I have been talking with several business owners about prospects given the uncertainty in the current marketplace. The instinctual reaction is to cut back on spending on Innovation, customer needs investigation and product development. However we feel that now is the best time to Innovate and this can actually decrease risk. Why?

• the cost is relatively low, given that there very talented people on the market to lead these initiatives
• it is easier to get teams to focus on one or two very important Innovation initiatives (after companies re-commit to their strategy, making sure they are well positioned for the conditions)
• customer needs analysis when the market conditions are tough will unearth needs that are more core to customer’s lives and this insight will help define more enduring products
• when the market picks up, concepts are ready to be fast-tracked to development. Those products and service are those that differentiate companies and customers will pay a premium for them.

Perhaps not all companies would benefit from a concentrated effort on Innovation, but for those companies who do not just want to compete on price, it is key to maintain focus on Innovation. Investment, not cuts are necessary to keep this focus because cutting talent fosters a bunker mentality. This turns the rest of the company inward concentrating on cutting in all areas to “follow the leader” instead of focusing on growth opportunities.

Proctor and Gamble has put Innovation at the heart of their strategy, focusing on the consumer and the CEO A.G. Lafley even going so far as to call Innovation a “team sport” because “Innovation doesn’t spring fully formed out of the head of one man or woman.” Keeping the right social climate for an innovative culture is part of how they are re-inventing the company.

Apple certainly understands this and as Steve Jobs said in an interview with Fortune:

“We’ve had one of these before, when the dot-com bubble burst. What I told our company was that we were just going to invest our way through the downturn, that we weren’t going to lay off people, that we’d taken a tremendous amount of effort to get them into Apple in the first place — the last thing we were going to do is lay them off. And we were going to keep funding. In fact we were going to up our R&D budget so that we would be ahead of our competitors when the downturn was over. And that’s exactly what we did. And it worked. And that’s exactly what we’ll do this time.”

Not only can Innovation help with growth opportunities, because it is centered around customer needs, it can actually help retain customers through difficult times. In fact you could argue that Innovation decreases risk as a company that retains customers can maintain cash flow on the one side and develop new ideas for increasing growth without see-sawing back and forth between inward and outward focus.

Just as financial discipline is part of the way leading companies operate, Innovation should be part of a company’s strategy not only in good times but also in challenging times.