“One casualty of the financial crisis and subsequent global economic downturn has been employment in the financial sector,” observes McGill University’s Dror Etzion in an essay in the Summer 2009 issueof MIT Sloan Management Review. But, in that bleak labor market for finance professionals, Etzion sees an opportunity for an unexpected area: environmental sustainability efforts.
In his essay “Creating a Better Environment for Finance,” Etzion reasons that some of the efforts to create and redefine markets to address sustainability challenges will require financial acumen — in areas ranging from cap-and-trade programs to biodiversity offsets to financing for solar projects. He writes:
Perhaps even more intriguing is the possibility of crafting new offerings that integrate economic and environmental concerns. For example, the city of Berkeley, California, is working with Renewable Funding LLC, a financial services company based in Oakland, California, to offer an innovative new program that helps homeowners purchase solar installations. The model allows property owners to install solar panels with little upfront cost, via funds generated through the sale of bonds. The property owners then pay for their solar installations over 20 years, through a line item on their tax bills — and thus repay the bonds.
Etzion’s conclusion? Companies pursuing environmental sustainability initiatives may find this downturn is a good time to attract financial professionals.
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.”
Whatever your opinion of General Motors and its management decisions over the last few decades, it was sad to read today about GM’s Chapter 11 bankruptcy filing — and about the fact that an estimated 20,000 GM employees will lose their jobs between now and the end of 2011.
On a more upbeat note, Boston Globe columnist Scott Kirsner has declared June “Innovaton Month” in New England, the region of the U.S. where MIT is located. With the understanding that we’ll need innovationto get the economy out the recession, Kirsner’s theory apparently is that we might as well all start focusing on fostering it — particularly by connecting with one another. “My idea behind designating June as Innovation Month is to get everyone talking and making new connections in a focused way over the next 30 days,” Kirsner wrote in The Boston Globe. You can find out more details at the New England Innovation Month website.
In an article in Sunday’s Boston Globe, Kirsner noted that people in the New England region of the U.S. have a long history of innovating their way out of economic funks. For example, after the American Revolution disrupted the region’s then-dominant trade pattterns in the late eighteenth century, Boston experienced an economic depression — but within ten years, innovative businesspeople had developed new trading opportunities.
Good point – but New Englanders aren’t the only ones needing to get in touch with their innovative spirit these days. Maybe we need national — or international –Innovation Months to jumpstart the global economy.
In an interesting new interview, Harvard Business School professor Lynda M. Applegate observes that in an economic downturn like this one, every company should — in some sense — think of itself as a new business. “This is a time of unprecedented opportunity to rethink offerings, markets, business processes, and organizational structure,” she notes in a Q&A interview published on the Harvard Business School Working Knowledge site.
One of Applegate’s suggestions? Look for opportunities that result from the disruption and change created by the downturn.
For more ideas about how to guide your business successfully through the recession, see the MIT Sloan Management Review’s special report on leading in a downturn.
Here’s an interesting new video clip showing innovation expert Vijay Govindarajan discussing the importance of innovation in a downturn. A few highlights of Govindarajan’s comments:
In the last 12 months, “innovation has become more important, not less.”
If you take a look at recessions in the last century, after a recession, “the competitive landscape changes; there are new winners and new losers. And the new winners are always ones who have focused on innovation.”
But you have to pursue innovation differently in an environment where cost control is a priority. Govindarajan’s advice? “Look at your innovation portfolio and pick fewer projects. Do them well.”
You can watch the video quickly; it’s a little over three minutes long. (Note: The video appears to have been informally produced, and you’ll hear some background noise.)
How is innovation faring during the economic downturn? The answer depends on whom you ask. Recently, we have seen interesting, but somewhat conflicting, reports on the state of innovation in the U.S. economy.
First, The Wall Street Journal reported some surprising good news last week: Despite the economy, large U.S. companies spent almost as much on R&D in the fourth quarter of 2008as they did a year prior. Write Justin Scheck and Paul Glader of The Wall Street Journal: “Big R&D spenders say they’ve learned from past downturns that they must invest through tough times if they hope to compete when the economy improves.”
