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INNOVATION

reprinted from
PRTM Insight | First Quarter 2009

Innovation: A Survival Handbook


When the Going Gets Tough, the Tough Get Innovative

Robert Shelton

ARTICLE
Innovation: A Survival Handbook
ARTICLE
reprinted from PRTM Insight, Q1 2009

As top companies know, innovation is essential for getting through the down-
turn. In a time of constrained budgets, survival strategies of explorers like
Roald Amundsen can help you get the maximum return on innovation efforts.
Companies that employ such strategies will not only weather the current
storm—they’ll emerge stronger than ever when it subsides.

F
aced with collapsing credit markets, These strategies can deliver significant
a beaten-down stock market, and financial benefits in just one year (Figure 1).
constrained spending, companies every- In our experience, companies that abandon
where have switched into survival mode. Down- non-essential projects and products and better
sizing is the order of the day, with innovation manage resources can realize up to 20% in R&D
often the first area to be hit. Yet closing down cost reductions. At the same time, by converting
innovation efforts is liable to land companies offerings into those with greater value, a typical
even deeper in the quicksand. As Google CEO company can expect to see a 2–5% increase in
Eric Schmidt recently noted on the NBC news revenues, although situations may vary.
show Meet the Press, innovation is essential for
economic recovery. Corporate Survival Strategy #1: Throw Out What
You Don’t Need
This doesn’t mean
Be willing to abandon companies should continue In extreme conditions, standard issue gear
projects in the R&D innovating as usual, can actually be counterproductive. Such equip-
pipeline that make however. Survival in the ment can weigh you down when it’s critical to
good business sense in current economic environ- stay nimble and save your energy.
normal conditions, but ment requires adopting a
Consider Roald Amundsen, who led the first
present unacceptable survivalist approach—not
successful expedition to the South Pole. Before
unlike those used by great
risks in times of setting out, Amundsen went to great lengths
explorers when facing harsh
economic crisis to understand the factors that would affect his
arctic conditions. In extreme
success. Studying how native people success-
circumstances, some practices that made sense
fully adapted to the harsh environment, he
in better times need to be abandoned, while
learned that less is often more. While previous
others take on greater importance.
explorers outfitted their men in cumbersome
Three time-tested survivalist strategies can woolen garments, Amundsen had his men wear
help companies survive the downturn, just as animal furs. And instead of using ponies or
they have helped explorers reach their destina- horses, he purchased and trained dozens of sled
tions alive: get rid of what you don’t need; convert dogs that had been bred to thrive in extremely
what you have into something more valuable; and cold temperatures.
optimize your use of resources.

Portions of this article appeared in “Rewire for Recession,” Robert Shelton and Biswajit Das, Outlook Business, February 7, 2009.

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Innovation: A Survival Handbook
ARTICLE
reprinted from PRTM Insight, Q1 2009

Figure 1: The Benefits of Survivalist Innovation


Potential revenue and cost savings for a $5B company

100
90
Throwing out what is not needed
80 $80m
Converting existing offerings
Revenue ($M)

70
Incremental

into more valuable ones


60 Managing resources
50 $50m
40
30

360 Days
270 Days
180 Days
$20m
90 Days

20
10
Cost Savings ($M)

-10
R&D

-20
$20m $20m $15m
-30 $25m

Amundsen also abandoned anything that dependable R&D projects that lower product
was not absolutely essential. As offensive as it design costs or improve product quality, thereby
may sound today, his plan included slaughtering reducing customer service and support costs.
many of the sled dogs prior to the return journey Use the cash you’ve saved to bring top-priority
in order to save significantly on the supplies
100 projects to market more quickly.
necessary for survival.
90 Even companies known for groundbreaking
Cancel non-essential projects. While Amund- innovation understand the need to change their
80 $80m
sen’s actions were certainly extreme by any stan- standard practices. Google, for example, recently
dard, they still provide an apt lesson for70compa- began ratcheting back on spending and cutting
Revenue ($m)
Incremental

nies today. In particular, it is important60to be innovation projects to focus on the core busi-
willing to abandon projects in the R&D pipeline nesses. CEO Schmidt said the company will
50 $50m
that make good business sense in normal condi- curtail investments in “dark matter” (i.e., risky
tions, but present unacceptable risks in40times of projects that consume available resources without
economic crisis. guarantee of return).
30
Conventional wisdom holds that the 20
highest $20m Reduce portfolio complexity. It’s also a good
360 Days
270 Days

return on R&D spending comes from taking idea to eliminate products on the market that are
180 Days
90 Days

chances on the boldest new products or10platform. not essential, as a way of streamlining portfolio
In this economy, however, betting on an unpre- complexity. In good times, companies often add
Cost Savings ($M)

dictable new product that will take a relatively


-10 various features and products, which can add a
R&D

long time to deliver ROI could prove fatal. To lot of costs. Japanese automakers, however, enjoy
-20 $15m
improve cash flow, consider investing in smaller,
$20m a complexity and cost advantage because they
$20m
-30 $25m

