Look for Innovation Opportunities During Downturn, Says BCG


Just last week, IT Business Edge ran a short item highlighting Hackett Group research that urges organizations to balance their short- and long-term planning objectives to ensure that they leave room for innovation in their budgets.


But in this tough economy, how many companies will be able to follow this advice? According to a Boston Consulting Group report released earlier this month, economic woes are causing a growing number of companies to scale back their innovation spending plans. While 58 percent of respondents said their company would increase innovation spending in 2009, that number was down from 63 percent in 2008. Fourteen percent of global respondents -- and 21 percent in North America -- said their companies would trim innovation spending this year.


Not surprisingly, these percentages were largest in the travel, tourism and hospitality industries (20 percent) and in financial services (19 percent). Technology and telecommunications companies had the most bullish spending plans, with 68 percent planning to increase innovation spending and 32 percent planning to do so by more than 10 percent.


Said James Andrew, the report's lead author:

Companies remain firm believers in the importance of innovation, but they can't ignore what is happening in the economy. So they are increasingly orienting their innovation efforts toward the here and now, emphasizing immediate sales and the reduction of costs and risk. And, for the most part, those moves make sense.


But companies shouldn't cut back too far, warns Andrew. Instead, they should be "opportunistic" and look to make "offensive moves" that will give them an edge over competitors when the economy bounces back. Companies with attractive cash positions, strength in other areas of the business and courageous leadership should sustain, or even increase, their commitment to innovation since competitors may not be able to do so, suggests BCG. Some specific advice:


  • Look for opportunities to acquire intellectual property at drastically reduced prices.
  • Create new and strategic business models. Competitors may be too preoccupied with short-term financial performance to recognize or react to such models.
  • Consider acquiring innovative companies on the cheap. This is a popular strategy in the tech industry, as I wrote in September. There was a sharp increase in such deals in the pharmaceutical industry in 2008, notes BCG.
  • Lure talented people away from competitors.
  • Other opportunities for poaching from competitors include partnerships, collaborators and customer networks.


This online package by BusinessWeek, which helped BCG conduct its survey, is a nice supplement to the BCG report. Among its features: a list of the 50 most innovative companies, a slide show of 25 up-and-coming innovative companies and short features on some interesting innovation strategies from companies on these lists. For example, Vodafone is embracing the idea of open innovation with a Web portal called betavine, where users create and test one another's mobile applications, which can be downloaded on any wireless network, not just Vodafone's. The company also uses the portal to recruit testers for some of its newest applications.


Why is innovation so important? Innovative companies generate superior total returns for shareholders. Globally, on an annualized basis, innovators outperformed their industry peers by 430 basis points over three years, points out BCG.