From Innosight, an Innovator’s Survival Guide

By Scott Anthony on October 21, 2008. Source: Harvard Business Publishing

The following was written by Innosight Senior Director Kevin Bolen:

Innovators, are you feeling a bit lonely at the moment? Don’t take it personally. During turbulent economic times, companies naturally tend to turn inward. Talking about the core business that everyone understands and can predict is like eating comfort food on a dreary day — a temporary escape to a better time and place.

Unfortunately, these sentiments alienate those focused on the “new and different” and prolonged isolation can lead to rash, unproductive behavior. Don’t fall into this trap. A more thoughtful response during such times can actually accelerate and expand the returns on your innovation initiatives.

To help you make the right decisions, we offer a brief list of actions that innovators should and shouldnot be doing in today’s skittish climate. We focus on the two main areas most likely to evoke the wrong behavior: the call of the core and the scarcity of funds.

In terms of working with colleagues and leaders in the core business, Innovators should accept the realities of the marketplace and lend a hand. Innosight’s research has shown that innovation can only succeed when the core business is stable so innovators should look for ways their team and personal expertise can help right the ship.

One way to support the core is to temporarily suspend “nice but not necessary” market trials and reallocate resources to research efforts around core clients. Also, innovators can use the toolkit they have developed pursuing new growth businesses to help the core:

• Understand how the jobs-to-be-done for consumers are changing in light of the economy and align your value proposition accordingly

• Conduct a disruptive threat assessment to analyze and counteract the actions of emerging competitors

• De-feature existing offerings to meet just the basic needs of consumers at a lower price point

Innovators should not react to this internal focus of core leaders by trying to cram disruptive offerings into the core business. Trying to force-fit technology or service offerings through traditional business models will not only deprive the concept of the time and freedom it needs to evolve successfully, it will confuse your existing channel and consumers at a time when they too are seeking familiarity and stability.

In short, offer your help and expertise to the core, but don’t offer to assimilate.

Turning our attention to budgets, it is expected that as capital tightens and revenues become less predictable, many across the organization will seek to defend what they have. Instead, Innovators shouldembrace scarcity. Pre-empt the inevitable discussion and voluntarily scale back your line items. You will like find that a sharper focus actually increases your ability to innovate. Ways you can consider “giving back” include:

• Release any part-time team members back to their “day jobs” in the core business – two or three dedicated people will accomplish far more than 30 people spending 10 percent of their time

• Prune your portfolio – prioritize concepts based on anticipated time to profit and upside potential, and temporarily shelve smaller and slower ideas

• De-feature your concepts – look for performance areas where you may be overshooting customer needs and eliminate them. Be ruthless here as consumers will not pay for performance they don’t need.

• Revisit your research approach – make do with small sample sizes, social media input, and low cost interviews to get directional information versus pursuing perfect data

• Reduce the cost of your field trials – start with what you would do if you had no funds then move up gradually from there. Use a 3-D illustration instead of a prototype. Have consumers request samples via a website instead of in-store trials.

Innovators should not respond to the threat of budget cuts by inflating the business case for their ideas. You goose the size of the target market by 15%, reduce production costs by 20%, bring the release date ahead 9 weeks and “Presto!” you are suddenly helping the bottom line! It is your job as the good innovator to resist this siren song as leaders will be looking for any plausible reason to avoid making difficult cuts. The core business must respond diligently to their economic challenges and your new concepts must be allowed to develop at the pace of their market. Attempts to “go big” quickly to save a company rarely, if ever, succeed.

Finally, innovators should respect their role in turning around the economy. The core business you are trying to save today started as an innovation. The core business of tomorrow is a “new and different” idea today. It’s symbiotic. Help the core stabilize during this period and your company will emerge from the downturn faster, stronger and better positioned to innovate than your competitors.

