Suddenly, innovation has a bull's-eye on its back. As the recession debate shifts from "what if" to "how long," slashing research and development budgets just got a lot more tempting. That high-risk product in your pipeline? It's about to get much more scrutiny. And the "chief innovation officer" your CEO brought in last year to show his commitment to creativity? He'd better start proving his worth. Outside consultants are starting to pick up on the effects of such belt-tightening. "I'm seeing it in my business," says Jeneanne Rae, president of Alexandria (Va.)-based consulting firm Peer Insight. "There's this sense of which shoe's going to drop next."
Others are seeing two camps emerge. "One is saying times are tough, so it's the most important time for us to innovate," says Scott Anthony, president of Innosight, a consultancy founded by Harvard Business School professor and innovation guru Clayton M. Christensen. "The other is saying 'we simply don't have the ability to think about innovation right now.' There's a real separation between the innovation haves and have-nots."
Among the haves are the companies that make up the 2008 BusinessWeek-Boston Consulting Group ranking of the World's Most Innovative Companies. They nurture cultures that value creative people in good times and bad. They develop a diverse portfolio of projects that helps them weather dud ideas. And no finger-wagging Wall Street analyst is going to keep them from doubling down on smart bets that will position them well when the economy rights itself again. "Strong companies understand this, and during a recession, they invest," says Eric Schmidt, chairman and CEO of Google (GOOG), No. 2 on our list. "And they get pummeled for it: `How could you do this? You're arrogant. The world is falling apart.'"
The good news: There can be an upside to the downturn. Low-cost methods for creating new products are easier than ever as emerging markets provide both cheap labor and booming pockets for growth. That's something No. 4 General Electric (GE) is finding with its first portable electrocardiograph made in India for that market. Many companies, including No. 7 Nintendo (NTDOY), are embracing collaboration with outsiders in ways that lower costs for both them and their partners. And yes, it may even be possible to wring more efficiency out of your R&D labs, as No. 15 Hewlett-Packard (HPQ) is attempting to do, without stifling the creativity of your most valued people.
In the end, scarcity can be pretty good at prompting new ideas, says CEO Jeff Bezos of No. 11 Amazon.com (AMZN). "Constraints," says the e-tail maverick, "drive innovation."
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