Innovate Out Of The Economic Down Turn Commerce Essay

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Open innovation is not only an interesting open in economical stale periods but also in economic downturns like we experience today.

The current economic crisis poses new challenges for innovation strategies in established companies. Most companies freeze or reduce their R&D budgets. I provide some arguments how open innovation can be helpful reducing costs of R&D and, more important, how it can create opportunities for growth which are in some cases more attractive than in years of strong economic growth.

During economic downturns, innovation is the single most important condition for transforming the crisis into an opportunity. And while many businesses simply won't be able to afford further investment in innovation, governments should recognize that innovation systems, with all their academic, industrial, and public components, are strategic national assets that need to be protected, just like the financial and housing sectors. Times such as these call for government intervention to prevent the contraction of the knowledge bases upon which economies are now more than ever dependent.

In the short term, governments need to provide support to small companies to help them manage the crisis and continue to develop their portfolios of products and services. The British Innovation Advisory Services model, where government-supported consultants are paid for and loaned to companies, is one example of the type of thing that governments can do. Another is the Dutch voucher system, under which the government gives vouchers to small companies, allowing them to source the expertise (mostly consultants) they need from public research institutes. Some 80% of such voucher-supported projects otherwise would not have been undertaken. This type of support is critical to help many small, successful companies get through the crisis.

AIM

1. Adopt a positive attitude.

Like Bill Gates - see the opportunity. Don't be cynical about change. Don't assume the worst. Don't believe and repeat rumors about management's conspiracies to do down the workforce. Change is inevitable for every organization so it is time to start liking it. Change means new opportunities, new responsibilities, and new things to learn and do. People who are positive about new challenges are more likely to be given them. People who are resistant to change and reluctant to adapt are the first to be culled.

2. Become a change agent.

Make suggestions. Introduce ideas and recommendations. Look for ways in which your department could bring in new products, business processes or partnerships. Ask yourself - is there a better way to meet the needs of our customers? Anticipate trends and suggest ways of changing the department to exploit new opportunities and new technologies.

3. Listen to customers.

Where can you find the ideas for change? One source is customers. In your dealings with clients you should make a point of asking how your product or service could be improved. What do they like and dislike about your offering? How are their business needs changing? What will they need in the future? Even better than asking them is to study how they use your product or service. What difficulties do they encounter? How could you alleviate the problems and make their life easier? Do they use your product or service in conjunction with others? Could you co-operate with another company or combine your product with others to bring an innovation to market?

4. Watch the competition.

Keep an eye on what they are doing and any innovations they introduce. Ask customers what other suppliers are doing that is smart and new. Study their initiatives and see what works. Suggest ways in which you cannot just match the competition but leapfrog them.

5. Be sensitive to office politics.

For most ideas it is best to talk them through with colleagues in your department and in other areas to test their workability before you speak to your manager. That way you have checked out the concept, cleared some obvious objections and gained feedback before you propose it. It will sound better thought out. However, there are some ideas that are so sensitive that it would be silly to bat them around the office before proposing them. You have to choose your moments carefully. Often you can prepare the ground by describing the size of the problem and agreeing how pressing it is before you introduce your idea. Catch the boss when he or she is most receptive. Sometimes it is best to introduce your big idea outside the hurly burly of the office. If you can buttonhole the director in the pub or the car park you may have a better chance of a good hearing.

6. Don't insist on the glory.

If you spark an idea and then other people adapt and improve it then that is fine. By letting go you have a better chance of it being adopted than if you insist on driving every aspect of the initiative because it "was your idea in the first place." Sometimes the cleverest tactic is to let your boss take it over as his or her idea. People will still know that you were the one who planted the seed.

7. Be prepared for rejection.

Most managers are analytical and critical. They are good at finding fault with other people's ideas. The more radical your proposal the more likely it is that people will feel uncomfortable with it. Propose it carefully. Lay it out in a logical way and explain the benefits. But if your boss disagrees then don't fall out over it and don't bypass him. Let it lie fallow for a while. I once worked for a CEO who would tear new ideas to shreds and ridicule them. But the next day he would often say, "I was thinking about that idea of yours and I can see a way to make it work." His initial reaction was to oppose an idea just to test it. But once the germ of the idea was in his head he could find ways to develop it. Above all don't stop bringing forward ideas because the first few are rejected.

Change means winners and losers. If you can be known as someone who is creative, innovative and a driver of change then the chances are that you will emerge a winner. Not only will you survive the change but you will be given the responsibility of making part of it a reality.

REVIEW OF THE LITERATURE

In terms of prior research, Kitching et al. (2009)3 provide a thorough review of literature on harsh economic conditions, including recessions, and their effects on firms and firm behaviour in the past 30 or 40 years. Their conclusion on the literature itself is that since studies focussing on recessions alone are sparse, a wider literature discussing a range of difficult economic conditions has to be considered. However, the relevance of the existing literature on the current economic crisis is in doubt for two reasons: firstly, not all harsh economic conditions are similar enough to a recession, and secondly, the current crisis may be quite dissimilar to previous crises, most importantly, as the degree of globalisation is now greater than it has been in previous recessions. Globalisation processes increasingly affect both the threats firms face and the opportunities available to them. Furthermore, according to Kitching et al. (2009), there are several actual deficiencies in the existing literature. Firstly, the literature rarely focuses on why firms react the way they do, in other words.