How Recession Will Accelerate Consumer Downsizing

By John Quelch on October 15, 2008. Source: www.discussionleader.hbsp.com

 

Watch out for a new brand of consumer in 2008: the middle-aged Simplifier. She finds herself surrounded by too much stuff acquired. She is increasingly skeptical in the face of a financial meltdown that it was all worth the effort. Out will go luxury purchases, conspicuous consumption, and a trophy culture. Tomorrow’s consumer will buy more ephemeral, less cluttering stuff: fleeting, but expensive, experiences, not heavy goods for the home.

The economic boom of the 1990s fuelled consumption and democratized access to a wider than ever spectrum of goods transforming former luxuries into “must-have” necessities. Millions played the lotteries or aspired to what they viewed on “Lifestyles of the Rich and Famous”. As they grew richer, pressure increased on those below to trade up. And, as they traded up, pressure increased in turn on the well-off to buy even more–the second home, the big screen TV and the latest sport-utility vehicle. Enter the big houses that measured success in thousands of square feet of floor space, topped by the 40,000 square feet, $50m palace that Bill Gates has built outside Seattle. In 2006, 35% of new homes exceeded 2,400 square feet in floor space compared with 18% in 1986. Ironically, these mansions, many owned by business people on the road half the time, grew in number as the size of the average American household declined.

These huge houses had to be filled with more stuff, good news for the home-appliance and home-furnishing industries. Even grocery manufacturers benefited. Larger homes with bigger refrigerators can absorb more inventory. Flat birth rates in developed economies have put pressure on durable consumer-goods companies desperate for top-line growth. Product quality improvements mean these goods break down less often. So durable-goods sales depend on two things: the launch of new, higher-priced, higher-featured, often customized products that persuade consumers to trade in their existing appliances before they break down (think cell phones), as well as household penetration of products such as fax machines and printers previously used only by businesses.

As the world economy slumps, one consumer segment will grow faster than ever. The Simplifiers have four characteristics.

First, they perceive that they have more stuff than they need. Sure, they may collect something specific like porcelain figurines as a hobby, but they are the opposite of the pack rats who fill their attics and basements with “you-never-know-when-you-might-need-it” stuff.

Second, they want to collect experiences, not possessions. And they give experiences rather than goods as gifts to friends and relatives. Experiences may seem ephemeral. They cannot be inventoried except in the form of “Kodak” moments; but they do not tie you down, require no maintenance, and permit variety-seeking instincts to be quickly satisfied. Dining out, foreign travel, learning a new sport will prove more resilient than expected in the face of recession.

Third, their stuff embarrasses them. Their Range Rovers no longer tell the world that they are sophisticated town and country socialites. There are simply too many of them on the road to offer much social status. Worse, they now signal the irresponsible selection of a gas-guzzler.

Fourth, they have wealth that is so assured that it no longer requires conspicuous display. They lease their cars, rent other people’s holiday homes, and would happily outsource other aspects of their lifestyles. They reject the marketer’s continual pressure to spend more money on possessions rather than on education, health care, and other social goods.

These are the consumers who are now trading in their sport-utility vehicles. They include the empty-nester baby-boomers, less confident than before, who are tired of heating unused spaces in cavernous mansions, now preferring smaller houses with architectural character and intimate spaces, more charm and less maintenance. Their families are scattered, unable to share conveniently the family holiday home and often unwilling to inherit the burden of something they will never use. The new economy has made it even easier for consumers to get rid of their stuff. The high-tech equivalents of the yard sale, electronic auction sites, bring Simplifiers together with those who are yet to catch the habit.

This growing segment of Simplifiers presents a challenge to marketers. These are well-off people who value quality over quantity and do not buy proportionately more goods as their net worth increases. Their increasing reluctance to consume will dampen expected demand growth in developed economies further and therefore slow economic recovery, requiring consumer-goods multinationals to further focus their efforts on emerging markets where stuff will still be king.

