What is the secret to innovating your way out of the recession?

Contrary to common opinion, the recession is the perfect time to innovate. And, as Mark Stuart examines, most of the firms that are doing well in the current climate have adopted an intelligent blend of playing to their strengths and focus on innovation.

One of the myths that the current recession has hopefully put to rest is the notion that a difficult climate is not the time to innovate. Conventional wisdom has it that in recession, organisations should exercise caution and wait for better times to invest in new products, services and processes.

In fact, the evidence is that the companies which maintain investment in innovation, and market that innovation appropriately, are the ones more likely to survive in turbulent times and grow again once the economy recovers. More than half the companies in the Dow Jones index started up in a recession. This could be an indication of the validity of Peter Drucker’s claim that only two things create growth: innovation and marketing, and everything else is a cost. Many of the companies that are doing well in the current climate have taken this on board and adopted a balance; of playing to their strengths and doing what they do well for their existing customers, combined with a continued focus on innovation where appropriate.

However, the devil is in the detail: an ‘appropriate’ level of innovation means innovation that bears in mind the different purchasing habits of customers, and adjusts to different behaviour patterns. Consider the recent headline pre-tax loss posted by British Airways of £292 million, for the six months to September 2009. An alarming if understandable statistic, considering that passenger numbers are down particularly amongst business travellers and in first class.

Part of BA’s response so far is perhaps predictable; slashing costs and considering redundancies (which will create the prospect of strikes and further add to the company’s woes) and trying to weather the storm until better times come back. Yet to help their fortunes in the short term, innovation will be key. Examining the way that the budget airlines continue to grow despite a recession is one option CEO Willie Walsh is looking at to improve the airline’s business; and that means innovating some of its processes. Different pricing models, such as charging for hold baggage and online booking, and adding levels of service as options that can be paid for, are ways that might buck the trend. Innovation doesn’t have to be about products and service; it can be about innovating the business model too.

Similarly, the high street has been energetic in innovating its way out of potential trouble. Pret a Manger has developed new lines of sandwiches at cheaper prices; a simple innovation, but one which juggles the desire for quality at a lower price. Sometimes, you can make the problem part of the solution. A recession means that people start to desire stability and safety, and a sense of continuity from the companies they buy from to reassure themselves that in uncertain times, there are still things they can place confidence in. Persil and Sainsbury’s have tapped into this in their advertising, emphasising their longevity and commitment to their customers during tough times.

Innovating service

A firm that supplies computer equipment to business was finding that, during the recession, its sales declined and its customers reduced their spending on upgrades and new software. Rather than accept the hit, the company examined its skills and abilities and how it could innovate its offering to fit the radically altered environment. As a result, it has re-oriented its business and makes much of its current income from relocating offices, as so many businesses have been downsizing.

A harsh dose of reality, perhaps, but it proves that if your profit and loss accounts aren’t adding up as well as they should be, there may be a way for you to re-examine the business and find a way of innovating what you do, without requiring major investment. Restaurants that have added a takeaway service to their premises are another example of responding to the changing climate and modifying the offering to reflect the fact that customers want to spend less.

Innovating is not necessarily about doing something new; it’s about doing something differently. And as some of the above examples indicate, innovation need not be synonymous with ‘expensive’, either. There’s a useful analogy here with the way evolution works. Many mutations occur – ‘doing things differently’ – but only the ones that offer competitive advantage stick. The lesson is always to look round and see where innovation can be used not to do something new for the sake of it, but to solve a problem for the customer, and create growth as a consequence.

The shock of the new

Some companies will always be able to innovate, regardless of the economic climate they find themselves in. No matter how severe the recession, Apple does not pull its punches on unrolling new versions of the iPhone, and Virgin does not decide against venturing into new sectors until times are good again. Much of the fear of innovation in difficult economic times is misplaced, because the evidence is that customers don’t stop spending in a recession; they merely spend differently. The key is to ensure they’re buying from you rather than someone else: and that means differentiating yourself from your competitors, offering the customer what they need and want, and then communicating with them so they know what you have to offer. In other words, Drucker was right: innovation and marketing are what count; no matter what changes are taking place in the background.

Mark Stuart is head of research at The Chartered Institute of Marketing.