Innovations are Key in Economic Downturn

Thomas L. Friedman reminded us that “Invent, Invent, Invent” is the mantra to get us out of economic downturn. A surprising number of great companies, like General Electric, IBM, Kraft, McDonald’s, Walt Disney and Electronic Arts were formed in years that featured a recession, as did Motorola, HP,  Xerox, Unisys, Texas Instruments and Revlon.  The recession of the early 1990s hit much of the world. The rapid recovery from the recession and the growth of industrial output in Finland has been very much explained by the success of Nokia. In the late 1980s telecommunications was not yet at the core of new businesses of Nokia. Telecom came not until in the late 1980s after the collapse or low profitability of the actual core businesses of the electronics sector, above all consumer electronics and the computer business. Nokia’s focus on telecom in the beginning of 1990s was not only a consequence of a good vision of Nokia’s top management. As well it was a consequence of a bad vision of the early 1980s. Early 1990s Nokia decided to withdraw from its core rubber and paper industries.

Many great innovations leading to patented invention are made during recession times: 1975, in the middle of a recession, The Xerox Palo Alto Research Center (PARC) introduces the Alto, a computer featuring the first graphic user interface with windows, menus, and mouse. Four years later, Steve Jobs tours Xerox PARC and “inhales” the features we later saw into the Lisa and the Macintosh (other examples, see LayLow Edmonton’s 14 Big Businesses That Started in a Recession”).

For those that have been laid off, there is time to finally advance ideas that never came to fruition while busy at work. For those that work in a large corporate environments and are in fear of being laid off it’s time to think about starting your own company, doing what you though you were good in, finally working out that innovative idea you had, but never had time to follow up on. People are looking to improve themselves to compete in a tougher job market.  They become acutely more aware of their own presentation and appearance, viewing the world as a more competitive, rather than a friendly place.

You will probably be familiar with the oft-quoted comment by Gary Hamel of Harvard University: “Every CEO will at least give lip service to the idea that the world is moving faster and that we need to do a better job at innovation. But if you go into an organization and ask people to describe their innovation system, you get blank looks. They have none.” That’s the advantage of being a solitude “garage entrepreneur”, there is no innovation “system” other than your own drive to produce, come up with an improvement on an existing product or even something completely new, work out products details, make your first prototype, etc, file your patent application. Inventing new things brought America traditionally progress so and should be a good lesson for Europe. China is using its assets now to move from a manufacturing powerhouse into an innovative society. The country is using its nearly $600 billion economic stimulus package to make its companies better able to compete in markets at home and abroad, to retrain migrant workers on an immense scale and to rapidly expand subsidies for research and development.[1] And while Netherlands leaders (as well as their peers elsewhere) struggle to revive lending, Chinese banks lent more in the last three months than in the preceding 12 months.

That’s what should tell us the story. For any innovative surge we need banks and financial institutions to be stimulated to lend again.  Knowledge is plenty available, but Innovation cannot do without capital.

[1] See NYT, “In Downturn, China Sees Path to Growth”, By Keith Bradsher, March 16, 2009

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