Posted by: Chris | 27/10/2009

Less Money = More Innovation?

Yesterday I attended EIRMA’s CTO roundtable, an annual, invitation only, meeting of European Industry Chief Technology Officers (CTOs) hosted by Shell Research. The topic was the role of the CTO/Head of Research in times of economic crisis. How should the CTO communicate with the other leadership in the firm about the importance of maintaining research budgets? What was the role of government in times like these to maintain innovation alive?

Times of crisis spur innovation

I will not write in detail about these questions, but I wanted to share the key messages in the opening speech by Jorma Ollila, the former CEO of Nokia and now Chariman of both Shell and Nokia.

He spoke about the three areas a CEO will focus on in times of recession, including:

  1. Adjust fixed cost to revenues and increase productivity by reducing variable costs. What this means is quite simple: when orders stop coming in you need to reduce the workforce and work with your supply chain to reduce the cost of materials, services purchased.
  2. Examine R&D costs as they represent a significant fixed block of costs. Re-prioritize those projects that will likely make you a winner when you come out of the crisis and eliminate those that don’t make the cut. Effectively also reduce or keep flat the spending on R&D.
  3. Communicate more than ever with the employees and build trust in talking to them in times of great uncertainty.

He then went on to talk about what is required to create a world-class research environment, namely:

  1. Engineers like gadgets (his words), so make sure they have access to the tools of their trade.
  2. Labs must look like labs of a winning company otherwise the talent you’re looking for will not come.
  3. Hire stars, employees that new hires will respect and aspire to become like them.

His last observation was that innovation is at its best in times of crisis and scarce resources. He cited Intel, which spent a lot of money to get into the mobile world and kept failing – so far. The times when they produced real innovations was in their early years, when they were struggling as a company. He cited Amazon.com where the CEO stated that whenever they were strapped for cash, they had the best ideas. Whenever the investors poured more money into the company, nothing new happened.

While it seems like a paradox, I think he’s right with this observation. When IBM lived through its near death experience in 1992/93 many innovations happened in our business, for example, we started the IT outsourcing business that now has developed into a huge business not only for us but an entire industry. Or we revamped our mainframe computers to use CMOS chips which reduced the running costs significantly and provided a performance roadmap for the future.

The experience also kept us out of the dot com bubble, where abundant amounts of money were spent on innovation but not too much happened in our industry. The real innovations came when the bubble burst – Google, Web 2.0, ….

The challenge is: however little we like crises – they do have positive effects on our creativity and innovation spirit. How do we maintain this sense of urgency when we get out of the current crisis? And what will be the innovations that will come out of the biggest recession since the 1930s?

Please share your thoughts.

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Responses

  1. […] Original post by A day in the life as the director of IBM’s Zurich Research Lab […]

  2. Forbes posits “Why the Pursuit of Innovation Usually Fails”

    Read why leaders and companies are locked-in to “best practices” that become obstacles to innovation. Even when desperately needed – like today. Offer your comments. http://tinyurl.com/yku67yj

  3. This sounds similar to a “Darwinian” perspective on innovation. Indeed one of the effects of crisis is that a decision about what did work and did not work out must made. What did not work must be removed to make space for further growth of working ideas. But only planning with old ideas can be dangerous as the work by Clayton Christensen on disruptive innovation shows.

  4. It is very interesting to read and learn about what to do in times of recession and difficulties, I for one can subscribe to the statement of giving engineers the tools of the trade, having said that, this is not only gadgets but also new internet tools for innovation like an extended social network based platform that enables innovators to share ideas and build new ideas across disciplines…


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