Innovation And Economic Slowdown Business Essay

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The innovation environment consists of structures, actors, reciprocalities and a legally created operating environment. In addition to these, other key elements include an innovation culture, processes that inspire individuals and organizations to create the new, global information channels as well as shared innovation knowledge and interpretative frames of reference (Hautamaki & Kuusi, 2005). It is interesting to note that economic slowdown and innovation have been correlated to each other. Past history of economy has witnessed drastic changes and came up with much stronger economic activities than it was in its earlier positions. Each troubles on economy had its own seasoning role to play towards the stronger economy, though may not be towards safer one. It can be noted that economic slowdown needs innovation more than other times as a sick person needs a doctor more urgently than when he is healthy. This meets the customer needs and commercialization policy of an organization.

Very often great innovative ideas come unexpectedly. Top management should be aware that not necessarily only the management and R&D group have the innovative DNA, but it can come from executives, employees, competitors, customers, market etc. During economic slowdown it can be found that highly qualified, skilled workers move towards stronger employees. The individual and corporate skills, policies and strategies are brushed up for the survival. The strength of innovation during this period depends upon organizational structure, process, aspiration and ability to recognize and execute them.

Review of Literature:

When it comes to innovation, businesses should do as much as they can - as long as it doesn't cost anything. For some companies, innovating may be the only way to survive (Jon Moulton, 2009). Shaa Wasmund (2009) notes that new ideas and approaches will drive the business forward during the recession, so sidelining innovation is absolutely the wrong thing to do. According to her, the recession won't last forever and businesses need to continue innovating so that they're in good shape when the upturn comes. There's no room for fear or for sitting on the fence and postponing big decisions.

The Nielsen report December, (2008) explores based on data from the US and UK over the past 20-30 years, consumers' purchase interest and value perceptions for new products do not change significantly with changes in the economic climate. In an expert interview, Jeffrey Phillips (2008) states that the market turmoil and political transition will create opportunities for new products and services and will create shifts in markets and consumer demand. Author of "The Silver Lining: An Innovation Playbook for Uncertain Times", Scott Anthony (2008) points out that innovators who figure out different ways to solve those problems - and make money doing so - will have opportunities to create new growth businesses. He also state that the creative destruction unleashed by a crisis always opens up opportunities for innovation.

In a 2003 article in Harvard Business Review entitled "The Quest for Resilience," Gary Hamel wrote, "Strategic renewal is creative reconstruction." It's about taking your traditional business model apart and looking for imaginative ways to reconstruct it to create significant new value for your customers and your company. This becomes all the more urgent in recessionary times, when customer needs and market conditions swiftly and dramatically change.

Methodological approach:

This paper summarizes and reviews literature regarding Innovation and Economic slowdown with the following objectives:


To understand the different dimensions of Innovation

To find out the causes of Economic crises till date

To make an overall understanding of organizations who have managed innovation during the economic crisis

Data collection:

For the research based on this issue, the methodology is data collection through secondary research from websites, magazines, journals & books.

Innovation defined:

Innovation is "the commercial or industrial application of something new-a new product,

process or method of production; a new market or sources of supply; a new form of commercial business or financial organization" (Schumpeter, Theory of Economic Development, 1934). Innovation covers a wide range of activities to improve firm performance, including the implementation of a new or significantly improved product, service, distribution process, manufacturing process, marketing method or organizational method. (European Commission, Innobarometer 2004). Business innovation as the creation

of substantial new value for customers and the firm by creatively changing one or more dimensions of the business system (Mohanbir Sawhney, Robert C. Wolcott and Inigo Arroniz, MIT Sloan review, Spring 2006).

Dimensions of Innovation:

The direction of innovation depends highly upon the nature of business category. Product categories focus innovation upon the product improvement by research and development of the product through strong branding decisions, where as service related businesses focus on the process improvement by imparting quality at each process where they come in touch with the customers. In order to have a breakthrough and added advantage the companies need to focus on 360 degree approach on the innovative direction. For this 'MIT Sloan Management Review' in the spring 2006 has presented an Innovation Radar, where it presents twelve dimensions of business innovation.

