A special Business Week Report on “Innovation in Recession” (July 22/2009) contains excellent tips for managers, and mini-case studies to support them, on how to sustain and strengthen innovation despite the global downturn. Here are a few excerpts:

• Realism: 60% of 1,430 global managers surveyed by Bain & Co. believe that the current recession will last through 2010. Be wary of pronouncements about ‘green shoots’ — those making them have an interest in persuading you to spend. Now is the time to prepare your product launches for the recovery, a crucial time when market leaders can lose ground to upstart incumbents. 

• Prioritize: Evaluate your innovation portfolio and prune it, slash what is not crucially necessary. Despite temptation, do not slash long-run projects for those that yield big first-year revenues. An avoid-this example: Vanilla Coke, a line extension that took sales away from other Coke products. A to-do example: Google, which used technology for long-run search engine leadership, then found ways to make money out of it.  

• NPV: Avoid it! Existing NPV (Net Present Value) templates use conventional assumptions about the organization’s business model. But the recession will certainly make many of those assumptions obsolete. Moreover, NPV ignores option value: Will the innovation build expertise in new fields, that can later be leveraged to open doors not even reached, were it not for the innovation? Option value of innovation is crucial during a recovery, because every industry features paradigm shifts.

• Employees: Drive Their Creativity! MasterCard has copied IBM’s Innovation Jam, which since 2006 uses 90-hour round-the-clock brainstorming sessions on-line. MasterCard CEO Robert Selander led a Webcast of his company’s 5,500 employees, down to the lowliest intern, based on a long search process done by seven senior executives who comprise an internal international task force. Recession is the perfect time for this — employees all understand the vital need for innovation, which could save their own jobs.

• Involve your customers: Caterpillar is launching its D7E this October, despite the downturn. Its price tag is $603,000, $100,000 more than the older D7R. It’s a hybrid, 30 % more fuel efficient and 10% less expensive to operate, meaning that the $100k price differential is paid back within 30 months. Caterpillar has in the past made many development mistakes; this time it involves its customers far earlier in the development process, to make sure what it brings to market meets their needs. Caterpillar thinks customers will pay higher prices if customers get superior products. 

• Five Questions: A new HBS book by Scott D. Anthony (The Silver Lining: An Innovation Playbook for Uncertain Times) suggests a five-question template for evaluating downturn innovations: What is the upside potential? How much risk remains? What resources are needed to reach the next learning milestone? How well does the idea fit important qualitative criteria (e.g. the value innovation profile)? How much does the idea contribute to the overall [innovation] portfolio’s balance?