In the current global economic crisis many companies have turned to mass layoffs as a solution to their financial problems. While this might look good to Wall Street, it is likely to make their road to recovery much longer and harder than it needs to be. The American automobile industry, as an example, will not recover from near bankruptcy without major changes in business strategy and without innovation in what and how vehicles are produced. The industry needs what Elaine Dundon in her book, Seeds of Innovation, calls efficiency innovation, evolutionary innovation, and revolutionary innovation.

None of this change will happen without the people who have the knowledge, skills, and motivation to be innovative in that industry. We have to ask, “How does a company continue to encourage and support innovation when it is shedding thousands of employees?” Certainly, this doesn’t happen by sending the smartest people out the door and creating a culture that discourages risk taking and creativity just when these companies need it most.

Michael Porter makes the case that if companies must make cuts, they should do it strategically, with a focus on the future. He argues that it is easier to shift strategy during economic downturns than it is during times of rapid growth. A post on the Insead blog describes Porter’s position this way:

… Porter explains that if a company that is strategically focused on providing excellent products with excellent service suddenly cuts back on service and activities to cater to price-sensitive customers, they risk undermining their longer-term success and become just like their competitors who are all cutting prices as well. “When you cut and shrink, don’t do it across the board; cut to a strategy, don’t just cut. Don’t just take 10 per cent off every department – that’s a disaster.

In addition to changing strategy, companies might find great opportunities for product and process innovation in these dark days. In her column titled, “It’s No Time to Forget About Innovation,” Janet Rae-Dupree makes a case for continuing to focus on innovation even in an economic downturn. She says that some of the best ideas and new products have come about during poor economic times.

Companies must try to stop the bleeding. At the same time, however, they should be thinking about fundamental changes in their business; that is, new strategies and innovative products and processes. They should be keeping and nurturing the innovators they have and they should be making sure that these innovators are aligned with a strategy that is different from the one that got them here in the first place.

1 Comment