Create the Future You Want As Opposed To the One You're Stuck With
Your competitors are affected by the downturn, too, so strategic momentum is more important than ever because:
- As companies retrench and reduce resources, inertia is a big risk.
- New ideas, processes, and products keep enterprises relevant.
- Value is derived from the intersection of multiple innovations, not just one.
Downturns breed powerful innovations with potentially far-reaching consequences. A cursory look at the great companies formed during economic declines bears this out: Adobe Systems (the early 1980s recession), Texas Instruments (Great Depression), Skype (early 2000s recession), Microsoft (mid-1970s stock market crash), and the Hewlett-Packard Company (Great Depression).
Recessions are prime time for innovation. Why? According to Charlie Bess, an HP Fellow and one of the corporation's most innovative thought leaders, downturns demand discipline, concise definition, and efficient governance – traits essential for powerful innovation. Declines also create space for innovation. “It's an opportunity for organizations to focus their activities on strategic ideas,” he says. “During downturns, there is less distraction by all of the operational issues because there are significantly fewer of them.”
By contrast, in flush times or during bubbles, money for investment flows freely and is sometimes channeled into shortsighted schemes because there is a need to invest in something – anything – to put an abundance of resources to work.
For example, just before the steep downturn in the early 1980s, Bess points out, companies were channeling some technology investments into minicomputers while the bulk of resources flowed freely into mainframe computing. As the downturn took hold and technology investments slowed, other companies – such as Microsoft, Apple, and Compaq Computer (the latter founded in the midst of the early '80s downturn) – invested heavily in personal computer technology. When the economy rebounded, the personal computer became a key technology while minicomputers and mainframes gradually receded in terms of IT prominence.
Likewise during the dot-com era, eBay (merchandising) and Google (search engine) were amongst many competitors in their respective online spaces. When the turmoil of the dot-com bust rattled markets, these companies continued to invest, innovate, and improve their processes while their competitors focused on survival. Once resources freed up as the recovery took hold, eBay and Google possessed the dominant technologies and were able to expand rapidly, overwhelming their competitors.
One of the most serious risks that organizations face during a downturn is recessionary inertia. When times are tough, companies reflexively retrench; they jettison innovative thinkers and projects and instead focus on employees and programs attuned to operations. The danger is that when business reinvigorates and markets demand strategic leadership, those who retrenched will be blindsided and left to battle it out to catch up on the innovation front. Although operational excellence is important, says Bess, it's a cost of doing business. Instead, new ideas, products, and innovative processes keep organizations relevant and vital. Insists Bess: “Even in the downturn, you need to focus on the future, creating the future you want as opposed to the one you're stuck with.”
He adds that potent value is derived from the intersection of innovations rather than from a single innovation in isolation. During a downturn, these intersections pile up exponentially. Look for the next recovery to be driven by innovations in Green IT, pattern recognition and simulation, and cloud and edge computing. “There is churn around cloud computing and edge computing,” Bess says. “There is all of this change at the edge of the enterprise with significantly more information pushed into the organization.” According to Bess, we have entered an age of data abundance, crossing paths with an abundance of computing power. So even in a drought of available resources, some expenditures pay off big. “When we come out of this recession, we will be using computers for something quite different than we do today.”
Economic downturns and the massive disruptions they bring – financial turmoil, revolutionary distribution channels (material as well as information), and disruptive technologies – are fertile ground for innovation. What organizational leaders need to remember, Bess says, is that competitors feel the pain of downturns just as they do. This means that the effects of strategic focus and disciplined investment will be amplified. Organizations that understand this enter recoveries not with inertia, but with momentum.
Concludes Bess: “Winners that emerge from a recovery usually have a long-lasting advantage since they have used the downturn as a way to prepare for the future instead of just trying to keep the lights on.”