Innovating Out of a Downturn Ronald Jonash September 2012 Locations: Bogota Boston Dubai London San Francisco São Paulo Seoul Shanghai Singapore
Innovating Out of a Downturn Index Four Pathways for Innovating Out of a Downturn Six Tenets of Conventional Wisdom Six Tenets of Thinking and Acting Differently 2
Innovating Out of a Downturn Vicious Cycle The global economy fell off a cliff at the end of 2008 as economies around the world were caught in a vicious cycle and is just now beginning to recover Company Growth Expectation is Reduced Employees Fear Job Losses and Spend Less Stock Market Declines Vicious Cycle Layoff Employees and Buy Less Materials Consumers Lose Confidence and Reduce Consumptio n Companies Decrease Production 3
Innovating Out of a Downturn Four Pathways AUTO INDUSTRY EXAMPLE What are the Options? Cash Hunker Down Lean Forward Survive or Die Be Prepared for What is Next No Cash Follow Conventional Wisdom Think and Act Differently 4
Innovating Out of a Downturn Index Four Pathways for Innovating Out of a Downturn Six Tenets of Conventional Wisdom Six Tenets of Thinking and Acting Differently 5
Innovating Out of a Downturn Conventional Wisdom Many are hunkering down while others don t know it but they are in danger of surviving this downturn Cash Hunker Down Lean Forward Survive or Die Be Prepared for What is Next No Cash Follow Conventional Wisdom Think and Act Differently 6
Innovating Out of a Downturn Conventional Wisdom Six Tenets These companies are following the conventional wisdom follow six key tenets to ride out the downturn 1. Cash is King 2. Don t Expand 3. Protect Yourself First 4. Don t Take Risks 5. Clean House 6. Focus on the Core 7
Innovating Out of a Downturn Conventional Wisdom Cash is King 1. Cash is King Cut operations costs Cut headcount of operations Drive revenue Implications of Going Too Far Cut muscle and bone and it will be hard to grow after the downturn 8
Innovating Out of a Downturn Conventional Wisdom Don t Expand 2. Don t Expand Curtail Investments Stay Close to Home Eliminate Distractions Implications of Going Too Far Stop investing in the future and there will be no future 9
Innovating Out of a Downturn Conventional Wisdom Protect Yourself 3. Protect Yourself First Eliminate Non-Essential Relationships Pay Suppliers Late Demand Payment Now Implications of Going Too Far Abandon your friends and they may never trust you again 10
Innovating Out of a Downturn Conventional Wisdom Don t Take Risks 4. Don t Take Risks X No New Markets No New Offerings No New Technologies Implications of Going Too Far Focus too much on risk avoidance and you will eliminate all opportunities for growth and competitive differentiation 11
Innovating Out of a Downturn Conventional Wisdom Clean House 5. Clean House Streamline Operations Reinforce Discipline Cut Non-Operational Employees Implications of Going Too Far Go too lean and mean and you lose essential flexibility and entrepreneurship 12
Innovating Out of a Downturn Conventional Wisdom Focus on the Core 6. Focus on the Core Eliminate Non-Core Stay True to Past Success Don t Add New Implications of Going Too Far Win the battle and lose the war as new convergent trends and disruptive players emerge 13
Innovating Out of a Downturn Conventional Wisdom Implications If you go too far on any of the six tenets then there is a risk that your business my not survive the recession and will certainly not be positioned to grow. Implications of Going too Far with Conventional Wisdom Cut muscle and bone and it will be hard to grow Stop investing in the future and there will be no future Abandon your friends and they may never trust you again Focus too much on risk avoidance and you will eliminate all opportunities for competitive differentiation Go too lean and mean and you lose essential flexibility and entrepreneurship Win the battle and lose the war as new convergent trends and disruptive players emerge 14
Innovating Out of a Downturn Index Four Pathways for Innovating Out of a Downturn Six Tenets of Conventional Wisdom Six Tenets of Thinking and Acting Differently 15
Innovating Out of a Downturn Thinking and Acting Differently Those who thinking and acting very differently, while still paying attention to conventional wisdom are more likely to win coming out of the downturn Cash Hunker Down Lean Forward Survive or Die Be Prepared for What is Next No Cash Follow Conventional Wisdom Think and Act Differently 16
Innovating Out of a Downturn Thinking and Acting Differently Winning out of this downturn will require thinking AND acting differently to create and be prepared for real opportunities now and as markets improve Follow the Conventional Wisdom Cash is King Think and Act Differently Cash and Other Assets are King Don t Expand Be Prepared to Expand Protect Yourself First Protect Yourself and Your Friends Don t Take Risks Take Some Risks Clean House Clean house and Fertilize Your Garden Focus on Core Focus and look around for options 17
