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As we enter a further period of economic uncertainty we will undoubtedly see a slash and burn approach to cost reduction in many of our organisation’s. An impending crisis often triggers suboptimal decision making that tends to focus on survival and forgets about investing in the future. Talent is lost only to be re-recruited again or passed to consultants at additional cost once the downturn is over.
Watch it happen.
Only 10% of companies emerge stronger from a crisis. Many go under or are forced to merge, a few manage to limp on , but just 1 in 10 become more successful.
Why?
According to Todd Ford, the successful companies are the ones whose Chief Financial Officers figure out the balancing act between surviving an immediate shock and protecting the future. They reduce costs very selectively with a focus on operational efficiency, while at the same time using their balance sheet as a weapon to boost vital spend on R+D.
As McKinsey point out, organizations that focused on innovation during the 2009 banking crisis, outperformed the market average by 30% and their growth continued to accelerate in the following years.
Clearly innovation should still play a role in your priorities, even in a downturn. In fact, economic or other constraints are great opportunities for innovation, as frugality can actually work to our advantage.
Constraints help you better understand the problem
When any and every option is in front of you, it’s difficult to decide what to do.
In a piece for HBR. Oguz A. Acar, Murat Tarakci, and Daan van Knippenberg find that when there are no constraints, complacency sets in, and people follow what psychologists call the path-of-least-resistance – they go for the most intuitive idea that comes to mind rather than investing in the development of better ideas.
At Bromford Lab we are currently running an experiment with one of our teams where we’ve denied them any use of technology in the initial test. The solution to the problem will almost certainly have a technological requirement but making it harder for them in the beginning helps you understand the problem better.
So constraints are actually a design tool because they force a few early decisions on you.
Innovation thrives when we have constraints – as it shows us where to focus and, more importantly, where not to.
Constraints force you to be creative
We’ll all know what it’s like to start with a blank page – more often than not you won’t start anything.
Dr. Caneel Joyce, has written that “giving people too much choice limits creativity, just as giving them no choice at all does… just enough constraint incites us to explore solutions in new places and in new ways.”
She uses the analogy of a playground as a starting point for understanding the whole concept of constraints. Research found that when a fence is put up around a playground, children use the entire space to explore and play; the fence giving them a sense of safety and security. On the other hand, if that fence is removed from the playground’s border, the limits become unclear and the children stay toward the middle because that’s where they feel safe. Importantly, in team work within organisations Joyce found that the absence of clear constraints actually created conflict stemming from the unarticulated assumptions that people brought to the table.
Even stress has a benefit. According to research done by Dr. Kelly McGongial and Professor Todd Kashdan, stress has the potential to activate the parts of our brain that are linked to critical thinking, problem-solving, and creativity. Want creativity? Create a constraint for someone.
Constraints can help you innovate in a frugal way
Thinking in constraints is a key element of frugal innovation. ‘Frugal innovation’ means innovating to create solutions that are better and cheaper, from fewer resources. In India , it’s know as Jugaad, a Hindi word that roughly means ‘solution born from cleverness.’ It’s usually applied to a low cost fix or work-around. In a culture where people often have to make do with what they have it’s an improvised or makeshift solution using scarce resources.
In an economic downturn plus a major cost of living crisis can communities harness the spirit of jugaad to solve local problems? The question is whether institutions – often risk averse rather than risk seeking – would get out of the way and allow innovation to flourish.
So will organisations continue to support innovation throughout the downturn?
Depressingly, it’s unlikely.
The archaic business planning of most of our institutions exacerbate short-termism and stifle innovation in my view. The statistics from the last financial crisis back me up: only one in ten emerge stronger and more successful.
The only negative constraint to innovation is one word of just two letters: no.
Related: The Unintended Consequence of Putting People in Boxes