shutdowns on their businesses. Going by Darwin, it will be “survival of the fittest” and companies will take necessary steps to survive. The most essential step is to become cost-effective and conserve capital. While cost-cutting is required, this is also the right time for businesses to take a step back; re-evaluate their business models, operations; and identify innovations or methods to bring in disruption not only to save costs but also boost revenue in the long term.

What is common to Alibaba, Apple, Airbnb and Uber? Apart from being some of the biggest and most prestigious global brands, these companies either gained strong traction due to their specific innovations during times of crisis/financial crisis, or were established during challenging times. While Alibaba launched its online e-commerce platform during the SARS epidemic in 2003, Steve Jobs got his team to develop a prototype of the iPod amid the dotcom bubble burst in 2001. Airbnb and Uber adopted technology that was disruptive and changed the way the hospitality and cab industries operated for good. They enabled people who had spare rooms or a car to earn money by renting those out during times of economic hardship. These are just a few examples from recent times; history is replete with examples of companies that were either formed or grew during recessionary phases.

Away from the startup and tech world, it is also interesting to note that in 2008, a survey done by consulting firm Booz & Company revealed that the top 1,000 public companies in terms of spending on research and development actually increased their R&D expenditure during the financial crisis, with healthcare companies at the forefront. In the current situation too, we can safely expect healthcare firms to lead the race. More than 90% of respondents in these companies identified innovation as a critical metric to ensure that they were prepared for the upturn in the market and stayed ahead of competitors. The performance of the top 20 companies by way of expenditure on R&D during this period (including Toyota, Roche, Pfizer, and Samsung) indicates that innovation during a downturn translates into success in the long term. Even if you do not have the funds for R&D, there are ways to re-evaluate operations and identify opportunities for automation, process improvements, investment in technology.

While innovations are essential, certain guidelines must be followed to avoid a costly mistake:

1. Identify your innovation strategy: There are two ways to look at innovation. A company can either focus on upgrading existing products/services or identify new product/market opportunities. The latter may require adoption of new business models as well. While the former is easier to go with and, if executed properly, would guarantee returns in the near term, the latter option is more complex with returns accruing only over the long term.
2. Factor in customer requirements and gaps: Understanding customer requirements and gaps is essential at all times, but more so during challenging economic conditions. Customer preferences/spending habits may shift during downturns and last even after recovery. Innovation strategy should be built around needs. If purchasing power is going to be limited, identify means for cost-cutting (for example, substituting a raw material with a lower cost alternative without impacting quality). The organization must be flexible to modify existing business plans and strategies, and prioritize investments to service new requirements.
3. Modify existing processes: Doing more with less should be the new game plan. Process innovation is an important element of dealing with downturns. Recognize areas where reductions can be made in operating costs, and enhance efficiencies with the use of requisite technologies, SOPs etc. Recessions are often the best times to implement innovative projects to reduce costs, both for internal operations as well as for customers. Not all innovation efforts need to be solely focused on developing new business models or revenue growth.
4. Accelerate adoption of technology/digitalization: If your business for some reason has not already embraced digitization and technology, do it right away. Social distancing may be the new norm and the way we work could be transformed forever. Businesses and companies that were averse to even exploring remote working options have been forced to do so and may have to continue with this for a while. Besides, companies should identify technology tools that will help them improve processes, increase productivity and minimize cost, giving repeat or long-term benefits. Now is the time to invest in these technologies or run the risk of being left behind in an increasingly digitalized world.
5. Keep a track of ROI: While innovation efforts may provide returns over the long term, it is important to keep a track of the return on innovation. Unless you are an Apple, with no restriction on funds, the fact remains that during an economic downturn, costs have to be controlled, leaving less margin for error. While the idea obviously is to succeed, if one does fail then follow the age old saying and ‘fail cheaply’. Identify that the idea is not working and cut off the cashflow at the earliest.

While other aspects need to be considered while designing an innovation strategy, such as business type, geography, financial health of the company, the factors mentioned above apply across scenarios. Though the current situation is grim and the near-term business forecast is bleak, companies that make the early moves to reinvent themselves, processes or business models will be the ones we will speak highly of in a few years from now. Several companies in China are already working on coming up with innovative solutions across sectors, such as remote education and working. This would soon prompt others the world over to follow suit. Companies that emerge winners will be the ones who got it right. Time will tell.