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Innovation: A Survival Handbook
ARTICLE
reprinted from PRTM Insight, Q1 2009

have fewer car models as well as fewer options A tarpaulin may be helpful in gathering water.
and parts. Likewise, instead of using innovation resources
solely to create new products, companies can
Companies looking to trim the fat should
mine existing products and services to better
focus on lowering the number of SKUs in the
meet customer needs and create additional value.
portfolio, getting rid of products that do not
sufficiently contribute to overall profitability. Turn products into solutions. Innovative
It’s also important to reduce the complexity of companies know that adding a series of services
platforms in use. These cuts to an existing product can be a powerful way to
lay the foundation for longer- boost sales. P&G, for example, created a Web site
Companies looking term reductions in product for its Olay skincare products that provides live
to trim the fat should complexity—features, discussions with Olay consultants, a Club Olay
focus on lowering the components, and parts. membership with special offers, and various
number of SKUs in the Companies that approach other benefits—all of which have strengthened
portfolio, getting rid of their portfolios this way can both the Olay brand and relationships with
products that do not realize significant savings. customers.
sufficiently contribute Eliminate extraneous Adding services to existing products is
to overall profitability processes. Innovating an a well-proven business model innovation.
existing process to increase Recently, TomTom, a UK-based company that
efficiencies can help companies cut costs and sells portable GPS devices, introduced a service
provide better value to their customers—no small that lets users update road maps. In the nine
matter at a time when cash is king. An obvious months following the service launch, over
place to start is development processes that can 1 million updates were reported. During a
cause unnecessary delays or design issues. Take downturn, product enhancements like these are
innovation leader 3M, for example. During the especially valuable.
recession of 1991, senior management urged the
Develop new business models. As leading
design, production, and marketing teams to work
companies know, business model innovation can
together more closely. This helped cut the devel-
pay big dividends. For example, during the last
opment cycle for a new digital color proofer—a
downturn, Apple developed iTunes, an online
device used in commercial printing—from six
music store that complemented the iPod and
to three years. Similar innovations to other key
stimulated sales tremendously. More recently,
enterprise processes such as supply chain, sales,
Cisco developed an innovative approach for
and aftermarket services will yield other impor-
selling its new videoconferencing product, Tele-
tant benefits.
Presence. Realizing that few customers would
be able to afford a capital expenditure of this
Corporate Survival Strategy #2:
size in a downturn, the company decided to sell
Convert What You Have Into Something
TelePresence in blocks of time instead—much
More Valuable
the same way GE used “On-Wing Support” to sell
Survival training emphasizes creative its aircraft engines. Customers can gain access
thinking to derive new value from existing to the equipment by renting public TelePresence
objects. Tent poles can be used for spear fishing. rooms on an hourly or daily basis. Treating TeleP-

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Innovation: A Survival Handbook
ARTICLE
reprinted from PRTM Insight, Q1 2009

resence as a service that customers could lease— sional tax preparer market. By editing the
rather than as a product they had to buy—should software and marketing to this segment, the
help Cisco boost its revenue. At the same time, company increased sales by 10% in a year.
it will help the company establish relationships
In general, companies should reassess
with clients who one day might be interested in
where and how they will spend their innovation
owning their own personal TelePresence facility.
budgets. Not only can this reassessment increase
Repurpose existing offerings. Sometimes all their chances of survival, it can also lead to the
that’s required is finding a new market for an old creation of winning products and services that
product. The rebirth of aspirin as a miracle heart will provide momentum for a healthy recovery.
disease drug is one of the first major success Kraft, for example, launched Miracle Whip
stories of this type, but certainly not the only during the Great Depression to provide a less
one. In its early years, software company Intuit expensive alternative to mayonnaise. In just six
focused on selling TurboTax®, its accounting months, Miracle Whip outsold all other dressings
and tax preparation programs, to individual and went on to become a staple in refrigerators
consumers. After several years, however, Intuit across America.
realized that it had overlooked the entire profes-

Summary of Innovation Strategies for Tough Times

strategy company innovation


Focus on search
Abandon non-essential
Google engine and other
projects
core areas
eliminate non-
Reduce portfolio Japanese
essential projects Fewer products
complexity automakers
Make process Reduced development
3M
improvements time
Turn products into
P&G Olay Web site
convert existing solutions
offerings into Develop new business TelePresence by the
Cisco
something more models hour
valuable Repurpose existing
TomTom GPS updates
products and services
Lightweight
Build partnerships Tetra Pak
sterilization packs
Explore offshore
manage resources Microsoft R&D in Asia
development
Rockwell Acceleration of
Get creative
Collins projects

