Invest Smarter, Don't Cut Back, & Move Forward – The U+ Recession Innovation Playbook

During the last global recession, the Harvard Business Review found that only 9% of the companies they’d surveyed were thriving as they came out of a recession.¹ In 2022, Bain and Company discovered the same thing, stating “companies usually make more dramatic and sustainable gains and losses during a downturn than during stable periods.”²

Here’s the takeaway from this observation: when businesses take the right strategic approach, challenging economic constraints can actually create opportunities for more effective innovation.

Budget cuts are an instinctive reaction to recessions

We've all heard and read the reports of a potential recession. Facing such a serious challenge, organizations often instinctively slash OPEX spending, which can result in indiscriminate cuts to innovation budgets. Doing so will often harm an organization’s short- and long-term growth prospects.

If your innovation budget is on the chopping block, your organization should first consider if diversifying its businesses is critical to long term viability and success before viewing innovation as a discretionary budget. While the logic of cutting back during leaner economic times is sound, the notion of limiting innovation, which can be the lifeblood of future viability and growth, is not.

Innovation budgets are critical to long term viability and success

We've all heard and read the reports of an impending recession. When facing such a serious challenge, organizations often instinctively slash OPEX spending, which can result in indiscriminate cuts to innovation budgets. Doing so will harm an organization’s short- and long-term growth.

If your innovation budget is on the chopping block, your organization should first reflect on how vital innovation is to your business’ success. While the logic of focusing budgets during leaner economic times is sound, the notion of reducing innovation, which is often the lifeblood of future viability and growth, is not. The question of innovation investment during a recession isn't so much about deciding whether to invest or not; rather, it’s about taking the time to re-examine your innovation investment approach.

Effective innovation begins with strategy

Start by analyzing your innovation strategy. Is your organization clear on its investment allocation related to core, adjacent, and transformational innovation? “Clarity on your innovation ambition,” as described by the Harvard Business Review, is a foundational starting point to more efficient and strategic investment.³

Reflect on your organization’s maturity in building new business models and revenue streams. Have the majority of successful innovations come closer to the core of your business or in adjacent categories? If yes, the most efficient area for you to invest in is where your organization has shown the highest propensity for success. Only more mature innovation organizations with a proven ability to build brand-new businesses should consider investing in innovation in transformational categories where the businesses, go-to-market strategies, and revenue streams are significantly different than the core business.

Core tenet: Heavy focus on product validation before costly investment

Beyond your foundational innovation strategy, think critically about how innovation is deployed within your organization. Does your company fall into the trap of "if we build it, they will come", wasting millions of dollars on tech builds of unvalidated product ideas? Does your company validate their new business ideas within the four walls of your office on a whiteboard while leaving direct communication with users and customers an afterthought?

Efficient innovation requires a customer-centric approach where you validate product-market fit with customers well before committing to the high cost of scaling. To achieve this, you can quickly create product value propositions and prototypes to test directly with customers. Learning the value your target customers see in your innovation is the most efficient and effective way you can improve an early concept.

Scaling is the highest cost contributor to innovation

The scaling phase is the biggest expense of any innovation project because it requires substantial operational, technical development, and marketing resources to deploy new concepts. However, each organization completely controls the speed of scale and resource deployment, providing them with the opportunity to mitigate much of the cost and risk. As your business scales a new innovation, it must maintain a concept validation mindset to learn the most successful scaling approaches before expanding too rapidly.

Paradigm shift: Innovation as a profit center

Rather than cutting critical innovation budgets in the face of a potential recession, use this economic climate as a mechanism to refocus and deploy innovation capital to maximize business outcomes. Establish a clear strategy and innovation function focused on de-risking concepts prior to scale. By doing so, you’ll show that your innovation function is a growth and profit center rather than a cost center.

Throughout history, economic recessions have been followed by sustained periods of growth. With this in mind, it’s not time to cut innovation, it’s time to maximize its potential.

How U+ can help your organization become more resilient during a recession

One of the most effective ways to strengthen and streamline your organization’s innovation function is to enlist the help of a venture studio like U+.

The U+ Method can efficiently and effectively lead the development, implementation, and improvement of innovations in any sector. To date, we have used this method to bring 100+ products to market, creating over $2 billion in value for Fortune 1000 companies. Check out our success stories.

Footnotes

• Walter Frick, How to Survive a Recession and Thrive Afterward, Harvard Business Review, May–June 2019 ↩

• Jason Heinrich, Simon Henderson, and Melissa Lee, The New Recession Playbook, Bain & Company, July 2022 ↩

• Bansi Nagji and Geoff Tuff, Managing Your Innovation Portfolio, Harvard Business Review, May 2012 ↩