Why invest in innovation in a crisis scenario?

When we talk about the current situation in Brazil it is almost impossible to stop thinking about the words crisis, corruption, Operation Car Wash, and unemployment, TSE, STF, JBS, Odebrecht, pension and labor reforms, among several other terms. But what if I tell you that a term we should be strongly considering for this moment is “innovation” and, above all, “open innovation”? Would you say that I went crazy?

It is true that we live in times of many uncertainties. In less than two years, we have lived through the impeachment of a President of the Republic who was succeeded by her deputy and who is now also being strongly opposed by a significant portion of the population after the lastest acusations. We have a National Congress full of representatives being investigated and cited in the Operation Car Wash (in Portuguese, Operação Lava Jato) that can be arrested at any moment, and at the same time, these same congressmen are debating and trying to approve reforms that are fundamental for Brazil and that have long been postponed. Although there is a consensus on the need for reforms, we are far from consensus on which model would be the ideal and at what speed the issue should be addressed. Moreover, this whole scenario is involved in a kind of rivalry that emerged during the campaign for the 2014 presidential elections, turning the political discussions across the country as heated as the discussions about soccer typically are in Brazil.

On the economic side, despite the growth of 1% of the GDP in the first quarter of 2017, compared to the previous quarter, it is early to say that we have left the serious recession that affects the country. This distrust of the recovery of the economy is justified by the other data that were disclosed. When we compare such GDP growth result with the same period of the previous year, the economy showed a decrease of 0.4% and the components of the GDP that relate to domestic demand (household consumption, government consumption and investments) also presented negative results. Unemployment continues to rise and already exceeds 14 million people.

So why should we talk about innovation in light of this scenario?

Investing in innovation is often seen as a good strategy to get out of crisis ahead of its competitors. And that argument makes sense. In times of crisis it is common for companies to be forced to abandon projects that are not directly linked to their core business or that have a lower or longer-term expectation of return. It\’s the dilemma between staying focused and strictly controlling costs while keeping growth options open for the future.

Open innovation can play an important role in this solution. By breaking traditional boundaries, open innovation lets ideas, intellectual property, and individuals flow freely from the outside into the organization and from the inside out.

When the economy goes bad, as we are currently living in Brazil, the opposite path of open innovation – innovation from the inside out – can be the way for the company to prepare for the improvement of the economic scenario without harming the control of its costs. This modality of innovation is linked to processes whereby a company installs part of the assets or projects outside its structure. Harvard Business Review Brazil, in an article posted on its website, has identified five measures of open innovation that will allow the company to focus on its core operations today and maintain growth options in the future. They are:

1. Become a customer or a supplier of projects that have once been internal

If your company is looking for an important but too expensive resource to develop alone or acquire in the open market, and other companies in the industry or other areas want the same, try to join these and others to finance, develop and launch the novelty through an independent company and be your first customer.

1. Let others develop your non-strategic initiatives

If your company is closing its focus on the core business and has detected adjacent and complementary initiatives that consume attention, time and too much capital but can attract interest and external investments, try to deliver them to investors who can take on the burden of developing them. The progress of the initiative will be funded by third parties, but your company may retain a stake and enjoy some gains. You can even reacquire the best projects.

1. Make intellectual property more fruitful for your business and for others

If a good part of the intellectual property of the company is not producing any financial benefit, and the company knows that its value will be eroded unless it is continually developed, then the company should allow outside partners to benefit from its creation, by continuing development of the intellectual property all the while paying the company for its right of use. Many companies recover from 10% to 20% of annual R&D spending in this way.

1. Expand your ecosystem, even when it is not growing

If your company is active in innovation and is always interacting with customers, employees, industry experts, industry associations and others to identify future opportunities, try to harness its ecosystem of potential innovation partners. Be like a scout in football, who always knows how much a team will be willing to pay for a particular player.

By interacting with the ecosystem in times of crisis, the company becomes a preferred partner in innovation opportunities arising from the various parties around its business and value chain. When the market grows again, companies that bet only on cutting costs can see themselves at the end of the line.

1. Create open domains to reduce costs and increase production

If an inner idea has a high chance of attracting the interest of valuable external communities and of promoting great leaps in the sector, or even radically changing it, consider establishing open domains for the exchange of information and ideas or the supply of facilities and services.

Conclusion

We know that leading an open innovation process in companies is not simple. Several important issues need to be studied and a strategy needs to be designed so that the company\’s present and future objectives are met. But your company does not have to do this whole process alone. Using the experience of other companies to scout innovative projects that meet the prerequisites set by your company and finding strategic partners to design that willingness to open innovation can boost earnings and reduce associated costs. Open innovation from the inside out will make the organization more agile and more responsive when facing difficult times. It\’s a challenge, but it\’s worth facing!

Rafael Oliveira | Consultancy

A Economy Student at UFMG. Loves reading, listening to music and going out to meet new restaurants and good places to eat in Belo Horizonte. He strives to maintain an exercise routine (and fail terribly at it every week).

consultoria@biominas.