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Innovation: A Survival Handbook
ARTICLE
reprinted from PRTM Insight, Q1 2009

Corporate Survival Strategy #3: Optimize Your Partnerships can even be internal. Boeing,
Use of Resources for example, was able to create one standard
10-year strategic roadmap for its product devel-
Explorers survive in part because they plan
opment teams in 145 countries. This approach
their use of resources extremely well. They know
created important new efficiencies, allowing
how much food and water they have and carefully
Boeing to accelerate product planning while
apportion their supplies. As Amundsen knew, this
reusing existing technology across different divi-
approach requires much planning and discipline,
sions.
yet is indispensable for survival in extreme condi-
tions. Explore offshore development operations.
Another option is to move R&D operations to
For corporations facing survival challenges
low-cost locations like China, India, Vietnam,
of their own, the same logic holds true. After
or Eastern Europe. Although such facilities may
scrapping some projects and repurposing others,
initially require a large expenditure, the long-
companies must then take a
term ROI makes the cost worthwhile. In the past
hard look at their remaining
Open innovation is a five years, leaders such as Microsoft, ABB, Dell,
employee resources and
tried-and-true way to and P&G have established R&D centers in Asia
consider how to leverage them
get more from less to garner those benefits, and some are already
most effectively for long-term
seeing positive returns on their investments. In
survival. Hiring freezes can
many cases, such facilities do more than just cut
make this task even more challenging, but not
costs. With effective management, the diversity
impossible. When companies need employees
of perspectives provided by an international R&D
for high-priority projects, they must find ways to
team can help a company achieve higher levels of
shift resources without cutting staff in areas that
innovation.
are already stretched thin.
Get creative. Look for counterintuitive
Build partnerships. Open innovation is a
ways to use and retain staff. Consider Rockwell
tried-and-true way to get more from less. P&G
Collins, a producer of aerospace communica-
was one of the first global companies to rely
tions. During the downturn several years ago,
on alliances for much of its new product devel-
instead of firing engineers it did not need, the
opment, but it’s far from being the only one.
company accelerated some of its innovation
Leading packaging supplier Tetra Pak teamed
projects. This bold move allowed Rockwell to
with outside partners well-versed in paper, plas-
maintain key resources and even hire new talent,
tics, and even hospital equipment sterilization.
which positioned the company well for the
With these collaborators, Tetra Pak successfully
upturn.
developed lightweight packages that enabled
better sterilization of food and liquids. These
Building a Road Where No Road Exists
stackable packages increased the number of
items that could be stored on a hospital shelf by Explorer David Livingstone once wrote, “If
as much as 50%. you have men who will only come if they know
there is a good road, I don’t want them. I want

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Innovation: A Survival Handbook
ARTICLE
reprinted from PRTM Insight, Q1 2009

men who will come if there is no road at all.” for senior executives to reflect on the past and
In our view, building the road out of the down- rethink the way they manage. After the tough
turn depends on the ability to take risks while times have passed, the best executives take the
finding sources of safety and learning from past time to identify the management innovations
successes and failures. that proved critical to survival. Those insights
will then be on hand for the next time challenges
Be bold. Today’s economic morass demands
arise.
bold corporate leadership—the kind exempli-
fied by Honda, which, despite a decline in car Although never welcome, recessions like the
purchases and gas prices, recently announced a current one force companies to rethink the way
joint venture to develop smaller, lighter lithium- they operate. Yet survival is just the first goal.
ion batteries for hybrid cars. CEOs need to chal- Companies that reconfigure their operations to
lenge members of their executive teams to find meet current challenges will not only survive
innovations as if their companies’ lives depended tough times now: They’ll be the ones to succeed
on it—because they do. A tiger team—a cross- when conditions improve.
functional group chosen and empowered by the
CEO—should then move quickly to transform
these ideas into real results.
Create safety in numbers. Those who survive ■  here do we need to refocus our
W
rarely do so alone. Executives need to keep in innovation efforts?
mind that corporate survival depends not just on ■ How much innovation do we need?
their leadership, but also on effective collaboration
throughout their extended teams.
■ What types of innovation do we need?

Learn and grow. Extreme conditions not only


force companies to rethink the way they inno-
vate. They also present a valuable opportunity

For more information, please contact:


Robert Shelton, PRTM Director
rshelton@prtm.com, +1 650.864.3517

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