Innovations Innovation strategies for the downturn

Changing innovation focus

ot surprisingly, economic concerns are weighing on many companies innovation plans. For instance, the Boston Consulting Groups (BCGs) sixth annual global survey and report on innovation reveals that a signicant percentage of companies plan to reduce innovation investment in 2009 and the percentage that plan to increase spending is at its lowest point in the surveys history. In parallel, many companies are changing the focus of their innovation efforts.

However, while many companies might be starting to focus on cost cutting, the BCG report suggests that instead companies should adopt a more opportunistic and aggressive stance; leveraging offensive strategies to fundamentally change their long term competitive position. Alternatively, or in combination, there is always the option of increasing innovation partnerships and expanding open innovation practice. And, according to a new study by NineSigma, this is clearly seen by a growing number of companies as a key way of driving innovation forward over the near future.

Shorter term focus

Overall, the BCG report, Innovation 2009: Making Hard Decisions in the Downturn, conrms that innovation remains a key focus for the majority of companies. Based on a global survey of executives that BCG conducted in partnership with BusinessWeek in late 2008 and early 2009, the report notes that Sixty-four percent (down from 66 percent in 2008) of the more than 2,700 executives who responded said they consider innovation a top-three strategic priority, one critical to their companys long-term competitiveness. Consistent with that, it notes that more than half of the respondents said their company would increase innovation spending in 2009. This is with good reason, for in 2008, and for the fourth consecutive year, innovative companies handily outperformed their industry peers in terms of stock market performance. Globally, on an annualized basis, innovators outperformed their industry peers by 430 basis points over three years; over ten years, they outperformed them by 260 basis points. However, the present economy can not be ignored, and the BCG report reveals that generally executives are growing increasingly anxious. The percentage of respondents who said their company would raise innovation spending in the year ahead was 58, down from 63 percent in 2008. (Although Asia-Pacic companies have aggressive plans, with 73 percent of Asia-Pacic respondents planning to increase spending and 35 percent planning to do so by more than 10 percent). And, a signicant number of respondents-14 percent-said their company would reduce innovation spending in 2009. North American executives were particularly bearish: a sizable 21 percent said their company would lower spending.

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VOL. 25 NO. 9 2009, pp. 36-39, Q Emerald Group Publishing Limited, ISSN 0258-0543

DOI 10.1108/02580540910983358

In addition, it appears that many companies are orienting their innovation efforts toward the here and now, by emphasizing immediate sales and the reduction of costs and risk. Most visibly, according to BCG, they are strengthening their emphasis on innovation aimed at lowering production costs. Many companies are also looking to reduce the overall cost of their innovation activities by, for example, increasingly leveraging rapidly developing economies, which typically offer cost advantages. This is highlighted by the nding that the percentage of respondents who said their company plans to make greater use of rapidly developing economies in their innovation activities in the year ahead jumped to 45 in 2009 from 37 in 2008.

Smart innovation strategies

With the present economic climate, the moves by companies to rethink all aspects of their business, including innovation, undoubtedly make some sense. But, according to BCG they need to be smart about any signicant change in innovation strategy. In particular, the potential problem and fear expressed by BCG - is that many companies will overreact and adopt too defensive a stance. Instead, the BCG report urges companies to take the opposite approach, where possible, and be opportunistic. Essentially, BCG suggest that experience shows that while the vast majority of companies batten down the hatches in times of crisis, leading companies take a more sophisticated and proactive approach; often leveraging offensive moves in the downturn that will position them far ahead of their competitors when the recovery comes. Instead of asking themselves how can we survive? true innovation leaders are currently asking themselves, How can we use this opportunity to win? Therefore, in a part of its Innovation 09 report, BCG suggest seven aggressive innovation strategies that companies should consider now for making the most of the present economic situation. While ideally companies seeking to employ these strategies will start from a relatively strong nancial position, the claim is that even those that do not can leverage some of the strategies by freeing up cash through cost cutting and repositioning. The seven strategies outlined in the report include: 1. Aggressive innovation investment. Unless ghting for survival, now is the time, rst and foremost, to sustain or even increase the commitment to innovation. 2. Acquire IP on the cheap. With many of the funding sources for smaller companies drying up, large companies now have the opportunity to acquire IP at re sale prices. 3. Alter the business model in a strategic, game changing ways. The perfect time to be bold and create a new business model is during a nancial downturn, when its harder for (less courageous or less exible) competitors to see, understand, copy or adequately respond to changes. 4. Go bargain hunting. The stock market crash may offer a great opportunity to buy innovative companies and their people, patents, products, rich development pipelines and competitive position at a steep discount. 5. Raid competitors talent pool. With many R&D budgets being cut, the more stable companies with deep nancial resources should leverage their advantage aggressively to lure top talent. 6. Stage a network invasion. The downturn presents an opportunity to capture key partnerships, collaborators, and customer networks from weakened and vulnerable competitors. 7. Use innovation to attack competitors prot strongholds. Find innovative ways or products to compete directly against smaller companies most protable products, and so weaken their nancial position further.

