Innovative Ways to Grow During the Downturn

Wal-Mart and P&G are among companies that are smartly adapting to today's cost-conscious consumer

Innovation is taking a hit these days, with some people even blaming it for the financial market crash. But while most companies are trying to cut costs by eliminating staff and shutting down operations, some are finding new ways to innovate and grow by predicting—and quickly readying themselves for—emerging markets. They understand that while the overall economy may be shrinking, new markets can still be found.

Several recent trends are worth noting. Consumers are eating out less, but cooking at home more. They are buying fewer new cars, but taking better care of their current vehicles. They are spending less on entertainment outside their homes, but spending more on entertainment at home. In other words, each dark cloud may have a silver lining. Some companies are making smart, innovative moves to reorient their business models accordingly.

Wal-Mart Stores (WMT) is exploiting an opportunity that stems from today's more cost-conscious grocery shopper. It is reinventing its private label brand, Great Value. The retailer reportedly has hired 75 people, improved the quality of 750 of its everyday food products, and overhauled the logo and packaging design.

Impeccable Timing

Wal-Mart's senior vice-president for private brands is Andrea Thomas, who joined in 2007 after leaving Hershey (HSY), where she had been vice-president for global innovation. "Consumer demand for private brands is growing," she said at a recent food-industry conference. "Our customers are expecting more out of our private brands, and we are responding to their needs. This brand helps customers save money by offering national brand quality for less."

The strategy has won approval on Wall Street. "The timing of what they're doing in private label is almost impeccable," Robert Drbul, a Barclays analyst in New York, told Bloomberg. "The consumer is going in and looking for private label."

Procter & Gamble (PG) recently announced plans to roll out a national, franchised car-wash chain under its Mr. Clean brand name. Even though many chain operations have been struggling lately, P&G feels that the downturn offers a unique shot to move into the space.

For one thing, the recession means more people are looking for work, giving P&G a greater supply of would-be franchisees, notes Jim Amos, chairman of P&G's franchising-subsidiary board. Second, depressed real estate prices will reduce the overall startup costs of opening facilities., a joint venture between General Electric's NBC (GE) and News Corp. (NWS), is moving to take advantage of the shift to in-home entertainment. The online video streaming Web site delivers a compelling mix of prime time TV through an easy-to-navigate user interface supported by advertising. In only its second year of existence, it is already fourth among streaming video Web sites—YouTube (GOOG) is No. 1—and might generate $200 million in revenue this year.

What all three of these business concepts teach us is that even in a downturn, well-timed innovations can still create growth businesses. In order to succeed, however, companies will need to challenge some of their basic assumptions.

Here are three areas to start:

Take the blinders off your business model

Companies must be open to opportunities that lie outside their core. "We need to look for opportunities to allow us to grow," Bruce Brown, Chief Technology Officer for P&G, told The Wall Street Journal. "That isn't limited to things within our current business model." But while P&G has a knack for exploring different consumer channels and business models, it shouldn't be the exception rather than the rule.

Explore unexpected partnerships

Companies that find themselves too far out of their comfort zones might be better off finding partners to help them. This could be a joint venture, like Hulu, or it could mean working with small companies and entrepreneurs. P&G, for instance, acquired a small Atlanta chain, Carnett's, to help it launch its Mr. Clean car washes.

Do more research and testing, not less

The knee-jerk response in a downturn is to cut back on customer-focused research to save money. Instead, companies should invest the time and money to unearth unmet consumer needs. Let's face it, with economic and financial instability, distrust, and downright fear all around us, customers aren't behaving in conventional ways. To know what they want and need today, companies should employ such tools such as ethnography, rapid prototyping, and co-development so they can build the right new products and services.

The bottom line is that there are still many opportunities to innovate in this economy—maybe even more than usual. Leaders who are able to think and act quickly and differently enough will take advantage of these times. Those who don't will haplessly stand by and watch hard-won momentum deteriorate and their businesses contract. Innovation needs to be a strategic priority if corporations hope to do more than merely survive.

Before it's here, it's on the Bloomberg Terminal.