I am usually an optimistic person and I truly believe everything will work out okay in the end. Deadlines are always met, even if the team leader has to exert herculean effort. What we worry about today rarely matters in a year’s time.
Yet, I have to admit that I’m often pessimistic when I hear that the economy is different. To me, economic forces (without government intervention) are natural laws, just as are physical laws and the rules of thermodynamics. People “in-the-know” are telling us that the economy is different now, though, so let’s look at how that impacts innovation.
Interest rates remain very low, so capital is easy to come by. What’s puzzling – and perhaps different – is that many large corporations are choosing to spend their capital on stock buybacks instead of investing in future growth.
From an innovation standpoint, these companies are signaling that they don’t have any good ideas. That is a really troubling thought. But I bet if the executives at these firms asked their R&D, operations, and marketing folks for ideas, they would learn about some great investment opportunities in new product development.
Production vs. Development
When capital is tight, companies focus – as they should – on productivity and efficiency. Investments during economic downturns keep the factories running and will improve bottom-line growth on their income statements.
Yet, it’s not bottom-line growth that gives a company longevity. Top-line growth – which means finding new sources of revenue – is what sustains a firm through both good and bad times. Investing in new product development (NPD) on a disciplined basis allows a firm to access top-line growth and to sustain a business over the long term.
At the heart of the matter, innovation is about learning: learning customer needs, learning new technologies, learning about relationships. Many executives forego innovation projects, especially in economic downturns, that are inherently risky. Yet, risk and failure support learning.
In a period of loose capital, investments in learning and innovation are tremendously valuable. Many studies have shown that firms with continuous R&D outperform their competitors. Moreover, companies that work on next generation products during an economic downturn are the best positioned for success when the stock markets recover. An investment in innovation will create an environment of long-term learning that contributes to top line growth period
Capital Investment for Innovation
As firms plan for a predicted, cyclical downturn in the next few years, senior leaders should consider their approach to capital investment in R&D. Stock buybacks signal you have run out of ideas for new products and services. Instead of propping up the stock price by shrinking the number of shares, invest in innovation to grow revenues. New customers in new markets create new opportunities. Your stakeholders will embrace the learning and growth that arises from innovative thinking!
Are you struggling with innovation investment decisions? Call me now at area code 281 phone 280-8717 to schedule a free, 30-minute innovation coaching session through Gold Level Leadership Coaching program. Chief Innovation Officers (CIO) and New Product Development Professionals (NPDP) can learn strategic innovation practices in the Innovation Master Mind (IMM) group. Click here to register for the next innovation Q&A webinar and Join the IMM Now!
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