How Innovation Changes in a Recession

If you were to do a word association exercise with business leaders and you tossed out the word “recession,” you’d probably hear terms like “belt-tightening,” “circle the wagons” and “hunker down” in response. Challenging economic times call for cutting fat in order to survive, and a frequent victim of that reality is innovation. Who has the time or funding to dream up and test new ideas in an uncertain economy?

Innovation changes in a recession, to be sure. But it shouldn’t go away completely. It may need to be refocused or redirected, but there are opportunities to thrive.

We can all agree that Airbnb and Uber disrupted their respective industries. You might not recall, however, that Airbnb launched in 2008 and Uber in 2009, at the height of the last major economic downturn. Both models obviously appealed to consumers looking to save money, making them even more attractive in a recession.

But not every company has an industry-changing innovation in its back pocket. Innovation is often incremental, and it carries a cost … a cost that’s often the first thing in the budget-cutting crosshairs. With the understanding that a company needs to survive, though, cutting innovation because of a challenging economy can be the exact wrong move.

In a recession, demand typically wanes while competition remains strong. Companies that continue to innovate to gain a competitive edge will be in a better place than those that don’t.

So while there’s no question that you should continue to innovate in a recession, how to go about it – especially when funding is an issue – remains a challenge.

Take a clear-eyed look at your current innovation portfolio. Chances are there are cuts to be made, but these should be surgical cuts, not an overall budget-slashing just because. Like pruning a tree to make it healthier, the end result should be more focus and energy on the projects that will have the greatest impact. A Harvard Business Review article advises “killing the zombies;” the projects that have dragged along forever, consuming energy and budget that could be put to better use elsewhere.

When budgets are tight, there’s great value in experimentation. Find a way to ‘test drive’ new innovations in an incremental way, troubleshooting and refining (or scrapping them completely) before taking them to full scale.

A study by the Kellogg School of Management at Northwestern University went back all the way to the Great Depression, nearly a century ago, to see how economic conditions affected innovation. They found that patent applications from independent inventors and innovators declined sharply, presumably due to a lack of local funding. Innovation shifted to larger organizations (for which many of those independent inventors went to work), and those organizations in many cases weathered the times reasonably well.

While it remains true that companies with more resources are more likely to survive a sustained downturn in today’s world, you could argue that the innovation trend has moved at least partially in the opposite direction in this age of the gig economy. Fueled by the internet, outsourcing has become a way of life.

For example, in an ideal situation an organization will put innovation in the hands of a skunkworks team. They operate independently of the rest of the company and have greater latitude to explore new products or technologies. In recessionary times, though, that’s a luxury some businesses won’t be able to manage. In this scenario, many organizations will consider engaging an outsourced team on a fractional basis. The company still realizes the benefits of independent thinking and innovation while keeping costs down.

Every organization has its own budget realities, and with unknown challenges looming, there’s an understandable tendency to circle the wagons and simply survive. But companies that can find a way to keep the innovation flame burning will likely find themselves in a better place on the other side of whatever lies ahead.