Innovating for a Recession
That clicking sound you hear isn’t just the economy’s pacemaker gone skittish. It’s the sound of a giant reset button on how consumers consume. And it’s the signal that, for the foreseeable future, we must transform the way we think about innovation.
We’re not entering a new era in how consumers make decisions; we’re already in it. The challenge now is to define innovation’s role in propelling your business through what’s ahead. As an innovation consultancy that develops new businesses, products and brands across an unusually broad array of companies, we’ve got our own perspective on it.
What we’re seeing now are CEOs less concerned with their growth prospects than with the sudden loss of control. Commodity costs, share prices and consumer behavior have uncoupled from reason. Suddenly, innovation stands out as the one thing a business leader can drive to actually shape the movements of the market, rather than be re-shaped by them.
In competitive cycling one winning strategy is called “winning on the hill.” And in business, racing ahead on the toughest part of the course is a strategy with a long and rich commercial pedigree.
Research by Bain & Company shows the power of making bold moves in tough times. Of 700 companies tracked through recessionary cycles, 25% made the leap from bottom quartile sales and margin growth to top quartile, while another 20% fell from top quartile to the bottom.
And some 70% of market share growth during recessions became permanent when economic growth resumed.
This is why smart businesses will stop thinking about innovating in this recession, and start innovating for the recession.
Innovating in a recession is just a weather report. Innovating for a recession is a matter of choice and opportunity.
Here are a few principles to guide the new approach this new set of realities demands.
The value proposition has always mattered. Now it just matters more.
Through the largely uninterrupted growth of the past two decades, consumers have acquired a new taste for creature comforts, design and experiences that transcend mere function. Innovators have grown obsessed with bells, whistles and nuance. What lies ahead is not the undoing of sophistication, premium tiers or 360-degree experiences, but a renewed focus on the very foundations of value – innovation that makes life better.
Ignore the economic stats; obsess about the mental static.
Innovating for a recession is not about addressing a statistical window of negative growth. It’s about addressing a new consumer mindset, embedded quickly but deeply, that will be with us much longer than a few 18-month New Product Development cycles. Success now means designing innovations toward enduring human needs and values, but with sharp-edged here-and-now insights that resonate with this new mindset, which will have no finite end point.
A climate of reassessment can be the innovator’s best friend.
In flush times or tough times, innovation’s real unseen enemy is inertia – consumers feeling set in their habits and brands, reluctant to move, even to things that sound great. Turmoil is the opposite of inertia. Reassessment creates movement. This climate can be quite helpful to new value propositions trying to earn their way in. Trying new things helps consumers feel that life is still moving forward, even if they’re spending less.
Frame the incremental dollar in an economic offset.
Take a page from the carbon-offset playbook. Justify the extra dollar you want consumers to throw your way via a dollar they don’t have to give somebody else. The iPod cost $100 more than the portable CD player it replaced, but it came with the offset of letting us pay 99 cents for the one song we want, instead of $15 for the whole CD.
Define the benefit beyond the individual.
We’re suddenly hesitant to splurge on anything that smacks of personal indulgence. An answer is to hunt for benefits beyond the individual – a healthier planet, a happier family or a tighter social network. Self-interest isn’t dead, but for now think “me and them.” Guilt is the new rust on the door hinge. External permission is WD-40.
A risk shared is a risk halved.
The credit crunch and the risk aversion behind it are being mirrored by innovation triage in company boardrooms. And while winning on the hill is about embracing intelligent risk, the threshold has moved. Partnering – either across business units or with outside players – is risk management’s new best friend. Done right, it puts more talent on task, drives up the odds of initiatives panning out, and drives down the cost of any that don’t.
Unlock new value from hidden assets.
Peak performing companies use innovation to turn assets they’ve had for years into new revenue and big ROI. Bain & Company research shows a staggering 9 out of every 10 companies that successfully renewed themselves found the solution in mining hidden assets. Clever folks at P&G took an adhesive application algorithm created for their Oral Care business and unlocked its value in plastic wrap. Familiarity is the devil here. Most companies walk by the Rembrandts in the attic without seeing what they’ve got. This is the moment to get great at spotting hidden value and innovating to monetize it. Fresh eyes can help.
Starting now, make acquisitions fundamental to your innovation, and innovation fundamental to your acquisitions.
There’s a new paradigm here grounded in three converging truths. Many high-potential businesses can be had on the cheap. Skeptical internal stakeholders have an easier time seeing the potential of something if it’s already trading in market. And acquisitions and innovation really should have been joined at the hip all along.
At Fahrenheit 212, we call this model M&A&I. It’s about scouring the market for buyable ways to accelerate a strategic vision, assessing potential acquisitions as innovation platforms, and quantifying the upside ahead of a deal. It’s a double win. You shave time and cost off your innovation cycle, and you’re buying something bigger than what the guy across the table is selling.
Now as you unleash innovation to make your move on the hill, savor that feeling of purpose and control.
It’s better to be the mover than the moved.