Not too long ago, the default answer to sagging manufacturing profits was to slash labor costs by offshore-outsourcing the work. Today, it's become pretty clear that innovation has become a primary force driving the growth, performance and valuation of companies.

"We can maintain our competitive edge if we research and invest in methods to enhance and manage the process of innovation," commented reader Ron earlier this year.

This is true not just of companies but of entire countries.

In Russia, both President Vladamir Putin and President-elect Dmitry Medvedev have stressed the importance of innovation in the country's economy, Oxford Analytica recently reported at Forbes. Medvedev has underlined the strategic role of innovation by listing it as one of the four priorities in economic policy (the others being infrastructure, investment and institutions).

But what about during this time of belt-tightening?

Of course, even in good times, the process of innovating can get bogged down in bureaucracy and resistance to change. When a recession looms — or is already present — the risks associated with innovation seem to magnify, often leading to what Advertising Age (registration required) recently described as "innovation paralysis."

Yet, as Hal Foss at AdAge writes:

Recessionary times provide ripe opportunities for innovation, especially product innovation. If we are indeed entering into a recessionary cycle, remember it's just that: cyclical. There will be an end, and you'll want to be well positioned when times turn around.

The idea is if you wait until you can ramp up spending on innovation comfortably during an upturn, you miss the opportunity that the upturn offers to business because you start the clock running too late.

Scarcity can be pretty good at prompting new ideas, says Amazon.com CEO Jeff Bezos. "Constraints," he recently said, "drive innovation."

So, how can you conquer the innovation monster in a recessionary environment?

The key, according to AdAge, is to gain insights inexpensively through an innovation process. This fits in comfortably with much of what Aberdeen Group has concluded regarding "operationalizing" innovation in the research firm's research.

In its January 2008 benchmark report Product Innovation Agenda 2010: Profiting from Innovation Today and Tomorrow, Aberdeen looked at how companies are driving profitable growth by introducing new innovation, product development and engineering techniques and technologies.

The report offered the following recommendations:

• Implement product lifecycle management (PLM) to centrally and securely manage data;

• Stay abreast of new innovation processes, and establish ownership of innovation as a discipline; and

• Formalize processes to understand downstream impacts of engineering and product development decisions.

Among the "best-in-class" steps to success in managing and improving product innovation as a formal process, Aberdeen's Jim Brown offers: 1) Continue organizational shifts towards innovation leadership; and 2) Place more focus on product innovation as a process.

In the end, though, companies shouldn't be trying to spur innovation by turning to organizational structures and processes only. They should also be looking to their people for innovative insights. Company leaders who focus on stimulating and supporting innovation by their employees can "promote and sustain it with the current talent and resources — and more effectively than they could by using other incentives," McKinsey Quarterly research has determined.

In other words, don't simply look to hiring extraordinary people. Rather, build a place where ordinary people can do extraordinary things.

And don't wait for boom times, when money flows freely. That is when start-ups and new competitors come out of the woodwork.

"A recession can actually provide an opportunity to break away from the pack," AdAge reminds us. "Companies are forced to innovate just to stay current. During a recession, the little players tend to shake out, and many established companies go into innovation dormancy. It's precisely this moment when a touch of strategic innovation can mean a big marketplace advantage."

Yet while some are saying these tough times make it even more important to innovate today, others are saying they don't have the ability to think about innovation right now. There remains a real separation between the innovation haves and have-nots.

Resources

Innovate in a Recession? Yes
by Hal Fass
Advertising Age, Feb. 28, 2008

Product Innovation Agenda 2010: Profiting From Innovation Today and Tomorrow
by Jim Brown
The Aberdeen Group, December 2007

Leadership and Innovation
McKinsey Quarterly, January 2008