Gibbert, Hoegl, and Välikangas first wrote on the link between resource scarcity and innovation for MIT Sloan Management Review in 2007, in an essay called “In Praise of Resource Constraints.”Now they’ve revisited the topic — in light of the current recession. They observe in their new essay:
In times when you may not be able to afford the tool or service that was designed for the purpose you have in mind, look into other assets that you already have “at hand.” Engage in (playful) bricolage — tinkering with and reusing whatever assets are available. Remember, as a child, using mere wooden sticks as perfectly good dolls or soldiers?
What helps managers think in that kind of creative way? “We believe constraints, especially resource constraints (of which there are plenty in a downturn) are key,” the authors state. “Think of them as boundaries that incite creativity.”
In other words, if your budget is tighter than it was, don’t think of it as a budget crunch; think of it as a catalyst for creative thinking!
“While governments deliberate responses to the financial crisis of 2008 and its aftermath, one important question should not be overlooked: What will be the long-term impact of the crisis on technological innovation?” So writes economist Joshua Gans in the new Spring 2009 issue of MIT Sloan Management Review.
“Downturns are a good time to perform physical and organizational repair work that simply isn’t practical when a company is running flat out trying to meet demand. ”
Ghemawhat’s original article, republished with new annotations by the author, is part of MIT Sloan Management Review’sDownturn Manifesto special report.
Looking for new strategies for doing business in the recession? In the new edition of Business Insight, our collaboration with The Wall Street Journal, Martin S. Rothand Richard Ettenson suggest that Western companies would do well to consider strategies employed by companies from emerging markets — where economic volatility and constraints on consumer disposable income are commonplace. Note Roth and Ettenson:
“In Eastern Europe, South Africa and Latin America, managers look at tumultous times as a chance to implement bold, creative ideas, outflank rivals and boost their business.”
We went through one recession earlier this decade. We came out of it in ‘04. It was very clear that we survived largely on the strength of the sustainability initiatives, what they had brought to our operations: the reduction in cost, the better products, the motivation of our people, the goodwill of the marketplace. All of those were working right through that recession. As the marketplace went down 36 percent, our sales went down only 17. We gained market share through that recession. We believe the same thing will happen this time.
Mick McManus, CEO of a company called MAYA Design, offers some interesting reflections on the state of product innovation during the current downturn. In a brief video clip from TheWall Street Journal’s website, McManus observed that he sees companies trying to protect their investment in new product development so that they will be ready when the economy picks up. He said he’s seen some companies “that have laid off factory workers but have actually started pulling in more designers and more innovators to try to figure out what to do.”
Two news items that capture some of the spirit of the times:
In a New York Times column, Thomas Friedman raises the question of whether this downturn may signal the end of an era of unsustainable growth. Asks Friedman: “What if the crisis of 2008 represents something much more fundamental than a deep recession? What if it’s telling us that the whole growth model we created over the last 50 years is simply unsustainable economically and ecologically and that 2008 was when we hit the wall….”
On a more mundane note, Google applies “crowdsourcing” to the question of spending less – with a new web site, Tip Jar. Tip Jar uses a Google tool called Moderator to allow visitors to submit and vote on money-saving lifestyle tips. Google announced Tip Jar’s launch earlier this month — and so far the Tip Jar site contains more than 3,000 tips.
For more on sustainability and what it means for businesses, explore the Sustainability area of our site.
Need to cut costs? Scott D. Anthony, president of the innovation consulting firm Innosight, advises instead thinking in terms of “re-featuring” your offerings. In a brief excerpt from his forthcoming book The Silver Lining: An Innovation Playbook for Uncertain Times, Anthony recommends figuring out what jobs customers are trying to get done when they purchase your products or services — and what objectives are important to them. That, in turn, will help you figure out which features are important to a given set of customers — and which are areas where you can trim costs.
