Investing In Innovation During Challenging Economy Yields Real Results

Investing In Innovation During Challenging Economy Yields Real Results

Mitch Barns, President, Greater China, The Nielsen Company

China is one of our fastest growing markets globally. We use our broad range of market research and analytical capabilities to bring our clients the clarity and insight they need to make good business decisions.  One of our priorities is to continuously invest in innovation to improve our capabilities in China.  One example of this is our new R&D center in Beijing.

Innovation is the engine of growth so it is important to continuously invest.  But during challenging economic times, we face a difficult question:  Should we continue to invest in innovation or should we save our money?  This is a very important question, not only for the company that I work with, but also for our clients.

To answer this question, The Nielsen Company studied recessionary times in a variety of markets over the past 30 years.  We looked at our own data and experience, as well as other sources (McKinsey & Co., McGraw-Hill, Ehrenberg-Bass Institute, and others).  The most important finding from our study is this one:  Companies that continue to invest in their new product innovations during challenging economic times emerge from recessions with much higher growth rates than companies who cut back.  By “much higher,” we are referring to growth rates that are two or three times higher (five to 10 times higher in some cases) than the growth rates of companies that cut back on innovation during a recession.  The clear implication is that companies should do everything they can to maintain their investments in innovation and new product launches amid economic turmoil. Maintaining these investments will pay off substantially — in terms of growth and competitive advantage — when the economy improves.

Budget pressures often force managers to consider cutting the cost of making the product or reducing the advertising budget.  Our advice is to be very careful with these choices.  Cost cutting in these areas might produce a short-term benefit, but it is often counter-productive in the medium-to-longer term.  If reducing product cost means reducing product quality, consumers will probably notice and sales will eventually suffer, because product quality is the single most important driver of long-term sales potential.  Cutting back on a new product’s advertising budget usually results in lower consumer awareness of the new product, and this means fewer people will try it, resulting in lower ongoing sales.  So in both cases, although we might benefit in the short term by reducing costs, we “pay for it” later in the form of lower sales and lower odds of success.

Not all companies will maintain their investment in their new product innovation programs during the economic downturn.  Some will be forced to cut back by budget realities.  But for those companies who have a choice, they should be confident that they will benefit significantly in the medium-to-longer term by maintaining their investment in innovation and new product launches through the challenging economic times.  The evidence from our study clearly shows that history — and the data — are on their side.