Recessions and Innovation
I’ve been a Professional Innovator for years. I’ve seen many advances and had many successes. But one thing is sure; it wasn’t a smooth ride. For my younger colleagues, I pray that what I have to say is wrong. But my gut is telling me to hurry and raise the warning flag. Today, without question, we are long overdue for a major recession. So long overdue, the behavior of many innovation professionals has become rooted in economic naivety.
The warning is especially for managers early in their career. They’ve had the fortune to have their professional lives dominated by openness and creative freedom. It’s produced an attractive, upbeat attitude toward innovation. And it’s helped by finance-pushed growth. To be clear, though, major productivity improvement played little role in driving growth.
Now, however, recession signs are popping. One economist after another is reporting a flashing-red crystal ball. The business press present these as warnings to investors. But my experience is that Innovation Professionals always see major changes when the economy shrinks. And I see nothing to suggest we’ll be immune to the fall-out this time.
During the great recession of 2008, Warren Buffett famously said: “You never know who’s swimming naked until the tide goes out.” His point was to underscore our ignorance of the financial weakness inherent to some banks, companies, and investors. It was a weakness hidden by the “high tide” of economic expansion. The same is true for innovation projects. Naked projects become bare when management teams seek to conserve capital and free cash flow.
Throughout my consulting career, I’ve used a short quip to describe the problem related to innovation. I say “growth forgives many mistakes.” When growth is strong, organizations aren’t forced to be efficient. Nor must they adhere to a clear strategy. Growth enables much latitude in behaviors and decisions. And we’ve lived this luxury for more than a decade. But things can change sharply when a recession takes hold.
Most articles about “innovation during a recession” list actions and approaches for management teams. They direct guidance at leaders charged with steering businesses through the downturns. No doubt certain strategy moves matter. But my message is to contributors. It’s for those who produce innovation results, not only oversee them. I make this distinction because if you’re tied to a naked project, your best interests may not align with your company’s future course. This mismatch gets personal if your family loses an income.
Wall Street Reality
In 1990, during a recession, I was invited to have lunch with the R&D head of a Fortune 100 company. We were to talk about setting up a new-to-the-world approach called Stage-Gate. But during lunch, my host was pulled away. He said he had a call from the CEO. This impressed me. At least for a few minutes. That’s when he returned and told me the purpose of the call. He stirred my interest by saying, “I just learned what makes R&D so valuable.” “What is it?” I asked. He replied, “I learned that R&D is valuable because you can cut it when times get tough.” Ouch!
But that’s the truth, even when good leaders know they should protect innovation during recessions. At least that’s the enlightenment, we consultants preach. The problem is Wall Street and investors. Their response to recessions is to push on what they like best — increasing EBITDA and shrinking debt-to-equity ratios.
Here’s where naked innovation projects become nasty surprises. During recessions, prioritization and rationalizing projects hit home. Those high-sex appeal projects built on wobbly forecasts and weak strategy implode quickly. Unfortunately, the wobbly forecasts and weak strategy made for naked projects. And the surprise is a pink slip delivered by your boss.
The recourse is to shore-up the weak strategy before the economic tide goes out. Wow, that’s a tall order! In fact, it’s a very tall order when you don’t understand strategy related to innovation projects. The key here is the product line strategy. It’s not the innovation strategy. And it’s not the business strategy or a single-product strategy. The product line orientation matters because it drives cash flow, seeks to beat the competition, and strives to satisfy customers. And it’s faster and more powerful than the other strategies.
You’ll find some projects are hopeless. And you’ll see it’s too late to save others. But for many soon-to-be naked projects, a smart strategy pivot is critical. The pivot demands three key tenants to work together.
- Leverage across multiple products and multiple platform generations;
- Alignment with the company’s other functions that boost results; and
- A clear match between product attributes and real customer need
I cannot explain every aspect of Product Line Strategy in this short article. But I can point you to that knowledge. Still, it’s up to you to absorb it.
Learning Product Line Strategy
Learning Product Line Strategy is not just those working on naked projects. It’s for all innovation professionals. Here are a few articles on the topic. Here’s a full book on Product Line Strategy. And here’s a day-long workshop designed to teach strong Product Line Strategy fundamentals.
I realize some Innovation Professionals will shrug off my recession warning. That’s their choice. But my call to action – to learn Product Line Strategy – is apt and sensible. Consider taking the step. It will prove valuable.
Best of luck in our next recession.