For more on the concept of thinking in terms of the jobs customers are trying to get done, see “Finding the Right Job For Your Product”– an article by Anthony, Clayton Christensen, Gerald Berstell and Denise Nitterhouse, in the Spring 2007 issue of MIT Sloan Management Review.
“If history is any guide, we can expect some significant industry shapers to emerge from the current crisis,” observes Bhaskar Chakravorti in a new interview about how companies can find opportunity in the economic downturn. Chakravorti, a senior lecturer at Harvard Business School, offers some helpful ideas about how to prosper in a recession. His suggestions include:
Think in terms of “substitution effects.” In a downturn, consumers may substitute more car repairs for a new car — and thus business may be good for mechanics. Also in demand, according to Chakravorti: ”affordable luxuries” and products that provide good value for their price.
One problem: ”Capital is in short supply,” Chakravorti says. However, if entrepreneurs can overcome that, there are opportunities. ”Technologies and materials left unused due to the collapse of one industry can be creatively re-directed toward others than can take advantage of the low input costs,” he observes.
“Think business model,” advises Chakavorti. With businesses cost-cutting, there may be opportunities for entrepreneurs to develop innovative business models, he notes.
Why? Not surprisingly, Chambers found the idea of a U.S. government stimulus package that includes spending targeted for broadband infrastructure promising. But more generally, Chambers thinks the economic crisis could accelerate the trend away from traditional top-down management and toward collaborative innovation, enabled by technology. Wrote Chambers:
“We now have the opportunity to re-invent the way we manage companies and get work done…To be successful in a 24/7 global world, managers must give up on the idea that all decision-making must run through them and must discard the silo approach to developing and executing on strategy.”
Looking for ideas about how to help your organization thrive during the downturn? Andrew Razeghi, a lecturer at the Kellogg School of Management at Northwestern, has posted a thoughtful essay on innovating in a recession. Razeghi combines useful tips with examples of companies that prospered during past downturns, including the Great Depression.
Readers of management thinker Jim Collins are probably familiar with the idea of having not just a to-do list but also a “stop doing list” that helps you free up time and energy to focus on your priorities — an idea Collins mentioned in his best-selling book Good to Great.
One of the ideas Razeghi suggests in his essay is an interesting variation on a stop doing list: Hold a “stop doing contest” for your organization, inviting employees and vendors to submit ideas about how to save your organization money by making process improvements or reducing expenses, without cutting jobs. “Lean on them — your vendors and your employees — to help you not only survive, but to thrive during these times,” writes Razeghi. It’s an interesting application of the “stop doing” concept — to gain new ideas for operational efficiencies.
(Follow all of MIT Sloan Management Review’s TED coverage.)
TEDsters smile through financial meltdown. That’s the headline of a blog post WIRED’s Steven Levy wrote yesterday, essentially arguing that all the optimism in the presentations ignored the multi-trillion-dollar elephant in the room: the current financial horror. TED curator Chris Anderson took that on from the stage first thing this morning. “There might be issues in our world more important than the Gross Domestic Product,” he said. “Market cycles come and go. Good ideas last forever.” To underline that final point, he pulled out a John Maynard Keynes quote from 1930 that felt like it could have been written today:
“This is a nightmare, which will pass away with the morning. For the resources of nature and man’s devices are just as fertile and productive as they ever were. The rate of our progress toward solving the material problems of life is not less rapid. We are as capable as before of affording for everyone a high standard of life … We were not previously deceived. But today we have involved ourselves in a colossal muddle, having blundered in the control of a delicate machine, the working of which we do not understand. The result is that our possibilities of wealth may run to waste for a time — perhaps for a long time.”
The point of the conference, I suppose, is to think beyond the current catastrophe to what may lie beyond. That’s how Juan Enriquez started the conference on Wednesday, and that’s how the mostly sober panels today ended it.
