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How Downturns Impact Innovation Teams

January 15, 2020
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Regardless of whether a downturn is self-inflicted, industry-wide, or macroeconomic, it can be catastrophic for a corporate innovation initiative. This can be a consequence of innovation functions not being sufficiently integrated into formalized capabilities across the entire organization, like finance, marketing, and human resources.

What happens in a downturn? Innovation is a strategic capability. As a result, in a downturn it is seen as a cost center, not something that can deliver short-term revenue or margin contributions. In a time of business contraction, innovation initiatives tend to be identified as an easy place to cut.

You can lose headcount. Explorer/Discovery teams are thought of in strategic terms (as think tanks, which can sometimes operate inefficiently). They may be considered extraneous overhead, as they are not in positions to deliver immediate revenue. That can make your people easy targets in any restructuring.

And sometimes, talent will leave the company on its own in a recession. Innovation talent tend to be a slightly different breed, and people are not always willing to wait around to see what happens.

You can also endure budget cuts. In some cases, an already-established innovation budget gets “clawed back,” and re-allocated to sales or efficiency efforts. Proof-of-concept or product development teams are often working on things that are seen as having more tangible potential, and so depending on how severe the crisis is, they may be able to conjure up an R&D-connected project to keep a concept alive.

Innovation projects that are not in the process of being commercialized or integrated into a business unit can also be easily terminated.

These kinds of moves may seem necessary at the time, but they can kill an organization’s innovation culture. In my experience, corporates tend to “over-rotate” on trimming back innovation and can end up inadvertently killing the behaviors and culture that supports it. By cutting innovation, executives send the signal that there is no value in new ideas and concepts.

If innovation were straight-up science, it would have been codified by now. But it is a balance of data, art, and timing, which makes executives uncomfortable, as they tend to like things that have knowable outcomes.

How do you proactively prepare for a downturn?

Very few corporates have a true innovation strategy. They treat innovation as a tactical capability, and often times just as a PR stunt. A true corporate innovation strategy ties the company together, focusing on shared key strategic areas and identifying new opportunities for creating value. That kind of cohesive strategy creates real interdependencies — it integrates key functions, products, markets, and initiatives, and anchors innovation as a critical foundation for sustainable value creation. This tends to lead to the development of higher-impact innovations, and it integrates innovation into the foundation and culture of the corporate entity.

Corporate innovation, as it matures, should be in a position to contribute to the P&L as concepts progress through the incubation stages and are deployed into front-line business units. When a steady pipeline of concepts begins to gain customer and market traction, it demonstrates the commercial viability of the concepts you’ve been working on. It also validates the strategy framework.

One touchy subject is the idea of connecting the executive leadership team’s bonuses to innovation. (I’ve been part of lots of discussion on what that would look like.) Most executives did not ascend to their positions by taking chances on uncertain outcomes. By nature, they allocate budget, resources, and talent to sustaining initiatives that are predictable. And you can’t blame them, as most larger corporates are highly-conservative environments.

However, by incentivizing the executive leadership team to support and participate in innovation initiatives, it would embolden the company as a whole to think more proactively not just about their existing markets, but more importantly about how they are positioned for the future.

Finally, one way of embedding innovation into a company is to create a Chief Innovation Officer (CINO) role. But this can’t just be a title without authority; this position needs to be on par with the CFO, COO, and CSO. The CINO would have not only the responsibility, but accountability, for delivering value to the business with a real and meaningful budget. And the thoughtful design of a set of innovation goals that are shared with peers would enhance this person’s chances of success.

As we move into the next decade, we are increasingly moving into a churning hurricane of change, where disruption comes out of nowhere, and will leave many corporate carcasses on the beach. My advice is to treat innovation as a living, breathing, and fluid part of the company. It needs to change and adapt more often than the core business — and it requires real resources and leadership, whether the organization is experiencing solid growth or struggling through a downturn.

 

Sean Bayrakal is an entrepreneur, startup mentor, and former innovation strategy leader at Adidas Group North America. In his previous role at Nortel, Sean led the creation of the first end-to-end corporate innovation program.

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