Monday, October 24, 2011

Can you innovate your way out of a recession?

Upon hearing news of an impending recession, most companies opt for the traditional corporate practice of shrinking budgets, cost cutting, sweeping layoffs and freezing plans. As corporate turnarounds experts will tell you, it is important to stop the blood flow first when attending to an injured patient. But if the injured is a competitive athlete, how long will you prevent him from training before his skills and stamina take a turn for the worst too?

Innovation is like a muscle, if you do not exercise it, it atrophies. Once the necessary housekeeping to ensure relative corporate stability is over, an economic recession could become a great opportunity for innovation.

“Many of the world’s enduring, multibillion-dollar corporations, from Disney to Microsoft, were founded during economic downturns. Generally speaking, operating costs tend to be cheaper in a recession. Talent is easier to find because of widespread layoffs. And competition is usually less fierce because, frankly, many players are taken out of the game.” – Reena Jana, Bloomberg BusinessWeek, July 2009

A study by McKinsey & Co. conducted over a period of 18 years found out that companies that “retained or gained market leadership during the recession of 1990-1998 invested on strategic acquisitions and pursued new opportunities rather than focusing on reducing operating expense”.

Full text on the eYeka blog.

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