The best way to predict the future is to invent it, Alan Kay (once a TED speaker, naturally) said famously, so it’s not surprising that these makers of the future are interested in predicting it, too. The first session today took on the notion of prediction from a variety of angles. It’s a topic our magazine has covered intensely recently (see our most recent issue).
The first predictor up was Nate Silver, who became everyone’s favorite statistician during the last election cycle with his website fivethirtyeight.com. Silver has a point of view — he’s left of center (no surprise; I’m guessing there were more mosquitoes than Republicans at TED this year) — but he seems much more interested in where the numbers take him than in making political points. And his interests are wide-ranging: before he turned to politics he was best know for his sabermetric research. As with so many TED speakers, Silver started his talk with a provocative question — “Is racism predictable?” — and used presidential election results from 1996 to 2008 to back up his argument that it is. His evidence wasn’t particularly surprising: uneducated, rural whites who have little interaction with African Americans are most likely to be racist, the numbers show. This being TED, Silver also took a crack at how to fix the problem. The most provocative of his suggestions was an intercollegiate exchange program between urban and rural colleges. These might seem far-fetched, but they illuminated Silver’s basic point that what is predictable is also designable.
Political scientist Bruce Bueno de Mesquita was more grandiose. A consultant to the CIA and Department of Defense, he uses game theory to predict the future. Some of his more famous predictions weren’t particularly revelatory (everyone saw the second intifada in Palestine coming), but he agreed with Silver’s predictable=designable premise, saying “you predict the future so you can engineer it.” His provocative question was “What will Iran do?” Bueno de Mesquita argued that full development of a bomb is unlikely and President Ahmadinejad is likely to see his power lessen in the years to come. He “backed up” his hypothesis with plenty of charts, but unlike Silver, who labelled every slide meticulously, he offered up some charts that didn’t even bother to mention what both axes stood for. I hope his prediction of a relatively accommodating Iran is true, but I also took photos of all of his slides just in case. Trust, but verify.
Two MIT-associated speakers rounded out the session. Media Lab giant Nicholas Negroponte gave a brief talk about the status of his One Laptop Per Child (OLPC) project that managed to be both angry and optimistic. It was part rant against the makers of tiny “netbook” laptops, which dominate the market OLPC created, and part vision for the future of OLPC. Both parts were entertaining. “The commercial markets will go to no end to stop us. Netbooks didn’t steal the right things from us,” Negroponte said as he tossed two of the sturdy OLPC devices across the stage. They landed hard and unharmed; you could count on regular laptops to do only the former. The next step in the development of the OLPC is to move to open source hardware: build hardware with open specifications that everyone can copy. It’s a canny move, changing the playing field when the current one isn’t yielding ideal results.
“From counterintuitive to conventional wisdom” is also, in a sense, the dream that powers TED. Ideas are launched here and sometimes, as with, say, Al Gore’s initial climate crisis presentation, the world accepts them. Some may be put off by the event’s optimism and elitism — and there are good arguments against both of them, but the ideas are stronger than any inadequacies in attitude. As fellow TED attendee Paul Kedrosky twittered earlier today, “For all TED’s flaws, criticisms, etc., it remains a magic thing.” Now let’s see what happens to the ideas from this year’s TED over the next 12 months.
Two of the points in Weiss’s column strike me as particularly interesting. First, in order to innovate efficiently in lean economic times, she recommends undertaking small experiments that help you learn quickly and maintain momentum. And she also suggests looking internally:
When it comes to innovation, there is a tendency to believe that insights and know-how are the domains of outside experts. Take the time now to improve internal networks for communicating your ideas in order to more effectively mine in-house knowledge across as much of your organization as possible. You may know more than you think, which will help you get focused on what’s missing and eliminate the cost of reinventing the wheel.
A good point, indeed. What else should innovators keep in mind so that they and their new ideas can survive in — and hopefully thrive in — difficult economic periods like these?
Transparency, accidental innovation, trust, collaboration — as sustainability affects how the world works, so will it affect how business works in the world.
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