In identifying the biggest strengths, weaknesses, opportunities and threats to their businesses, executives in the field also looked back and ahead as they set the stage for the second half of 2023 and beyond. In terms of the current marketplace, innovation executives seemed to be weighing cutting costs versus developing new revenue streams. In connection to this, a common innovation question loomed: Focus on short-term gains or develop with long-term growth in mind?
Focusing on Growth
While during the pandemic the focus seemed to be on cutting costs, the innovation community seemed to be setting their sights squarely on growth as the virus and its impact continued to fade and as recession fears waned. Answering the question, “Is innovation in a downturn/recession more about cutting costs or finding new revenue streams?” 48% said finding new revenue streams was the way forward. Meanwhile, 14% said mostly finding new revenue streams but somewhat cutting costs; 24% said both cuttings costs and finding new revenue streams; 10% said mostly cutting costs but somewhat finding new revenue streams; and 5% of survey respondents said cutting costs.
Long-term growth seemed to be the view from the innovation community when it comes to developing impactful innovation. With an eye on the future, when answering the question, “To what extent can the type of innovation at your company be described as short-term revenue augmentation or long-term impactful/disruptive ideas?” 35% selected long-term impactful ideas; 26% surveyed selected a mix of mostly long-term with some short-term revenue augmentation; 22% said equally both; while 9% and 9% respectively said mostly short-term revenue with some long-term or only short-term revenue augmentation.
Balancing that mix of short- and long term revenue goals is always a challenge in the industry. Certainly, there is no one right answer, as our survey report contributors attest. “New revenue streams are great but they should drive profit. In the beginning, when you’re growing fast, you tend to grow inefficiently because you’re just trying to meet the demand. When that growth slows, you now have to find efficiencies,” points out Brigette Wolf, Chief Marketing Officer, My/Mochi.
Wolf continues, “If a company gets the hottest trend or the coolest thing, you’re going to jump on that to get that revenue. It may not be the most efficient revenue. Over time you’re going to optimize it, we call it a path to productivity. When things aren’t easy, we do expect innovation to be more impactful. If they can’t be just modestly incremental, they have to be seismic. My hunch is that respondents follow ‘fewer, faster, better,’ that’s the mantra because you want the bigger ‘size of the prize.’”
Still others, such as Mike Hatrick, Group Director IP Strategy & Portfolio, Volvo Group Trucks Technology, see the survey results as a positive sign of things to come for the industry.
“A pretty wide swath of respondents really think innovation is about finding new revenue streams. If I think about it from the Volvo Group point of view, we are definitely seeking new revenue streams actually by moving more into service minded solutions. This is a reflection of people moving towards services and digital,” says Hatrick.
Both short-term and long-term options would seem to be on the table to present a firm with avenues for both ways to success, especially during a downturn, which presents challenges and opportunities.
“As far as innovation in a downturn, this is what we hear from our customers again and again: How can we see new technology? How can we then turn that into new revenue streams?” says Leslie Shannon, Head of Trend & Innovation Scouting, Nokia. “Survey respondents are saying they’re taking the long-term view, as opposed to the short-term. A lot of the innovation that we’re seeing revolves around digitization and these are things that require a full rethinking of business processes. That’s the kind of long-term effect. Also, if you’re really going to get a good ROI.”
The survey results seem to reflect positive, and resilient, momentum for the future. Despite pressures from the economy and its mix of signals, innovation seems to be on a pathway to growth.
“In this year’s survey, most respondents feel that the role of innovation is to “finding new revenue “streams” as opposed to “cutting costs.” And if you include respondents that are staying the course, 85% of our community is not focused on cost cutting despite ongoing inflationary factors,” agrees Michele Sandoval, Director of Innovation, E&J Gallo Winery. “This is incredible news given the downward pressures most companies are facing. The fact that most organizations are focusing on new ways to generate revenue speaks to an optimistic future.”
Balancing resources can present challenges to any firm. However, an eye on long-term growth may take time to develop, sometimes years, so one can’t take short-term growth off the menu entirely.
“When I think of those long-term focused innovation ideas, they take a lot of time to both incubate and develop, at least historically. This can impact the balance of resources especially as innovation continues to move at an increased pace,” says Sandoval.
