Race condition between cost and innovation during recession

In today's global market, innovation is needed to cling on as the surface become slippery (market condition). Products and services launched seem to have a shorter life period. The contributor to this has been largely due to- i. people have mastered the art and science of fast coping with added value, ii. complete replacement (disruptive innovations), iii. people’s attention span for a particular offering or product is getting smaller. This leads to market race for companies. Recession has made the market race even tougher. Currently, recession has struck hard at all sectors of economy and business. In this situation it becomes even more important on how innovation can be managed. It seem in the past (last 2 decades) people in the west have known the importance of innovating continuously, while cost saving and optimal resource utilization has been the focus in the eastern parts of the world. In today’s context with recession across the globe there seems to be some kind of consensus in the business world that innovation and cost consideration will co-exist. Cost has to be down to a point that it can still deliver meaningful innovations. During recession people become very mindful about spending, innovations have to address the immediate needs of end consumer and not focus much on the luxury add-ons.

R&D budget during recession

In general one of the first thing that is done during recession period is to cut R&d. Note the capital R and small d in R&d, this is to say that the research (R) is budget is impacted more than the development (d) budget. Most of the companies do this no matter what the industry experts say. The main reason given by the company to come up to this decision is that they don’t have any other option. Unfortunately, these decisions are taken in a hurry as most often management does not have the time to get into the detail. Cutting R&d budget may be the logical thing to do but has to be done with care keeping in mind the overall impact internally as well as the subsequent impact the company will have because of not doing enough R&d. If the revenues have decreased drastically than obviously to survive in market the expense and R&d budgets have to be cut. The sequence of R&d budget cuts could be- long term R&d investments (3 to 5 years), mid term R&d investments (2 to 3 years) and then short term R&d investments (1 to 2 years).

Has recession forced IT companies to do more innovation?

Recession has made a lot of people start thinking. Thinking is one of the first few things one does if you need to innovate. Does that mean more innovation will come? Unfortunately it doesn’t seem with a study done in some large, medium and small IT companies in Bangalore. Large would be companies with more than 10,000 employees, medium would mean between 3,000 and 10,000 and small would mean 1000 to 3000 employees.
This study was based on interviews with some of the employees in the various IT companies in Bangalore. It seems that a pattern seems to emerge from most of the conversation. 1. Times are bad, recession in the US has hit us real bad, 2. There isn’t going to be promotion and no hike in pay packet for this year, 3. Company top brass are racking their heads to figure out how to overcome the bad business situation.
It is clear that 1 and 2 are consequences of a certain input conditions. We probed into point 3 as we felt we would get some meaningful insights. What then comes out is a strong focus on cost cutting. Leave very little meat, but make sure you don’t hit the bone is the mantra. So what are the top brass racking their head on- innovate on cost cutting. Workshops are held among senior management with the agenda- 1. Get rid of the paraphernalia. 2. Why are there so many managers? 3. Get rid of experienced people, anyways the kind of work we are doing now we don’t need them. 4. Maintain Senior (people with greater than 8 years experience) to junior ratio (people with less than 3 years experience), this is one is the favorite. 5. Get rid of as many people as possible in the name of performance.
Conclusions- Did innovation happen? Not really. Even if some claims it has happened, it is purely from a cost cutting perspective. Companies are going to look like walking skeleton. I guess this is more less the case with most Indian IT companies.What we need is some positive spiraling innovations.

Value centric innovation

In my previous blog(month of Jan 09), I touched upon on the need to focus on innovating on the basic needs (air, water, food, hygiene, shelter, and education). Complimentary to this is, we need innovation to stem the degrading values. We may not find many who support this concern and look to the others as a reason for falling values in the system. Those who support this cause are very few in numbers. Hence, something needs to be done here quickly. Values are key elements for the very purpose of existence of humankind. Values provide meaning to life. Finding ways to inculcate the value system in our day-to-day dealing is an area for innovation.
If the purpose of innovation is to create wealth by any means then we have it all wrong. Showcasing people as successful innovators based only wealth and power are bad example to the rest of the world, leading to the snowballing of the degrading values whose consequence is disaster in time.

What could be a possible way for innovation in India?

India can benefit from fostering more inclusive innovation—by promoting more formal R&D efforts for poor people. Need to have more creative grassroots efforts, and by improving the ability of informal enterprises to exploit existing knowledge. Existing pro-poor initiatives need to be scaled up. Inclusive innovation can play a critical role in lowering the costs of goods and services and in creating income-earning opportunities for poor people.
The National Innovation Foundation has a repository of more than 50,000 grassroots innovations and traditional knowledge practices. And a number of initiatives exist to help the informal sector better absorb knowledge. More favorable matching grant support for pro-poor early-stage technology development could significantly increase collaboration among public R&D entities, universities, non-governmental organizations, national industries, and global networks. Increased support for grassroots innovators could be provided to the National Innovation Foundation to scale up impact. To leverage traditional knowledge into revenue, a policy-oriented intellectual property rights think tank could propose how to implement a cheaper intellectual property regime. Finally, successful technology upgrading programs could be extended to help informal and rural enterprises make better use of existing knowledge.

What kind of innovation do we need in India?

The country seems to swing between two extremities, at one end we are investing and making progress in advanced technology, for E.g.- we have made considerable progress in space research (Chandrayaan- the moon mission), missile program, building sophisticated defense equipments, etc., on the other end, majority of our population (over 70%) struggles to get the most basic needs of life. Things like- clean air, clean drinking water, food, shelter, hygiene, education, etc. It is time that we focus or attention to innovate on the above topics which has an impact on the overall population and for long-term sustainability. There is an urgency to look into this situation and an obvious choice could be to get the public and private collaboration to grapple with this issue.
Another related point is, while many people think that most of these challenges are in rural setting, this is not true. The migration of people from the rural caused by poor employment opportunities in villages is affecting the urban setting. This situation is exacerbated by the fact that there are few job opportunities in the urban areas of India.

Is increasing the innovation capability good enough?

Companies spend a lot of money to increase the innovation capability of their staff, hoping thereby to get the competitive edge. Increasing the innovation capability of the organization is an important aspect, but it is not good enough for the company in terms of getting the competitive edge.

Having built the innovation capability, management needs to recognize the ideas which have higher potential to succeed and yield better returns among the other new ideas. Even recognizing is of not much use if the management cannot find ways to get these ideas implemented within a certain time and money.