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Innovation strategies for small businesses
When your competitors cut back on R&D, increase yours...

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iProceed.com interprets National Science Foundation data to show that industrial R&D expenditure has been declining since 2000.When business slows down, as it has in recent years, it is not unusual to lose track of what is really important and instead focus on what is more urgent. For instance, with the economic slowdown of last three years, the immediate response by large corporations has been to offshore jobs, embrace outsourcing, layoff high-value employees, and cut back on a wide variety of investments (particularly in such areas as information technology, innovation, R&D expenditure, employee training, and benefits) to reduce costs (see chart on the right). Small businesses, that often depend so heavily on them for businesses, have had to do the same though not on such a massive scale. In my opinion, the reason is simple: small companies know how to manage their costs better and do not always have the liberty of finding the best people when they most need them. Hence, they are less likely to let their key staff go unless they have no other choice. Large companies tend to be more arrogant since they know that no matter what, when they need them, they can always find right people (though I am not sure that it is always true).



While most of us recognize the potential long-term hazards of cutting down on research and development and investments in such key areas as IT and employee training, I think the way our economy is structured, these are inevitable for large companies that are driven by quarterly goals and Wall Street expectations. However, this situation creates tremendous opportunities for small businesses. I might even say that a brief slowdown is healthy for small businesses. During a rapidly growing economy, we are all forced to keep up with demand for our products and services, have to make investments for productivity enhancements, and need to compromise on quality of resources that we employ to meet short-term commitments. I am sure a lot of you would agree that we are essentially forced to cut corners, which is not the way winners generally work.  But with the downturn, small businesses (and startups) can now access inexpensively top talent.  If not as full-time staff, at least as consultants.  By working closely with these talented engineers and designers, small businesses not only can afford to invest in innovation, they will be ready with innovative product when the economy turns around and large companies (typically customers of small businesses) will actively seek innovative products.  (Related link:  Delightful customer service and care)

Why a slowdown may be good for small businesses?

It provides us an excellent opportunity to fix what we think is not best-in-class. Resources that are now freed up to some extent can be utilized to improve our processes. There is no better time to test the efficacy of your systems than in a fast-changing business environment. I have been told by several industry executives that they have learned a lot about the limitations of their processes in recent years. This is, then, a perfect opportunity to use that new knowledge to eliminate the bugs from the system.  And these opportunities are available to both entrepreneurs and owners of small businesses.

Similarly, I am aware of hundreds of companies that had to hire employees who were not the most suitable for the jobs that they were hired for. Many of these new employees struggled in their new jobs and, while some were able to pick up speed, others are still having a hard time. This may be a good time to train these employees. So before you decide to get rid of these employees, think hard about the staff you might need in case the economy picks up steam again and you will need people right here, not 5,000 miles away.  (Related link: Impact of offshoring on American economy)

The final area that we can all work on is new product development. When the economy was going through the roof, what customers wanted was 'functional' products: anything that does the job. It really didnít matter how the design looked and how much competitive advantage it provided. As the economy has been improving, it is doing so only gradually. The implication of a U- or V-shaped comeback is that customers are more selective. Thus, product differentiation and quality will be absolutely critical. The current slowdown might well provide a perfect opportunity to approve all those dollars that your R&D group has been asking for years. It will payoff real soon.  (Related link:  How to create high-value companies by focusing on WOW products?)

Recommended articles:  How to pursue products with short life cycles?   Innovation and globalization are linked   

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