Innovation in Hard Times
Hopefully we have now passed the worst of the recession but all the indications are that economic growth will be slow for some time to come. In such times, many companies cancel innovation projects as part of their cost cutting measures. This is a mistake because all the evidence shows that the companies which continue to invest in innovation during a time of recession are the ones that emerge ahead of the competition. Cutting back during a recession is sometimes a requirement—but it is essential to cut the projects that are the least promising in order to protect the budgets of the key projects, rather than across-the-board savings that slow everything down and drain motivation. Companies need to recognize that a culture of innovation must be maintained during a recession. Several key steps are necessary to achieve this: conducting a critical review of the innovation pipeline; ensuring that real customer needs are being addressed; and giving employees clear challenges.
Sharpening the Innovation Pipeline
What projects are in your organization’s innovation pipeline? These can be new products, new services, and process innovations. Will the range of current projects ensure you emerge from the recession ahead of your competitors? A critical review of each individual project and the balance of the portfolio are necessary to root out a number of typical issues. Firstly, look for projects which are known to be failing but where so much has already been invested that some people are reluctant to let go. If it is a case of sunk costs then sink the project—do not let poor projects ramble on. Secondly, check that you have the projects which will give you a real competitive advantage. Remember that the main reason that new products and services fail in the market is that they cannot be differentiated from competitors’ offerings. Thirdly, ensure that your pipeline is a mix of high risk / high return projects, balanced with some more conservative ones. Finally, innovation is not just new products and services; so make sure your pipeline includes process innovations—significant improvements in your manufacturing or service operations, for instance.
Customers’ Hidden Needs
Generating a deep understanding of customer needs is time-consuming and can be expensive. Yet, in the long run, it is much more expensive not to invest in good market research, so do not economize on your understanding of customers.
Market research for the purpose of innovation is, in the way most companies approach it, bound to fail. The design of new products and services is typically based on the insights obtained from customer visits, surveys, and focus groups. Unfortunately, these approaches all rely on customers being able to answer direct questions. Research shows that customers are often unable to articulate their requirements, and may not even themselves have realized the issues and problems they face. Hidden needs are the needs that customers have but which they are unable to articulate in response to direct questions. If products and services are designed to meet hidden needs, customers are both surprised and delighted. For example, the German household products company Miele has produced a vacuum cleaner that indicates when the surface being cleaned is dust-free. This was a hidden need—no customers directly articulated a need for a ‘dust level indicator’—but the resulting product has been a huge success with people with allergies, who want to know when dust levels have been minimized.
To identify customers’ hidden needs, companies must invest in gaining the expertise to apply leading-edge techniques, such as ethnographic market research and repertory grid technique. Without the insights provided by such methods, your new product and new service development projects are likely to fail.
Challenging Times Require Clear Challenges
Innovation is possible even when resources are limited, as the history of invention during wartime clearly demonstrates. Therefore, managers need to tap their employees’ creativity through setting them clear challenges such as: “how can we develop this new product on the same schedule and yet achieve 20% savings on the costs?” Such clear challenges are important because mere exhortation to “think outside the box” does not work. Companies, such as Whirlpool, have found that setting clear innovation challenges leads to more successful products. Specific goals for all areas of innovation need to be set, including goals for new products and services (e.g. “how can we address the hidden needs we have identified?”), new processes (e.g. “how can we take the non value-adding time out of this customer facing process?”), and business models (e.g. “which elements of our business model need enhancing?”).
Achieving a Culture of Innovation
Management need to demonstrate that innovation is being kept high on the agenda during difficult times. This is an important step in creating or maintaining a culture of innovation. In 2000 the Irish arm of AXA Insurance was facing heavy competition, eroding margins and losses. When the new CEO John O’Neill took the helm many AXA employees expected him to adopt a cost cutting and re-engineering strategy but this was not the case. O’Neill communicated to all employees the importance of developing new insurance products and implementing customer-focused processes. Through initiatives such as the ‘Madhouse’ (idea generation) and ‘Taskmasters’ (process innovation), AXA Ireland has not only become extremely profitable but also has created a culture of innovation that is the envy of their competitors.
In summary, when most of your competitors are reducing their investment in innovation make sure you:
- Review and enhance your innovation pipeline.
- Invest in understanding your customers’ hidden needs.
- Give your employees clear challenges to increase innovation levels.
- Generate a real culture of innovation.
Cranfield is conducting research into the best methods to discover customers’ hidden needs and how companies can create a culture of innovation. We are keen to work with companies that are interested in these challenges.
Centre for Innovative Products and Services.
Keith Goffin is the Professor of Innovation and New Product Development and the course director for Innovation Management: Strategy & Implementation
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