What to Do When the Cost-Cutting Knives Come Out

Rick Waldron

To quote a well-known song, it’s often a situation of “Too Much, Too Little, Too Late….” Corporate innovation efforts are often regarded as side projects that are not intimately tied to the corporate strategy. In good times, they chug along without much of an impact. When times are good, however, there’s less pressure on wringing out anything that is inefficient or wasteful, and corporate innovation groups often get a pass.

When times get tough, the cost-cutting knives come out, and anything without a solid ROI gets the once over. The finance team sweeps in, does its due diligence, and takes the moral high ground as it recommends shutting down (or severely cutting back) the innovation effort. Their justification: it never had much demonstrable value anyway, because it was never linked to (or had an impact on) critical strategic priorities.

Sometimes, in times of extreme financial and/or competitive threat, senior leadership will want to use an innovation team as a Hail Mary pass. They will actually sustain, and even increase, its funding. But the interest in doing so is usually short, because leaders expect near-term (12 to 18 months) revenue results that move the needle at the scale of their existing business. And it really defies the law of gravity to move from zero to a billion-dollar revenue business in that time scale.

Advice on being proactive. My biggest piece of advice is that teams/initiatives be strongly linked to corporate strategic priorities and be developed as an integral component of a broader set of strategy, corporate development and business innovation tools that exist to drive transformative innovation. This will increase the probability of relevance and impact and in turn carry the innovation team/initiative through the challenging times of an economic downturn.

My experiences. I saw Intel keep the funding going during the dot-com bust in 2000 and in 2008. Intel has a strong history of continuing to invest in the downturns so it can win in the long-term (e.g., billion-dollar-plus investments in factories). The longevity of Intel’s equity investment efforts (still ongoing) and its business incubator are reflective of this; until Intel shut down the New Business Initiatives program, it was one of the longest-standing business incubators program in corporate America, if not the longest.

On the other hand, there were a lots of twists along the way at Intel with the business incubator, where funding levels varied significantly and areas of focus evolved from the wild-and-wooly to more focused, business-supporting innovation. I would say that the final shut-down was more of a symptom of the weakness of the strategic link between the business incubator and the overall corporation, and therefore of the business incubator’s real value-add. When the business incubator had a direct link to the CEO, there was greater strategic relevance and the business incubator was able to unlock more resources and had more access to the right folks to make things happen and get roadblocks removed.

At Nike, I saw a similar pattern of middling support when things were less strategically relevant. But when things hit a strategic note, they were funded well and supported. When things didn’t resonate with strategic priorities, they died one way or another. So the takeaway is that strategic relevance and a well-connected strategy, innovation, corporate development function is really the pre-condition to funding, success, and staying power — versus simply economic conditions.

Rick Waldron is VP of Strategy & Innovation at MOBE, a Minneapolis-based healthcare startup. He was previously a Vice President of Innovation Strategy at Nike and a Director of New Business Initiatives at Intel.