Figure 1: The 12 Dimensions of Business Innovation (I)

(Source: MIT Sloan Management Review, Spring 2006 vol.47 no.3)

The above figure can be further explained with the following table.

Figure 2: The 12 Dimensions of Business Innovation (II)




Things valued by customers such as utility, ease-of use, portability, affordability etc.


It is the power of commonality, competing on a common point. (not varying its stand point) For example: Small engine block by Nisan.


Integrated and customized offerings to solve customers' end-to-end problems.


Discover unmet customer needs or identify underserved customer segments.

Customer expectation

Redesign customer interactions across all touch points and all moments of contact.

Value capture

Get paid for the innovative activities.


Effective and efficient operation process.


Forms, functions, activities, roles, responsibilities and incentive of organization.

Supply chain

Activities and agents that helps in the delivery of goods/services.


Distribution place and usage area.


Network centric intelligent and integrated offerings.


Symbols, words, marks etc. communicating promise to customers.

Economic slowdown defined:

The National Bureau of Economic Research (NBER), a private research organization, which maintains a chronology of the beginning and ending dates of U.S. recessions, defines a recession as "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators. Business cycles are a type of fluctuation found in the aggregate economic activity of nations that organize their work mainly in business enterprises: a cycle consists of expansions occurring at about the same time in many economic activities, followed by similarly general recessions, contractions, and revivals which merge into the expansion phase of the next cycle (Arthur Burns and Wesley Mitchell, 1946).

Due to the economic slowdown various activities are hampered, which gradually worsens the condition. Trouble in one department leads to further difficulties in the other sectors as they are interrelated and somewhat dependant on each other. In order to cope with the situation, the companies follow the job cuts, cutting costs, restructuring, freezing recruitment which further deprives them with the talents and resources that is needed in the organization.

Economic slowdown cycle:

The economic slowdown has appeared in a cyclic form in different decades. Their causes have been different in different times according to nature of business activities and economic booms that were prevalent during that era. The following table depicts the various economic slowdowns that have occurred in past, their cause and effects.

Figure 3: (Economic crisis year wise and its causes)




2008 (end)

Financial crises

6.7% (Rised further in 2009)


Dotcom Bust

Below 6.7% (approximation)


Recession (Asian Financial Crisis)

10% (approximation)



10% (approximation)


Oil Shocks



Great Depression (Deflation)


(Source: AdAge DataCenter research; IHS Global Insight; Group M; National Bureau of Economic Research)

Generally, most of the economic slowdowns took 2 years for the normalization of the situations except the Great depression and the lost decade of Japan due to countries counterproductive policies.

Role of Government on the Economic Slowdowns:

The normalization and stabilization of the economic condition also highly depends upon the type of policies, regulations and support provided by the government to the companies. The government supports the industries in regulation, fiscal and financial policies through extension of loan, tax credit on short term and long term as required. It should focus on the investment upon infrastructure, tax rebate to business and consumers. Some of the central issues that need to be addressed are interest rate, exchange rate of currencies and nationalization of companies as needed. Availability of credit to companies and real economy is an important factor that the governments need to care for.

Management of crisis by companies:

The companies in order to foster growth and capture the potential market for entering into the potential industries need to analyze some of the following aspects.

Reduce operating cost.

Increase productivity.

Reduce capital investment.


Increase new products or services.

Hire new and better talents.

Merger and acquisitions.

In the mean time the companies should be ready for the change in the profit ratio, size of workforce, price of product and services etc.

Innovation and Economic slowdown:

Innovation is one main tool for handling the economic slowdowns as taking medicine and essential treatment is an important step to handle sickness to remain healthy. The companies also turn to innovation in order to overcome the crisis and to grab the market share. The speed and accuracy of growth depends upon the type of innovations the companies follow. It should be realized that during such situations all the companies seek for the revival through innovation. Hence one can infer that innovation as a concept is not important, what matters is the kind of innovation that the companies turn to for securing their future. Most of the companies and governments take into consideration both internal and external factors to find innovative ideas to overcome the crisis faced. Some of the innovations that have taken place during the last economic slowdowns are as given below:-

Figure 4: (Innovations during Various Economic Depressions from 1929 to 1982)

Innovations during Various Economic Depressions (from 1929 to 1982)




Type of innovations




Offered its dealers $50 for each unsafe trade-in they send to the junkyard: shrink the supply of second hand car.


