By Steven Shapiro
As the economy continues to tumble, it is tempting to cut back on your investments in
By Steven Shapiro
innovation. But now is the prefect time to make larger investments in your innovation efforts. Here are a half dozen ways that innovation can help you recession-proof your business.
1. Use Open Innovation to Reduce R&D Costs
Sometimes it can be less expensive to have others do your innovating for you. Organizations like InnoCentive enable you to define the “value” of a new idea and then post your request to a large community of expert solvers. This moves innovation to a fixed cost (the posting fee and reward) rather than a variable cost (infrastructure, the cost researchers, and other hidden costs). This is a perfect way to reduce costs while growing the business.
2. Use Process Innovation to Reduce Operating Costs
Innovation is not just about new products or new business models. It can also be focused on ways of reducing operating costs. Use my 7Rs of process innovation to help make your processes more efficient and more effective. I have seen companies reduce costs by 60% while improving responsiveness to customers by as much as 90%. If you can increase service while increasing margins, you are sure to recession-proof your business.
3. Use Innovation to Match Supply and Demand
Sometimes you only want temporary measures to help you ride out tough times. I worked at Accenture, the large international management consulting firm, for 15 years. During my time there we went through three recessions. Each time the pattern was the same: the economy tanks, customers reduce spending on consulting, Accenture lays off employees, the economy picks up, Accenture scrambles to hire talent. During the 2001 dot-com bubble burst, they used a different approach. Instead of handing out pink slips, they offered a leave of absence for a period of time. The employee on sabbatical would get 20% of their salary (plus benefits) and would be assured a job upon their return. This helped match supply with demand, while keeping morale relatively high. Sometimes a creative solution can help you smooth the ups and downs of the economy.
4. Use Innovation to Improve Your Customers’ Business
During a recession, your customers will probably reduce spending, especially on discretionary items. This can hurt your business. The antidote? Solve your customer’s pain. If they need to cut costs, do it for them – and take a slice of the action. Or maybe you can add extra value at no cost. A client of mine developed a powerful business improvement platform. Although they currently only use it internally, sharing this with their corporate clients would not only make their customers more successful, but it would solidify their relationship with these businesses. When you have successful customers, you have a successful business.
5. Use Innovation to Improve Your Suppliers’ Business
We often underestimate the value of our various business partners, and in particular the value of our suppliers. I once worked with a potato chip manufacturer. They were dependent on the quality of the potatoes grown by small, financial unstable growers. Instead of squeezing their suppliers, they helped the suppliers grow their business. They helped the growers buy equipment and fertilizer at reduced costs by leveraging the buying power of the large chip manufacturer. They gave them business loans at reduced rates. When the market gets tight, your suppliers may struggle more than you. But if you help them be successful, you might find you are more successful.
6. Use Innovation to Leapfrog the Competition
While others are tightening their belts, truly successful companies use the recession as a chance to leapfrog their competition. My favorite company, Koch Industries, increases their investments during difficult times. They know that if they focus on innovation while others are cutting costs, they will quickly catapult past everyone else. They must be doing something right. They have grown seven times faster than the S&P 500 for the past 40 years. This is a company that has proven it is recession proof.
Innovation is a powerful tool that can help you ride out the tough times and position you for future growth. With the recession looming, you need innovation now more than ever.
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