Inspire and Innovate - Bright Ideas for Dark Days
In tough times, it's the brightest ideas that get noticed. And for those who can adapt quickest, recession offers a chance to steal a march on the competition.
It may be human instinct to batten down the hatches and play it safe during turbulent times, but it is not necessarily good business sense. Stalling innovation and reining back expansion plans might appear prudent measures but they also deny the possibility that recession can be precisely the time to seize the initiative.
Lessons can be learned from the last economic hiccup when companies that ploughed on with their innovation programmes regardless of the downturn realised long-term benefits. "Innovation can give you a strategic advantage but that advantage will diminish over time, so you can't afford to just park ideas," says Roland Harwood, director of Open Innovation at the National Endowment for Science, Technology and the Arts (Nesta). In the wake of the dotcom bubble both Google and Apple continued to invest in new ideas despite lack of confidence in the hi-tech sector. Apple went on to unveil iTunes in early 2003, while Google rapidly consolidated its position as the search engine of choice.
In fact, despite a sluggish economy, the consumer trends that take hold of markets during recession are anything but slow moving. "You have to respond to rapidly changing consumer sentiment and this should prompt rapid innovation," says Mat Hunter, partner at innovation and design consultancy Ideo.
Initially, consumer sentiment will head straight to the value end of the market. Any business that lacks a value-formoney offering needs to seriously rethink its product portfolio, argues Hunter: "The premium business-only airlines such as Silverjet didn't have a value proposition, so when customers started to fall away they had nothing to catch them with."
Value for money is of course not the only driver for recession-blighted consumers. Even in the darkest times a little indulgence is allowed.
"It's cheap enough to buy a bottle of beer in the supermarket and cook a burger and chips at home but people still like to go out," says John Hutson, chief executive of pub chain JD Wetherspoon, which has opened more then 20 pubs this year and plans to repeat this over the next 12 months. Pubs are anything but recession proof, but Hutson rejects the suggestion that the chain is over-reaching itself. "We nurture every pub we open and never make rash decisions on where we open them." Ultimately even thrift has its limitations, and a product has to mirror wider changes in consumer preferences: "The appeal of 'let's see if we can produce cheaper products' will only get you so far," says Rune Gustafson, chief executive of branding specialist Interbrand.
With a 45% increase in business bookings this year and ambitious plans to grow its capacity from 24,600 rooms to 70,000 by 2020, Travelodge sees the recession as more of a help than a hindrance in its drive to introduce the budget airline model to the hotel trade.
The company has opened 40 new hotels this year — including an eye-catching, and cost-cutting example in Uxbridge, Middlesex, built from modified shipping containers. This averages out at one new hotel every six working days. "We believe this recession will act as a springboard for the budget hotel market," says Greg Dawson, director of communications. "We can offer rooms from £9 a night, and once people have tried them we believe they'll stay with us."
Such a vigorous expansion rate is not without its risks, but Dawson insists that the chain is simply capitalising on current market conditions: "We will be stealing market share from three- and four-star hotels that are failing as a result of the recession, because we operate a low-cost culture and have scale on our side."
Leading by example
Faced with a diminishing smoothie market, Innocent recently branched out into convenience foods with the launch of its Veg Pot range. The company was well aware of the prevailing economic climate when the decision to launch was taken but believed that demand for the products existed. "A lot of our customers are 'foodies' who are suspicious of prepared foods but need convenience, while fans of our smoothies have been asking for a similar product but with vegetables," says Veg Pot brand manager Clare Gordon.
Despite the economic gloom, Innocent is buoyed up by the conviction that it remains tuned to consumer tastes: "Both Veg Pots and smoothies are in line with long-term trends in food towards health and convenience which will still be a priority even as the economy moves around," says Gordon.
Elsewhere in the economy, for companies that have the resources to seize the initiative, recession can be a buyer's market.
Back in July, Tesco reached an agreement with the Royal Bank of Scotland (RBS) to buy its 50% stake in Tesco Personal Finance (TPF) for £950m, though the deal is still awaiting Financial Services Authority approval. "It makes sense," says TPF's head of communications, Matthew Dransfield. "To the outside world TPF already is Tesco, and RBS was looking for money to invest in its core business."
Tesco is on a path to launch its own bank and has both resources and reputation on its side. "There is consolidation in financial markets at the moment and the Tesco brand is one people trust," says Dransfield. The company is canny enough to realise that, as its financial rivals deal with the consequence of consolidation, the field is left open to newer entrants. "Other companies such as HBOS will be focused on integration and that can take a long time," says Dransfield. "We don't have that problem and can focus on the customer."
Few companies are as cash-rich as Tesco, but many could perhaps learn from its optimism.