Watch out! Smart companies used the recession well indeed

The release of Booz and Company’s latest Global Innovation 1000 survey confirms the views in one of my early blogs.  While net income fell, R&D spending rose in these firms in 2008, though at a slightly slower rate of growth than 2007.  This is remarkable, amid the worst financial climate since the Great Depression, 1000 of the world’s top firms increased their spending on R&D! (As the report points out, this is more D than R. Firms increasingly leave pure research to universities and governments, and focus more on turning technologies into commercial products and services. This is a trend that has been developing for several years.) 

Why did this increase in spending occur when firms cut costs in nearly every other activity?  According to this survey for three reasons:

1. These firms see innovation as a core part of their overall strategy
2. They commit to product development cycles many years in advance &
3. They see the recession as an opportunity to gain advantage over weaker firms.

It is point 3 I raised earlier (“Innovation and the Crisis” Post on Mar 20, 2009 at 3:58pm).  These leading firms have also used the recession to become more efficient at innovation, killing weak projects earlier and focusing on fewer bigger ideas to get more growth.  So they will emerge from the downturn, with more innovative products and more efficient processes, putting further pressure on their weaker or more short-sighted rivals.

 

I think that is a good argument, but it needs one qualification. The survey presents data to show that many of these firms are changing their mix of projects toward “more products with growth potential” and “more products for new markets”.  That is a laudable goal but not as straightforward as it seems.  Most companies are setup to create the incremental innovations they need to stay in business in their existing markets.  As a result their organization structures, employee incentives and skill sets develop to support modest levels of innovation.  Faced with developing more radical products, adding novel services or re-engineering business models they may find structures, incentives and skills also need to change.  Innovation that brings bigger rewards also involves bigger risks and more marked changes in organizational culture and skills. It will be interesting to see how these firms fare over the next year or two. Especially what lessons emerge about higher levels of innovation?  I believe the ones who will succeed will be those firms that go about it in a systematic and grounded way—building on all we know about innovation and organizational change.