INNOVATION
Should Companies
Innovate During
Recession?
By Senorine Wasike
A
recession,
defined
as
two
consecutive quarters of negative
economic growth, can be caused
by economic shocks, financial panics,
rapid changes in economic expectations,
or some combination of the three. During
a recession, most businesses experience
low revenue or demand for products and
increased uncertainty about the future.
As I write this article, all global economies
are facing one of the worst pandemics
since 1918. The Corona Virus (Covid-19)
has so far affected over 1,300,000 people,
claimed over 70,000 lives, and has since
been declared a global pandemic by the
World Health Organization (WHO).
These statistics continue to spiral by the
day, forcing governments across the globe
to shut down economic activities. Majority
of countries have asked their citizens to
maintain social distancing and practice
hygiene in a bid to flatten the curve.
Impact On Economies
It is not business as usual as many
companies shut down operations partly
or in full in a bid to control the spread
of the virus. Most have asked their staff
to work from home and maintained
skeleton staff for critical functions. Travel
restrictions and quarantines are causing a
severe shortage of workers. The reduced
movement of people and goods is expected
to negatively impact company profits and
cash flow.
Consumer confidence is dropping as
people spend less and save more because
the future is uncertain. Stock prices are
falling, and firms are already issuing profit
warnings. The global economy stands to
lose more than $1 trillion as a result of the
Cocid-19 pandemic.
It's Not All Gloomy
In a Harvard Business Review article
titled, 'Roaring Out of Recession' 9% of
companies come out of recession stronger
than ever and outperformed industry
rivals by at least 10% in both sales and
profits growth.
It has been well-documented that main-
taining marketing and innovation spend-
ing during recessions creates a significant
bounce effect once the market stabiliz-
es, so if you gain market share now, your
growth will be exponentially larger when
the market recovers. DON'T STOP!
44 MAL35/20 ISSUE
Most companies are cutting down
costs to reduce debt levels; however, to
survive the aftermath, there is a need for
firms to develop contingency plans and
alternative scenarios. Scenario planning
can help organizations identify a specific
set of uncertainties, different 'realities' of
what might happen in the future of your
business. Switching to survival mode
may get a company out of recession, but
recovering from the recession may be
much slower or may never happen.
What can companies do to ensure a
stronger comeback post the economic
slowdown?
Prioritize Innovation
This is not the time to stop innovating, but
a time to review your innovation pipeline
and identify projects that can help the
business cope. Striking a balance between
reducing debt and investing aggressively in
the future during tough economic times is
critical. Curtailing innovation efforts may
deny the company long-term competitive
advantage; therefore, companies should
avoid the temptation to do so. Innovation
budgets should be spent thoughtfully.
Here are some of the ways:
Exploring New Business
Models
The Covid-19 pandemic has significantly
reduced the movement of people and
goods because of measures taken by
different governments to reduce the
spread of the virus. With people confined