While most individuals and organizations natural reaction to an economic downturn is fear and retrenchment, they also present a time of great opportunity.
Where would Microsoft be if they hadn’t continued investing through the downturn of the early 90′s?
- Microsoft may never have finished the hugely successful Windows 95.
Where would Apple be if they hadn’t continued investing through the technology crash of 2001-2003?
- Apple may never have fully realized the promise of the iPod and subsequent iPhone.
When a recession arrives, great opportunity presents itself:
- The unemployment rate increases (more available workers)
- Interest rates drop (lower cost of capital)
- People become fearful of losing their jobs making it easier to recruit from companies reducing or eliminating their innovation investments (increased labor mobility)
- People are more open to moving if a spouse’s job is eliminated or at risk (increased labor mobility)
- When a recession arrives, it is easier to acquire tax breaks or other incentives for expansion, new sites, etc. (lower investment costs)
So, if companies have positive cash flows or significant amounts of cash on their balance sheet, or promising ideas to invest in, then there is no better time to invest. Companies with the courage and financial capability to invest in innovation through a downturn, absolutely should.
In addition to all of the other benefits, there is no better opportunity to achieve competitive separation through continued investment in innovation.
It does, however, take a strong CEO and steady board to have the courage and conviction to make such an investment. Innovation is not a perfect science and requires a tolerance for failure and a long-term commitment.
In today’s short-term Wall Street quarterly profit-driven corporate reality, investors’ short-term outlook may be the biggest impediment of all. But, smart organizations will find strategic solutions to overcome this impediment.
Organizations should take the following strategic actions to maintain or expand their innovation initiatives, despite the current global economic downturn:
- Secure the leadership flexibility capable of continuing to invest in innovation despite financial pressures
- Identify resources that you would like to have had access to during good times, that you might now have access to such as:
- Labor in scarce specialties
- Affordable capital
- Scarce real estate
Organizations that take these necessary strategic actions, will come out the other side stronger than the competition, stronger than ever before, and create opportunities to preserve or attain market leadership.