Adapting Your Strategy
Adaptation, and flexibility, is the name of the game for many firms driven by agile development methodologies.
Susan Penta, Co-Founder, Managing Partner, Midior Consulting, adds, “Adapting to the current environment also seems to be a theme emerging from this year’s data. Respondents seem to be focused on new revenue streams despite the downturn. Often, the initial reaction to a recession is to reduce risk by cutting costs so that you’re in the leanest position possible but in fact, recession is also where there is often the most opportunity. It’s also typically where the paradigm shifts happen—when things are hard is when people start surfacing the problems and figuring out new ways to solve them. I’m bullish that there were as many respondents embracing growth—and spending their way to increasing top line revenue—as a way through the downturn as there were interested in cost cutting. Those are two very different strategies that would imply that those companies are redeploying funds there.”
The pace of change in the market is rapidly accelerating as well. Innovation-oriented firms, regardless of their specialties, have to be nimble while facing more pressures to keep the lights on.
Despite the current downturn (at the time of the survey), “Most survey respondents are focused on finding new revenue streams, demonstrating their determination to double down on innovation,” says Gail Martino, Senior Program Manager, Unilever.
“Respondents recognize the importance of innovation that has a significant impact in the market and are focused on growing the top line. Interestingly, many survey respondents are working on longer-term projects rather than shorter-term ones, even though a significant number of them are go-to-market people. This trend could indicate a shift in the survey demographic,” observes Martino.
From a realistic perspective, Zeinab Ali, Sr. R&D Leader/Consultant, sees how both short- and long-term revenue goals play out depending upon the organization’s specific situation. That means for most organizations there will still be some cost cutting.
“Survey respondents selected finding new revenue streams during a downturn. I do agree with the data,” says Ali. “However, there is still some cost cutting that must always be done. We always start with creating a new revenue stream and at the same time we must look for opportunities to remove inefficiencies and find cost cutting opportunities. The best innovation is when you deliver a product/service to the consumer and meet customer needs while removing inefficiencies from the system. That is the crown jewel of innovation.”
Perhaps, Ali suggests, innovation needs to balance the two options, eyeing short-term revenue and incremental gains while taking the next steps in their long-term projects.
Ali adds, “A third and a quarter of respondents think long-term impactful, disruptive ideas as opposed to short-term revenue augmentation. For the organization to have patience for a long-term disruptive innovation, you will need to have many short-term innovations to keep the “Light On.” You need short-term revenue stream to fuel the long-term innovation. Balancing the two is critical for the organization to grow. There is always a tug of war between the two, but a mature, innovative organization can and will balance the two.”
Harsh Wardhan, Innovation Program Lead, Google, agrees with Ali’s premise. “When it comes to survey respondents cutting costs or finding new revenue streams, it was far and away about finding new revenue streams. That is the situation. People are optimistic. Cutting costs is also happening a lot. But then it’s two sides to the same coin.”
Finding the Right Position
Still, whether you fall on the short-term or long-term side of the equation, it’s all about growth—which is quite a positive sign compared to where firms were positioning themselves at the beginning of the year.
Sally Dominguez, Inventor, Futurist, Founder, Adventurous Thinking Group, adds, “Survey respondents are absolutely on the more impactful and long-term side of innovation. But I also wonder when people answer this, whether they’re giving the answer they wish were true versus the answer that is true.”
Dominguez continues, “We all know that most companies are still relying on growth coming from incremental improvement. And that’s an innovation; lean, continuous improvement, incremental improvement– a better battery. I would have expected there to be more people admitting that there’s a focus on short-term because you’re trying to keep the ship powering along. It’s definitely in the minds of our survey respondents about finding new revenue streams during a downturn instead of cutting costs. It’s about growth. If you want growth, you need innovation from everybody – inclusive innovation.”
The FEI and All Things Innovation community completed the comprehensive Innovation Spend & Trends Report covering what innovation executives are thinking, how they’re spending and the issues they face. Per the results, this is a senior-level, experienced, cross-industry group that signals a broad range of business-oriented preferences and strategic insights focused on the innovation industry as a whole.