Clary Hill & Co.


Use of long distance haulage via semi-trailer trucks in supply logistics.


Clary Hill & Co.


Use of 'Cash-and-carry' retail model of 'self-service'.




Began a campaign to promote used upscale Buicks: factory support of used cars helps maintain resale prices.


The Motor & Equipment Association


Started an ad campaign promoting repair and maintenance: additional revenue streams through maintenance and part sale.




Starts selling refrigerator with four year service contract policy.


General Food


began test marketing a range of frozen foods


Crain Jr.


Launched 'Advertising Age'.


Time Inc.


Launched "Fortune Magazine".




Diversified into auto-insurance.




Introduced its cheapest car ever a $495 'Plymouth': value for money.




Introduced debit card (Passbook Saving Account)




Esquire was launched.




Introduced a service allowing catalog customers to shop by phone.




Congress created the Institutional Retirement Account, encouraging workers to take more responsibility for their retirement finance.


Time Inc.


Launched 'People Magazine', it has become the No.1 magazine in number of ad pages and revenues.


Chicago Supermarket


Started the concept of using credit cards to pay for groceries.


Discount brokers


Occurred, slashing stock-brokerage commissions.


Frederick Smith


Launched Federal Express amid rocketing fuel prices.




Bill Gates & Paul Allen started Microsoft.




Launched 'Miller Lite' the first lower calorie beer to gain acceptance among men.


The Vanguard Group


Created the first indexed mutual fund.


Dawn of Cable


CNN was launched


Dawn of Cable


MTV was launched


Dawn of Cable


Disney Channel was launched.




Launched 'USA Today', presently the largest daily newspaper in US.

(Source: Cohn &Jansen, Ashley & Holmes, Boston Consulting group, December, 2008)

Figure 5: (Few Innovations by companies during Economic Depression 2008-09)




Type of innovations

March, 2009



Launch of a new premium skin care product, Génifique, under its Lancôme brand

March, 2009

Tata Motors


Tata Nano, the world's cheapest car

March 2009

Mahindra & Mahindra Limited


Launch of Mahindra Xylo, a multi-utility vehicle (MUV)

Early 2009

Mahindra & Mahindra Limited


Launch of Mom & Me retail


General Electric

Electric goods

(Reverse innovation) Developed an electrocardiogram machine in India that was designed with rural health clinics in mind.

2008 End

Maruti Suzuki


Launch of A-Star in India

Early 2009

Maruti Suzuki


Launch of Ritz in India

Early 2009



Launch of Toyota Fortuner in India




Launch of models like Fiat Grande Punto, Linea in India

(Source: refer to reference at the end)

There are several factors and requirements for innovation to be effective:

Recognizing the right potential persons and opportunities.

Recognizing the real need of the time.

Empowering the individuals.

Ability to review, introspect, stand to test of times and read between the lines.

Willingness to try on the products or services that have never been done before and go beyond the comfort zone.

Allocation of required resources of finance, manpower and time.

Focusing on the quality of inputs and process rather than on output and peer comparison.

Not to be complacent on achievements and find opportunities within impossibilities.

Create value on the product or service.

Maintain investment.


The companies should take a holistic approach to survive the crisis they face. They need to ruminate over the causes, process, internal and external forces to avoid such situation in the future. There have to be short term and long term remedies to solve the problems and both of them are essential for better and stronger future. Here they need to focus on the idea 'first things first'. Innovation is a continuous process hence it needs to be pursued with entire focus being on the input. It brings about revenue growth and customer satisfaction. Gradually, it supports the strategic directions for further innovative activities, becomes a comfort for the allocation of resources for the innovative projects and can diagnose and improve the innovative performance of the organization. Hence, innovation becomes the intangible asset for the assurance of the continuous growth.