Contrary to conventional wisdom, innovation leaders use recessionary times to escalate innovation efforts. Imagine boosting sales growth in a down market from $142M to $2B in only two years, unleashing a potential cash flow increase of 10 times greater or even outperforming major indexes by over 180%.
Case studies such as these were at the center of Sopheon’s webinar, “Smooth Sailing in Rough Waters: Achieving Innovation Success in Tough Times.” The webinar explored practical ways to innovate through business slowdowns by multiplying innovation through key innovation levers.
Key Innovation Levers
Fig. 1. By diversifying and utilizing more innovation levers, direct/indirect cash flows can grow significantly.(Davila et al. 2006)
Companies have a number of business and technology levers they can lean on to solve business issues caused by a recessionary environment. Typically, companies tend to concentrate on one or two levers such as products and services or process technologies. Concentration on enhancing process technologies can yield cost savings. One of the best ways to deal with the realities of a difficult economy is to use two or more levers simultaneously to create an innovation multiplier. The concept of an innovation multiplier is essentially a new way to examine what steps to take within your business to increase the direct/indirect cash flows or “ripple effects” resulting from use of the levers. Through understanding and utilizing the innovation multiplier, your company mitigates poor decisions and maximizes returns.
For instance, a company might be inclined to freeze or cut innovation as a way of reducing budget and generating savings. However, lever-based analysis would show that the potential ripple effects include reduced revenues, foregone commercial opportunities, innovation brain drain risk and eroding competitive position.
On the other hand, a company that innovates to reduce cost of goods sold (COGS) actualizes sustained margins and often becomes more robust. This action can also create such ripple effects as new cost structures across product groups/platforms; a sustained lever capacity; the ability to grow the top line and deepen customer relations.
Value proposition, value network and target customers/consumers are three potential areas where companies will find the most innovation impact and the greatest multiplier impact.
Considering the Future of Levers
Fig. 2. The webinar audience currently focuses most of their innovation on only a few levers, according to live polls. However, they also expect a more diversified utilization of levers to bring the greatest return in the future.
Begin by taking a broad view of the levers to seek out the most promising returns on your investments. Look to industry examples that have woven business innovation into the corporate DNA. Good examples are companies that successfully faced such issues as high volatility, tight cash flow issues, bad credit rating, high-priced raw goods, intense competition or international complexity. By examining such cases, you accelerate consideration of innovation levers and are able to concentrate on underutilized levers within your organization more quickly. Especially critical is to scrutinize assets that can be monetized to achieve the greatest multiplier effect.
For case studies rich in lessons on how to take advantage of innovation levers, view the complete “Smooth Sailing in Rough Waters: Achieving Innovation Success in Tough Times” webinar by clicking here.
Davila, T., M. Epstein and R. Shelton. 2005. Making Innovation Work: How to Manage It, Measure It and Profit from It. Philadelphia, PA: Wharton School Publishing.
About the Author
Dr. Carol Pletcher, retired Chief Innovation Officer, Cargill, was a key leader in the company’s efforts to enhance innovation. She was responsible for developing six new product lines with special emphasis on new products, food safety and quality assurance. Dr. Pletcher has been recognized by BusinessWeek as one of its Top 25 Innovation Champions.
Mr. Rob Mann is a Principal, PRTM: Consumer Goods Practice, and Director of Consulting and Strategy at the Wharton School’s Global Consulting Practicum. He has more than 15 years of consulting experience serving large companies in the consumer goods and industrial products industries.