Innovating for the New Reality: 5 Strategies to Grow & Have Fun Again

Feb. 10, 2010
Question your entire business model -- sell your product as a service, change your delivery model, tie your price to customer value

As we emerge from the worst economic downturn in decades, companies may be looking to return to business as usual. Recessions are stressful and boring. We want to get back to growing and having fun again. However, the speed and severity of the recent contraction have altered saving and spending patterns for consumers and businesses alike. It is unlikely that these patterns will be reversed overnight.

Leading economists and investment professionals are counseling caution and pointing to the emergence of value as the chief criterion in purchasing decisions. There are few industries that can claim to be immune to the impact of reduced discretionary spending and more value-conscious buyers. How you respond to this new reality may determine how much fun you have this year and the next.

Companies around the world that are proactive about their approach to innovation and are employing strategies to execute well will win over the long haul. We are seeing five innovation strategies and tactics emerge in response to this "new normal." The beauty of these approaches is that they may benefit your business even if the prognosticators are wrong, and we see a snap back in consumer spending and business investment. We like strategies that do not require us to predict the future.

As you consider these five strategies, think about them not as a menu of options, but as elements of an integrated approach to innovating in this economic environment.

Innovate in Reverse

For years companies have invested in high-end technology for the developed world and then looked for ways to adapt products to emerging-economy price points. With the globalization of talent and trade, it is now better to invent products for the developing world in those markets -- where cost has always been a primary engineering constraint-- and then distribute them globally. This strategy can create lower-cost products that are much more competitive in the developed world.

General Electric has recently published articles highlighting its success with this strategy in the ultrasound and electrocardiogram markets. The risk of cannibalizing higher-end products is lower than the risk of being disrupted by an emerging market competitor that commercializes a low-cost option in your home market.

Make Your Product Worse

This is a variation on the first strategy, but it is important to realize that the innovator's dilemma is alive and even more acute during times of economic upheaval. Recessions historically have given birth to cycles of disruptive innovation. As buyers shift their focus from the feature-packed, high-performance products that have overshot the market and place a priority on value, you run the risk of leaving yourself exposed without a low-end offering.

There are many strategies that can be deployed to protect brand integrity while exploiting all levels of an unpredictable market. For example, we recently worked with an equipment manufacturer to create a "fighter brand" to successfully compete with a new market entrant. Now is a good time to reevaluate your competitive position and look for opportunities to disrupt yourself.

Proactively Tilt the Balance

Product development projects are harder to kill than one of those Twilight vampires. Your pipeline almost certainly contains development initiatives that were started in a different economy with assumptions that are no longer valid. You are not going to be launching value-oriented products unless you force a different allocation of resources in your development portfolio. These times call for more rigorous evaluation of innovation investments to ensure that they still make sense when viewed in isolation and as part of a balanced portfolio of initiatives. This requires a higher level of pipeline management discipline than most organizations have historically demonstrated. Now is the time to peek inside the black box of R&D and make sure that they've been paying attention to the world around them. Force it.

Innovate Your Business Model

For organizations and industries with long product development cycle times, there may not be time to make changes to the physical product that would significantly alter the value proposition. That does not mean that there is no room for innovation. Step back from the product, and question your entire business model. Sell your product as a service. Change your delivery model. Tie your price to customer value. You might find out that you can increase your profits.

We recently helped a specialty chemical company redesign its product delivery model, which allowed the business to improve margins while increasing the barriers to switching -- all while delighting customers who saw even greater cost savings from the new model. Think beyond simple lease arrangements to outcome-driven pricing models that make customer value apparent.

Maintain Premium Positions

If you have worked hard over the years to build a portfolio of high-quality products and premium brands, do not abandon these positions. There is still a high-end market out there. It just might not be as big as it was a couple of years ago, and the buyers are likely a little more finicky. This is an area where it pays to employ value science. Discounting just to move product can undermine your position in the recovery and cost you margin points for years to come. Apply some innovation to your pricing strategy. Now might even be a good time to raise prices on certain products in your portfolio to create demand in the mid-range and prevent a wholesale flight to the low end. Pricing is a powerful short-term lever -- for good and bad. Be smart about buyer behavior and psychology before pulling it.

Whether we are in recovery or a prolonged period of stagnation, we cannot deny that something has changed. This creates opportunity for those that recognize the shift and continue to invest in innovation. Shrinking is no fun, and playing defense is tiring. Embrace uncertainty. Innovation is the path to success regardless of the economic climate. Consider these five strategies and tactics, and let's see if we can get back to growing and having some fun again.

Bill Poston is a founder and Managing Partner of management consulting firm Kalypso ,which focuses exclusively on innovation. He leads the Portfolio & Pipeline Management practice.

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