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Businessweek By: Bruce Nussbaum
We are probably already in a recession (or very close to it) and, in the past, CEOs made serious mistakes in trying to cope with a slowing economy. Here is a list of What Not To Do. Unless you really want to compete on price, the ability to do sustained innovation is the one competitive edge left. Innovation is the driver of performance, growth and stock market valuation.
Here are the worst mistakes you can make in a recession that will hurt innovation:
1) Fire talent. Cutting back on people, especially really smart, high-priced people, is a quick way to cut costs. The accounting rules only hurt companies who follow them. Talent is the single most important variable in innovation.
2) Cut back on technology. The rise of social networking and consumer power means that companies have to be part of a larger conversation with their customers. This means money spent on technology.
3) Reduce Risk. Innovation requires taking chances and dealing with failure. Recessions push managers to be more conservative. They need to fight this instinct.
4) Stop New Product Development. Saving money often means cutting back on new products and services during an economic downturn. This hurts companies when growth returns and they have fewer offerings in the marketplace to attract consumers.
5) Boards Replace Growth-Oriented CEOs with Cost-Cutting CEOs. Boards forget that most recessions last only two or three quarters and, these days, are relatively shallow. Penny-pinching CEOs don't have the skills to grow, when growth returns.
6) Companies Retreat From Globalization. It's expensive to expand globally and managers often save money by cutting back on emerging markets. It's a big mistake. Emerging markets are sources of new revenue, business models, and talent.
7) CEOs Replace Innovation As Key Strategy. By turning defensive, top managers take innovation off the top of the official agenda and replace it with systems management and squeezing costs. The entire organization follows. It is extremely hard to reverse this when growth returns.
8) Performance Metrics Are Changed. To Save money and cut costs, managers shift employee evaluations away from rewarding riskier new projects toward sustaining safer older goals. Risk-averse behavior follows. Again, this is hard to change.
9) Retreat Into Walled Castles. Cutting back on outside consultancies is seen as a quick way to save money. Yet one of the key ways of introducing change into business culture is to bring in outside innovation and design consultants. They know what companies across a broad range of industries around the world are doing to promote change. Not receiving this information can hurt a company's global competitive position.
Winners always emerge out of recessions and they almost always beat their competition on the basis of something new. Apple worked on iTunes, iPod and its retail stores during the last recession and came out swinging once growth returned to destroy its competition. Apple didn't make any of the innovation mistakes. Your company shouldn't either.
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