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Innovation - an essential recession survival skill

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23rd Jun 2009
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Innovation can be a silver bullet for business in the recession, says innovation specialist and former Harvard Business School lecturer John Kao. He spoke exclusively to technology editor Jon Wilcox about how businesses can use the recession to plant seeds for the future.

It’s easy to dismiss the notion of hiring an ‘innovation consultant’ as something done by left-field companies whose executives present their office layouts according to the mystical rules of Feng Sui. After all, innovation isn’t something that can be taught, like the latest business techniques or software – can it? 

A former lecturer at Harvard Business School for 14 years, and one-time consultant for Hillary Clinton’s re-election to the US Senate in 2006, John Kao provides insight and lateral thought to corporates and governments alike. Although his previous work within academia largely resided on the US East Coast at HBS and MIT, Kao’s latest base is on the opposite side of the country, at San Francisco, California.

It begins with jazz

An accomplished jazz pianist - though he himself modestly dismisses the notion - John Kao implements the improvisational elements of the musical genre as a metaphor for innovation: “Jazz is a way of understanding how the innovation process works,” he explains. “I use jazz as an innovation tool to show people that innovation isn’t that abstract thing you do when you feel like doing it. It actually is a skill.”

"Recessions are historically times in which planting seeds tend to have disproportionate payoffs."

Whilst fans of jazz see its many compositions as journeys of creativity and expression, don’t its detractors see it as the random plonking of notes in an unmelodic fashion, reducing the metaphor along the way? Kao deftly explains the difference: “Generating music by chance would be getting up to a piano with a three-year old, or a random number generator, and banging away. The market decides. If you sit down at a piano and everyone walks out after 10 minutes, the music may have been creative, but it probably wasn’t innovative in the sense of addressing some purpose to realise value, because there is no value for the audience.”

In short, innovation in business is about developing and obtaining useful results, striking a careful balance between creativity and structure. Kao explains it’s not about letting people go on random tangents in unstructured ways.

Recession as a driver

There’s an argument that says war drives technology forward at an increased pace, with many advances finding their origins in the midst of conflict. So can the same be said for the effect of recessions on business innovation? After all, businesses certainly find themselves on the front line during economic downturns, with many feeling like they’re running constant battles on a day-to-day basis. For Kao, the answer is quite simply, yes: “Recessions are historically times in which planting seeds tend to have disproportionate payoffs.”

He draws on the explosion of technological innovation found close to Kao’s base in San Francisco, in a region of the south bay area that regularly goes by another name: Silicon Valley. “If you look at the history of Silicon Valley, big waves of innovation have occurred exactly in recessions, whether that’s the semi-conductor or Web 2.0.” He adds, “It’s a period where people with agility and capital, and the appetite for risk, can actually do quite well.”

Recession can be a silver bullet for businesses, providing new opportunities to drive forward fresh approaches and innovations. However, it can’t save a sinking ship from taking the plunge to the bottom of the deep blue sea, like ailing US automotive giant, General Motors: “GM is like the Titanic,” Kao says. “You can innovate in many sub-systems of the enterprise, and still hit the iceberg and sink.”

The limping car manufacturer has so far received $15.4bn in aid from the US government. On 27 April, GM announced it would phase out its Pontiac brand by the end of 2010, and cut a further 21,000 jobs. However, despite its troubles, innovation isn’t something that’s lacking within the halls of GM’s Detroit HQ. A deal with Segway to produce the ‘Project P.U.M.A.’ vehicle was announced at the start of April, and the company aims to launch the Chevrolet Volt electric car in 2010. It seems that even massive corporations on the precipice of falling into bankruptcy protection can find ways to innovate:

"Big waves of innovation have occurred exactly in recessions....It’s a period where people with agility and capital, and the appetite for risk, can actually do quite well."

“The reality is that there’s always some room for innovation...it’s thinking about how to do things differently. Business model innovation, or innovation in how you manage a customer franchise, or how you enhance a brand, doesn’t necessarily cost money; it just costs time and mental effort.”

Smart bets

Hitting the ground running will be top of the agenda for companies that do emerge from the dark and turbulent tunnel of recession. Taking advantage of the space left behind by the demise of former competitors, or potential new areas for expansion, will be a prime factor for rapid recovery and growth. Knowing exactly where investment needs to be made by the ‘survivors’ of Depression 2.0, the credit crunch, the first global recession, or whatever else you use to describe the current economic climate, is key. For businesses looking to innovate, Kao points to a model developed by contemporary and former colleague at Harvard Business School, Clay Christensen: “There’s the classic concept of the innovator’s dilemma...the contrast between disruptive and incremental innovation. The argument is that disruptive innovation changes the nature of the game and is kind of revolutionary, whereas incremental innovation is about improvements within an existing game, and is evolutionary. Obviously we need both, it’s not like one is better than the other.”

“The more time these companies spend looking at emerging opportunities and making smart bets on which opportunities will pay off, the more (even today) they invest in capabilities for realising those opportunities. Smart companies need to have their antennae out and build relationships with the talent community; not be so cut off from the opportunity stream as it really exists, so that they won’t have to have frenzied board meetings once the market recovers to figure out what they’re going to do.” He adds: “They should be figuring that out now.”

This feature first appeared on our sister site FinanceWeek.

www.financeweek.co.uk is a growing independent online community for CFOs, finance directors and financial controllers. It's fast-becoming the website to read for progressive finance professionals

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