When an economic downturn hits, one thing is certain: there will be winners and there will be losers. The winners are those who are able to find the silver lining that others miss. But is that silver lining really there?
Here, we’re going to explore what a gloomy 2023 economic outlook could mean for innovation, and how businesses can prepare to not only survive, but thrive, through adverse conditions, and in the postcrisis phase that will inevitably follow.
Finding silver linings: recessions create innovation opportunities
In short: it may be counter-intuitive, but a time of crisis is not the time to slow down on innovation. We’ll be considering recent research, as well as notable examples from history to make the case for forging ahead with new initiatives, even (maybe especially) against economic headwinds.
Cost-cutting: an opportunity for collaborative spring cleaning
In times of stress, the C suite starts looking for costs to cut. That’s understandable, and it’s usually regarded as a necessary evil. But if it’s done right, it can be turned into a unique opportunity, because it can force vital conversations and alignments that may not even come up when the going is good.
For example, consider an innovation team with a large tech stack built up over a long period of growth. Some of those may be crucial to the future innovation projects, others are probably contributing to bloat. This is an opportunity for the team and CSO to take a hard look at their processes, identify which of their tools are indispensable for innovation, and trim the fat without losing the muscle.
Capitalizing on industry-wide shakeups through innovation
We only need to look back a few short years to find an example of companies innovating boldly into economic and social chaos – and winning as a result. At the beginning of the COVID-19 pandemic, General Motors partnered with a ventilator company to produce ventilators to address predicted shortfalls. It was a risky move, forcing GM into a completely new field, and amidst lockdowns, layoffs and turmoil. 3 years later, and GM has been able to repurpose the expertise they acquired to develop the Hummer EV.
The takeaway here is that businesses who tackle uncertain times head-on stand to gain in the long term. Those who wait for the moment to pass, and take an overly conservative approach to cost-cutting, may end up losing more than they gain.
Out with the old, in with the new: being ready to meet radical shifts in customer demands
Economic disruption forces a reevaluation of everyone’s business-as-usual. Even companies that had product-market fit on their side in the past may find themselves in need of new answers to new questions. When business and customer needs shift suddenly and substantially, this creates new pain points crying out for solutions.
Becoming recession-proof by innovating: lessons from recent history
According to Mckinsey & Co, companies who innovated through the 2009 financial crisis, the so-called “through-crisis innovators”, outperformed their competitors by 10% through the crisis itself. They then went on to outperform the market by upwards of 30% for the next 3 to 5 years after the crisis.
Almost a decade before that, Apple famously leveraged innovation to pull through the 2001 recession and cement its place as a global household brand. And they did it by entering the music market with iTunes and the iPod. The risks were clear: they were innovating during a downturn, and they were innovating directly into a crowded category, with expensive products. The key to their success was the innovation that stood behind the strategy.
A note of caution: this time round, things are different
So far, we’ve painted an optimistic picture of the value of innovation in a recession. But it’s worth considering the unique mix of factors that will make 2023 especially challenging for businesses.
Geopolitical problems, supply chain disruptions and inflation – or perhaps even worse, 1970’s-style stagflation – make for a particularly unwelcome blend. And ongoing tech talent shortages are certainly not helping. As we’ve pointed out before, these shortages are making it increasingly difficult for even large companies to keep throwing personnel at R&D and innovation challenges.
What’s needed is a way for businesses to ensure that their innovation initiatives are not among the “sinking ships” that proliferate during a downturn. According to Bain & Company, we can expect to see 89% more of these in a recession. According to the same source, though, “rising stars” also increase by 47% – and that’s the category every business leader, CSO and R&D lead wants to be part of.
Innovating in a recession with purpose-built AI solutions
To make it through, businesses will need to act in the ways we’ve discussed here: identify changes in customer expectations, look for new gaps (across industries, even), and cut costs surgically, to avoid dampening innovation. And through it all, they’ll need to guard against the risk of wasting precious, limited resources on new initiatives that end up on the scrap heap.
Next-generation AI solutions are already enabling businesses to take these bold steps, and successfully identify innovations opportunities and spot critical threats before they even materialize. To find out more about how AI can boost R&D and innovation with comprehensive, intelligent market surveillance, schedule a demo with the Similari team.