Innovation strategy expert Vijay Govindarajan thinks that businesses should be careful not to abandon innovation in their quest for efficiency and cost control during a recession — but they may need to reduce their focus on risky breakthrough innovation plans.
How should companies think about innovation during a downturn like this one? Vijay Govindarajan, an expert on innovation and strategy from the Tuck School of Business at Dartmouth, thinks that businesses should be careful not to abandon innovation in their quest for efficiency and cost control during a recession — but they may need to reduce their focus on risky breakthrough innovation plans.
How should a company strike that balance? In an interview published today as part of Business Insight, MIT Sloan Management Review’s collaboration with The Wall Street Journal, here’s what Govindarajan suggested:
“I distinguish between two types of innovation: adjacency innovation, which is a little less risky because you are innovating in a business area adjacent to your existing core business, and breakout innovation, where you are going multiple steps outside of your core business. In a normal time, I would say spend about 50% of company resources on the core business and about 50% on adjacency and breakout innovation—perhaps 35% on adjacency innovation and maybe 15% on breakout innovation.
But during times like this, the percentages shift. I would shift to spending more like 70% on the core business and perhaps 25% on adjacency innovations—and maybe 5% on really breakout innovation. The investment in innovation in adjacency areas probably doesn’t change much, but you shrink some of the spending on real breakout innovation. The reason is: Breakout innovations are high-risk and high-payoff. And one thing you cannot afford during this economic crisis is to make a serious mistake.”