10 Worst Innovation Mistakes in A Recession

Which way do we go?

While everyone worriedly contemplates (did you see the state of international stock markets today?) whether or not the United States has entered a recessionary period, takes a stand at Business Week and offers up a smart list of the you can make in a recession that will hurt and inhibit innovation. Sometimes knowing what not to do is a bit easier then knowing what to do, and this list is definitely worth reviewing as you and your company plan for navigating our changing economy. Here’s what NOT TO DO from Nussbaum’s article:

1 - Fire talent. Because of America’s accounting laws, investments in talent are expensed, not capitalized, so cutting back on people, especially really smart, high-priced people, is a quick way to cut costs. The accounting rules only hurt companies who follow them. Talent is the single most important variable in innovation.

2 - Cut back on technology. Xerox and others report that companies are already curbing investments in technology to save money. Banks especially. The rise of social networking and consumer power means that companies have to be part of a larger conversation with their customers. This means big money spent on IT.

3 - Reduce Risk. Innovation requires taking chances and dealing with failure. Recessions push managers to be more conservative. They need to fight this instinct.

4 - Stop New Product Development. Saving money often means cutting back on new products and services during an economic downturn. This hurts companies when growth returns and they have fewer offerings in the marketplace to attract consumers.

5 - Boards Replace Growth-Oriented CEOs with Cost-Cutting CEOs. Sudden declines in revenues and profits often leads boards of directors to search for managers with experience in pinching pennies. That’s what appeared to happen recently at Bang & Olufsen. Boards forget that most recessions last only two or three quarters and, these days, are relatively shallow. Penny-pinching CEOs don’t have the skills to grow, when growth returns.

6 - Companies Retreat From Globalization. It’s expensive to expand globally and managers often save money by cutting back on emerging markets. It’s a big mistake. Emerging markets are sources of new revenue, business models, and talent.

7 - CEOs Replace Innovation As Key Strategy. By turning defensive, top managers take innovation off the top of the official agenda and replace it with systems management and squeezing costs. The entire organization follows. It is extremely hard to reverse this when growth returns.

8 - Performance Metrics Are Changed. To Save money and cut costs, managers shift employee evaluations away from rewarding riskier new projects toward sustaining safer older goals. Risk-averse behavior follows. Again, this is hard to change.

9 - Hierarchy Is Reinforced Over Collaboration. Sudden drops in revenue and profit often lead companies to panic and mobilize to stem the decline. The need for fast decision-making often leads to a return to command-and-control management. This alienates creative-class employees, young Gen Y and Xers and stops the evolution of corporation organization toward a flat, collaborative, open source model.

10 - Retreat Into Walled Castles. Cutting back on outside consultancies is seen as a quick way to save money. Yet one of the key ways of introducing change into business culture is to bring in outside innovation and design consultants. They know what companies across a broad range of industries around the world are doing to promote change. Not receiving this information can hurt a company’s global competitive position.

There are many indicators that this recessionary period will be relatively short lived, with the United States emerging sometime at the end of 2010/early 2011 or so (look for my imminent post on economist Brian Beaulieu of , who I had the pleasure of hearing present on the state of the economy last week). An optimist’s take on recession is that it is an opportunity to refine your business, diversify your offerings, enter new markets and prepare for the relative deals in the economy as the markets hit rock bottom. Time to find your inner optimist.

One Response to “10 Worst Innovation Mistakes in A Recession”

  1. John Schneider Says:

    For anyone who saw this post via RSS feed and then visited Schneiderism… sorry. The Wordpress CMS rendered number 8 on the above list - 8) - as an emoticon. I should have caught that.

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