Recession-Proof Strategy 3: Innovate

Before a Recession Arrives:

A company that focuses on innovation must not get carried away with success, especially when a recession is imminent. The arena could change, the competition could take over one's niche, etc. Therefore such a company must be ready to develop new areas of innovation, and change and adapt its old ones.

A company should be investing in R&D even before there is any apparent necessity to do so. It should create an atmosphere of creative thinking and imagination and build lines of communication between the different departments—designing, engineering, marketing, etc.

Also a company should focus on developing reasonably priced yet solid, high-quality products when preparing for a recession. When a recession comes people don't want expensive, flashy items with all kinds of extras and frills. The want products that are functional and durable-- for a reasonable price.

During a Recession:

If a company produces a high-cost, complex item, it might have to resign itself to doing less business during a recession, when spending generally decreases. In that case, the company has to focus mainly on surviving the period of the recession, while preparing to plunge ahead when the recession ends. This could be done through cutting costs while selling off known and established products at cut-rate prices. This way they can maintain their current customers and add new ones, even if they are not currently making profit. Meanwhile, they should be investing in upgraded products for the future. This was Intel's successful strategy. When clients were purchasing fewer computers during the recent recession, Intel was patient, selling what they had for cheap, and waiting for the pent up demand to return, which it eventually did in a big way. And then Intel was ready, with an upgraded version of its Intel computer chip. Since then point their profits have soared.

At the End of a Recession:

At the end of a recession a company should continue to cut expenses as much as necessary in order to survive, while boosting morale and encouraging patience, optimism, and loyalty among its staff. It could invest in branding and advertising, preparing to create for itself a prominent niche when the recession is over.

Example: Corning Glass

Corning Glass has been a leader in technological innovation for over 160 years. It has innovated manufacturing processes for the mass production of light bulbs, cellular ceramic substitutes for catalytic converters, glass fiber-optics for telecommunication use, and more. By the year 2000 it had net profits of 900 million. But then, in 2001, it faced a major crises. The company had invested a major portion of its resources in its fiber-optics products, which had done exceptionally well until then. Then, suddenly, the telecommunication industry bubble burst, and fiber-optics sales plummeted. The company’s share price dropped from $130 per share to $1.20 per share. Revenues were down to $3 billion, with $4 billion in debt and $2 billion in cash. Corning's survival had becoming questionable.

Corning's response was, on the one hand, to slash costs, but on the other hand to increase R&D and upgrade it, while pursuing a clear and effective innovation strategy. The company shut down facilities in Asia, Europe, and the US, which reduced R&D spending from $620 million to $320 million.

They then centralized their activities in Corning, NY, and created a huge facility, bringing together in it engineers and researchers together with business development managers and production facilities. The different staff members were encouraged to work together and collaborate to create winning inventions and designs that would address the present and future needs of manufacturing and society. They were guided to focus especially on various glass products and glass based materials, since that had always been Corning's specialty.

In some ways, Corning's response to the company's crisis situation was similar to that of Ford's. In both companies they consolidated their human resources and brought them together and encouraged collaboration and creativity. However, their plans for moving forward were different. Instead of coming up with a winning product for the present, and building on that, as Ford did, Corning came up with an ongoing innovation strategy. That is, since Corning's main success had always been through leading in innovation, they now formed a strategy how they could continue to do so. This meant, for Corning, that they would build specifically on their established resources and strengths, but at the same time throw themselves into constant innovation and development, not getting over-invested in any particular invention or marketing success, but continually moving on to the next one. With this strategy they were constantly providing valuable products, while staying ahead of the competition by moving on to the next one. They also focused on working carefully with other companies, providing them with key parts and components for the success of their products. This gave their innovation skills a constant flow of concrete opportunities and provided a steady flow of income. A recent example of Corning's focus on adapting innovations to needs is a product called “Gorilla Glass”, which is a very strong yet thin type of glass material, now being used extensively in computer and smart-phone screens.

Many other companies have focused on innovation as well, but the special success of Corning can be attributed to its ability to form a specific and effective strategy. Other similar companies, when under duress, responded with measures such as dividing R&D into decentralized, autonomous teams, pursuing external alliances, embracing open innovation and crowd sourcing, and setting up corporate venture-capital branches. While all these practices in themselves are not necessarily wrong, if the company doesn't establish an overriding plan which all of their different players—their inventors and designers, managers and marketers-- can feed into effectively, the chances for succeeding will be much lower.

One can find another example of this type of proactive innovation strategy in Uber Taxi. Uber Taxi introduced upscale limousines which operated through smart phones, which enabled the drivers to be in direct contact with their customers, and cut out unnecessary expenses and bureaucracy. When other companies started copying Uber's smart phone innovation and going into direct competition with them, Uber built another new product based on smart-phone use. Uber added a ride-sharing option for a taxi. This meant that drivers could use their own cars, thereby slashing costs all around and creating a cut-rate taxi ride. The combination of these two innovations kept Uber dominant among its competitors. Uber innovated strategically. It built on its original innovation in order to create a new one, and did so swiftly enough to preserve its market edge.

Examples of successful innovators who failed to sustain their performance were Polaroid, Nokia, Sun Micro-systems, Yahoo, and Hewlett-Packard. This was, in all likelihood, because they lacked a successful innovation strategy. These were all companies whose success was based on a powerful technological innovation. Yet they were all competed out of business, because they didn't keep moving ahead, adapting and transforming their product into a new more current use.

Corning, because of their clear and realistic innovating strategy, not only pulled out of their 2001 crisis, but also came through the 2007 recession unfazed, continuing until today to succeed and develop as an outstanding company.