Article Up Shot from Peter Coy, BusinessWeek’s Economics editor: Surviving the Storm

For the bold, opportunities abound: Strategies for managers, employees, investors, consumers, and borrowers

Up Shot By Nima Heirati

 

As those doughty Brits (1940) demonstrated, fortune favors the bold. As long as you’re not overleveraged, scary times like the current recession can present a perfect opportunity to make calculated bets. That’s true whether you’re a manager, an employee, an investor, a consumer, or a borrower. With markets gyrating from day to day and the financial system still seeking its footing, no one can be sure what will happen next.

How much worse might things get? Possibly a lot. Nariman Behravesh, Global Insight’s chief economist, forecasts a mild recession, but he sees about a one-third chance of something more-a 1.5% to 2% contraction in U.S. gross domestic product in 2009 as a whole, which would make this recession nearly as bad as the back-to-back downturns of 1980-82, which were the deepest since World War II. And the post-recession recovery could be painfully slow. Even after the mild 2001 dip, it took four years for employment to regain its pre-recession peak. 

Credit crunches like the current one (except milder) contributed to all three of the last recessions. In 1980, the Carter Administration tried to cool off the economy with government-imposed credit controls and succeeded all too well, contributing to the sharpest quarterly downturn in real GDP growth in the past 50 years, a nearly 8% annualized decline, says JPMorgan Chase economist Robert Mellman. JPMorgan predicts the current squeeze will cause GDP to decline at an annual rate of 2% this quarter and the next, though the bank expects a healthy recovery in the back half of 2009.

Expect the biggest hit to the sectors that most depend on credit availability, including the already depressed housing and auto markets. Consumer spending will suffer as Americans lose access to lending and attempt to rebuild their savings. Private, nonresidential construction, which remained strong long after the housing market tumbled, is headed for a crash of its own, predicts Global Insight’s chief U.S. economist, Nigel Gault.

Government spending, by contrast, will increase to prop up the economy. Manufacturers (outside of autos) should continue to do comparatively well, despite the dollar’s recent uptick and the slowdown in foreign markets. Stuart Hoffman, chief economist at Pittsburgh’s PNC, predicts the unemployment rate will reach 7.5% to 8%, about as high as in the ugly aftermath of the 1990-91 recession, though not as bad as the 10.8% peak of the 1980-82 slump.

A grim picture, yes. But look on the bright side. As in most recessions, inflation is falling because of slack demand for resources and labor. It’s a great time to pick up bargains, and not only on Wall Street. Brad Sugars, an Australia-born executive coach and author, says he’s building a 20,000-square-foot home in the Las Vegas suburb of Summerlin and “it’s insane how cheaply I can build this for today.” 

If you’re an employer, the recession can be a great time to prowl for talent. “People are saying, ‘I’m looking to replace my B and C players with A players, and this gives me an opportunity,’ ” says Mark M. Anderson, president of ExecuNet, an executive networking organization in Norwalk, Conn. If you’re an employee, Anderson advises spreading your name around while you still have a job: “You want to rebuild your network as quickly as you can, so people know what you do.” 

No question, there are real risks in hiring, shopping, or investing aggressively in a recession. If you overextend yourself, you could be wiped out. That’s why Richard Bernstein, chief investment strategist at Merrill Lynch, advises people to be realistic about their own risk tolerance. If you’re sleepless over losses you’ve already suffered, you’re a poor candidate for raising the bet-because if you do fall further behind, you’ll be tempted to sell at the worst moment. Bernstein advises playing it safe in U.S. Treasury debt and developed-market stocks while staying away from emerging markets, though others disagree. Mohamed El-Erian, co-CEO of Pimco, the huge bond investor, recommends any sector that’s getting government support. “Bank debt,” he says, “is a very good place to invest right now.” Steve Leuthold, chief investment officer of Leuthold Group in Minneapolis, advises clients who have gotten out of the market to add steadily to their stock holdings because prices are well below normal compared with long-run earnings.

Recessions are unpredictable, as the wild fluctuations in the stock market show. Since no one knows what will happen next, it pays to be adaptable, says Michael J. Swanson, an economist at Wells Fargo Economics. He wrote recently: “Having the right attitude and fortitude trumps any forecast or plan.” That’s as good a strategy as any.recession,