Innovation and the crisis

First we need to get rid of the argument I’ve heard that innovation itself caused the crisis.  Financial innovations might be a prime suspect but rather than the products themselves I’d blame the individuals and organizations that sold them to customers who could not afford them or did not understand them.  Caveat emptor is all well and good when the product or service is simple.  When it is complex, every manager knows that people will struggle to understand it unless they receive a clear and careful explanation.  Firms marketing innovations have a duty not only to explain them well, but also not to cause harm to their customers.  Not only is that short-sighted and unethical but it is also not in the firm’s longer-term interests.  Innovation in itself is not the culprit; it is what firms do with it that matters.  And I’m interested in firms that use innovation to add value to their customers and build new markets in a long-term and sustainable way.

The real question is what role innovation can play in firm strategy during a deep economic downturn?  For some firms this downturn will be an opportunity.  There are many global firms with low debt and strong cash flow.  For example, the CEO of Volkswagen was in the news recently saying he saw the downturn as an opportunity for Volkswagen to increase its market share.  When competitors are struggling, cash rich firms can increase their rate of innovation and get a stronger position in the minds of their customers.  When the economy turns upward and sales increase they will reap the benefit.  Here I have in mind not only new products but also investments in new services and business models. 

For other, less fortunate firms, innovation may be the right strategy or it may not.  Or it may be that they should prefer certain types of innovation over others.  In the book I note there are three challenges in innovating, the customer challenge, the development challenge and the appropriation challenge.  In hard times struggling firms should probably not try to take on all three at once, but focus on the one with the greatest payoff and least risk.  There are opportunities in each challenge during the downturn—such as customers looking for better value, developers able to cut production costs, or partners in the value chain willing to rethink business models.  But there are also risks, particularly if the organization needs to change to deliver the organization.  Struggling firms have to be sure they will pull it off if they want to go down that route.  

But given those cautions, I think the ideas and tools in the Innovation Manual are just as relevant to a downturn as the good times.  They show how firms can create the best opportunities for themselves by following a clear systematic approach.  And that is always valuable, whatever the economic climate.

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