Secondly, data on the consequences of actions to longer term firm performance are lacking. Thirdly, global influences on responses from firms are rarely taken into account.

Regarding the possible impacts on and responses by firms, the literature review by Kitching et al. (2009) notes three main business strategy related responses. Firstly, most commonly firms react in the short-term with retrenchment strategies, i.e. by cutting costs, such as innovation expenditures. Secondly, firms may react with investment strategies, by increasing their innovation expenditures or market diversification. Despite the fact that many big firms (e.g. General Electric, Hershey, Kelloggs, Microsoft, and Apple) have made their businesses successful during hard economic times, there is, however, thin evidence on how common this strategy is. Thirdly, and perhaps most importantly, firms react with a combined strategy of retrenchment and investment. Much of current relevant literature (and the think-tank of leading academics consulted for Kitching et al., 2009) considers such an 'ambidextrous' strategy to be the most common medium- to longer-term response from firms.

The main conclusions from the broad review in Kitching et al. (2009) are that there is no single 'recession effect' on firms, nor any one 'best way' to adopt to recessions, and firm characteristics (such as size or sector) or past performance are not adequate predictors of future performance. Ambidextrous strategies, which combine cost efficiency with innovation activity may be the most appropriate responses to recessions, although perhaps also most challenging, as firms must choose wisely the appropriate costs to be cut, and the right investments to be made.

There are a lot of authors that give a definition of a business model and propose a brief list of components that should be included to describe it. There are many scholars naming components to the business model, but Osterwalder and Pigneur (2005) version is one of the most complete and comprehensive work. First of all, they build their main blocks out from well accepted strategy literature, such as Hagel and Singer (1999) and Markides (1999), and second, they have gone through all other scholars lists of components to reveal the total amount of nine components (Hager, 2006).

Besides, whatever method is considered to identify components in the business model, there seems to be a fair similarity between the results. Often components vary in its degree of abstraction leading to different numbers of components, but they basically describe the same. A comparison of the components of Osterwalder and Pigneur (2005) and two of the most cited and distinguished research groups on business models, Afuah and Tucci (2000) and Chesbrough and Rosenbloom (2002).

RESEARCH QUESTIONS

1. Is the financial crisis bringing gales of creative destruction?

2. Is Innovation generated through technological accumulation and economic creative destruction?

3. How to attempt to identify the core characteristics of creative destruction

RESEARCH OBJETIVES

Innovation expenditures are measured as the aggregate of expenditures on any of the following activities:

• Research & development performed within the company;

• Research & development performed for the company by other enterprises or by research organisations;

• Acquisition of new or significantly improved machinery, equipment and software;

• Purchase or licensing of patents, inventions, know-how, and other types of knowledge;

• Training to support innovative activities;

• Design (graphic, packaging, process, product, service or industrial design);

• Application for a patent or registration of a design.

RESEARCH METHODOLOGY

The data

The empirical part of the paper analyses the Innobarometer Survey 2009 that is designed and collected by the European Commission (European Commission, 2009a). In each of the 27 EU Member states, plus Norway and Switzerland, 200 enterprises from most manufacturing and private service industries with 20 or more employees were sampled. 5,238 telephone interviews were completed between the 1st and 9th of April 2009. The sample is a random sample, stratified by country, enterprise size (5 size bands) and industry (2-digit industry codes). A detailed description of the survey, including the sampling and data collection methods, can be found in a methodological report by the European Commission (2009b).

Since 2001, Innobarometer is conducted on a yearly basis. Each year the survey highlights a different issue/theme, which is picked up on in additional and specific questionnaire items over and above a core set of variables. The focus of the current, 2009 survey is on innovation related expenditures and the effects of the economic downturn on innovation related expenditures. It is this section of the questionnaire from which our key variables are developed. In the remainder of this section we introduce our dependent and independent variables and discuss the methodology.

The dependent variables

Our dependent variables measure change in innovation related investment as it is reported by the firms themselves and with reference to different time periods (before, during and following on from the crisis). Innovation related investment are captured in a wide sense, incorporating, not only expenditures on in-house R&D, but also technology embodied in the purchase of machinery, equipment and software, licensed-in technology (patents or other know-how), training of staff in support of innovation, and expenditures on design of products, process and services.

My dependent variables are based on firms' responses to the following three questions.

(a) before the crises: "compared to 2008 has the total amount spent by your firm on all innovation activities in 2010 increased, decreased or stayed approximately the same?",

(b) during the crisis: "in the last six months has your company taken one of the following actions as a direct result of the economic downturn; increased total amount of innovation expenditures, decreased or maintained? ", and

(c) following on from the beginning of the crisis: "compared to 2008, do you expect your company to increase, decrease or maintain the total amount of its innovation expenditure in 2010?".

Methodology

We use regressions to analyse the relationship between our dependent and independent variables. The zero order correlations among the dependent and independent variables, reporting polychoric correlations for the categorical dependent variables and tetrachoric correlations between the binary independent variables.

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