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External partnerships
However, as well as the aggressive approaches suggested by BCG, there is always the strategic innovation option, which seems increasingly viable in these present economic times, of partnerships. And, it would appear from the results of the recent Open Innovation (OI) survey undertaken by NineSigma, that external partnerships are seen as increasingly important to some companies as a way to drive forward innovation. According to Nine Sigma, the survey, which establishes a benchmark on the state of OI today, shows that the not-invented-here attitude of the past is being replaced by an emphasis on sharing the costs and risks associated with innovation with solution providers that have the needed knowledge and capabilities. On this specic aspect, the survey, which studied over 100 OI practitioners from a variety of diverse, global industries (with the vast majority earning in excess of $1 billion in revenues), asked respondents about the current and projected importance of external partnerships. Whilst less than 43 percent of those surveyed felt that external partnerships were important to them in 2008, they become increasingly more important in 2009 (67.3 percent). In fact, when asked how important external partnership would be to their organizations in ve years, nearly 90 percent of participants responded with a 4 or a 5. Only 3.1 percent of the respondents indicated that external partnership would not be important to their companies in ve years. In addition the survey also found that during the next 5 years, the percentage of new products with elements originating outside the respondents company will increase dramatically.

Open innovation benchmark

Overall, the NineSigma survey and report provides a range of insights into the role of open innovation in companies today and in the near future, from types of OI activities and internal drivers, to the barriers and benets of OI adoption. Some of the highlighted results from the Open Innovation Practices and Outcomes 2009 Benchmark Survey Report, include:
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Stage of OI development. Despite the six years plus since the term became recognized, almost half of the respondents (49 percent) still felt that their companies were still in the early stages of open innovation. Generally, these companies understand the value of leveraging external resources to further their innovation efforts and are currently researching and/or experimenting with different OI processes and tools. Their focus is on only a few core activities, the three most common being supplier co-innovation (77 percent), scouting (65 percent) and university co-innovation (69 percent). Forty percent of the responding companies were considered to be in the optimizing stage, meaning that they have typically made a signicant commitment to open innovation, and are in the process of rening and shaping their programs to help them establish best practices that they can then replicate successfully. As well as the core activities adopted by early stage companies, more than half of optimizing companies also reported in-licensing (69 percent), using OI intermediaries (64 percent) and participating in consortia (54 percent) as other ways they have integrated open innovation in their organizations. Driving OI participation. The study found that the driving force behind OI among early stage companies is R&D middle management (41.5 percent) and R&D leadership teams (34.1 percent), while less than a quarter of the OI mandates are begun by company leadership. However, it appears that as companies move from early stage to optimizing, the driving force behind open innovation shifts from middle management to leadership. Barriers to OI. According to respondents from the larger companies with more than $10 billion in revenues, the top two barriers were the ability to extract value from OI initiatives and willingness to share ideas both issues likely to be caused by embedded processes and cultures that do not accept changes easily. This contrasts dramatically with companies with between $500 million and $1 billion in revenues. While the small companies are more willing to share ideas, the study found that strongest barriers for them are nding qualied people and modication to their intellectual property approach.

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Results of OI. While there was a wide range of benets reported as a result of OI, the majority of respondents (77 percent) felt that the most signicant benet of open innovation for their companies was an increase in the richness of their technology portfolio. This was followed by the ability to nd non-core competencies (66.7 percent), increased R&D productivity (58.3 percent) and an increase in speed to use (51.6 percent). Interestingly, over half of those surveyed also reported improved reputation as a benet from their open innovation programs.

From the results of the study, NineSigma report that the practice of open innovation is clearly expanding and is becoming a critical enabler of a rms ability to innovate. Moreover, while historically open innovation has been a key strategy for R&D departments in large companies, it rmly believes that open innovation will become embedded in all development areas as a natural component of the innovation process for companies of all sizes. Keywords: Innovation, Financing, Partnership The Boston Consulting Groups (BCGs) sixth annual global survey and report, is entitled; Innovation 2009: Making Hard Decisions in the Downturn (www.bcg.com). Nine Sigmas OI survey and report is entitled; Open Innovation Practices and Outcomes 2009 Benchmark Survey Report (www.ninesigma.com).

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