Innovating Out of a Downturn Thinking and Acting Differently Lean Forward Some companies are leaning forward to dominate their markets Cash Hunker Down Lean Forward Survive or Die Be Prepared for What is Next No Cash Follow Conventional Wisdom Think and Act Differently 18
Innovating Out of a Downturn Thinking and Acting Differently Lean Forward Those with cash can lean forward with relative ease CEO John Chambers said that he looks forward to taking advantage of the crisis to expand Cisco has built up a $30 billion war chest and is moving into 28 different markets since the 2009 crisis Amazon has acquired two companies in the past 12 months with focus on Robotics and Voice Recognition software Amazon rolled out two Kindle Fires: a new version of the current tablet and bigger Kindle Fire HD Following Hyundai s lead, Pfizer launched a campaign for sick people who lost their jobs to access free Pfizer drugs for up to one year or until they have insurance again Source: News Articles, Company Press Releases, IXL Analysis 19
Innovating Out of a Downturn Thinking and Acting Differently Be Prepared for What s Next There are companies with low cash positions that are thinking and acting differently to survive through and lead after the recession Cash Hunker Down Lean Forward Survive or Die Be Prepared for What is Next No Cash Follow Conventional Wisdom Think and Act Differently 20
Innovating Out of a Downturn Thinking and Acting Differently Six Tenets These companies with less cash to invest can follow six key tenets to survive and be prepared to grow rapidly out of this downturn 1. Cash and Other Assets are King 2. Be Prepared to Enter New Markets 3. Protect Yourself and Your Friends 4. Take Some Risks 5. Clean House and Fertilize Your Garden 6. Focus and Look Around for Options 21
Innovating Out of a Downturn Thinking and Acting Differently Cash and Other Assets are King Companies who must scale back and conserve cash, can still offset the risk of limiting the upside when the market turns 1. Cash and Other Assets are King Cut operations costs Cut headcount of operations Drive Revenue Focus on tighter and refocused Portfolio and Pipeline Focus on investments that will conserve cash and also ensure your future What are the Benefits? Provide insurance and assurance against What If? In the last downturn, 3M lost its way when it cut to the bone The company is now rebalancing its portfolio to retake its innovation leadership position 22
Innovating Out of a Downturn Thinking and Acting Differently Be Prepared to Enter New Markets Companies who must focus more on present business performance need to invest so that they don t lose sight of the future 2. Be Prepared to Enter New Markets Curtail investments Stay close to home Eliminate distractions Focus on low-cost Open Innovation with offsets Focus on restructuring mid to long-term investments What are the Benefits? Generate leveraged Investments in Real Options and capabilities for What s Next? P&G continues to use its Connect & Develop shared innovation model to rapidly source, develop and commercialize new offerings with stakeholders inside and outside the company 23
Innovating Out of a Downturn Thinking and Acting Differently Protect Yourself and Your Friends Companies need to save themselves first, but they must avoid the risk of ruining relationships that will be key in the future 3. Protect Yourself and Your Friends Eliminate non-essential relationships Pay suppliers late Demand payment now Focus on win-win innovation across the value chain Focus on support for your friends and building new alliances What are the Benefits? Use hard times to build stronger relationships and more sustainable business models Continental had no cash to achieve their a number one ranking in JD Powers as they emerged from bankruptcy Used partnerships with their unions (including sharing equity) and joint innovation initiatives to support the goal 24
Innovating Out of a Downturn Thinking and Acting Differently Take Some Risks Companies often need to focus on sure bets, but they also need to pursue and explore new opportunities 4. Take Some Risks X No new markets No new offerings No new technologies Focus on rapid experimentation and de-risking Focus shared risk reward What are the Benefits? Build a more balanced risk opportunity portfolio across time horizons Toyota has sparked a new model in the auto industry with its rental before you own model, which offers increased time to trial and consumer confidence, spurring new-car sales 25
Innovating Out of a Downturn Thinking and Acting Differently Clean House and Fertilize Your Garden Companies have to streamline operations and cut costs but they need to continue to invest in innovation and creativity 5. Clean House and Fertilize Your Garden Streamline operations Reinforce discipline Cut non-operational employees Focus on tighter and refocused Portfolio and Pipeline Focus on investments that will conserve cash and also ensure your future What are the Benefits? Use the downturn to build and develop stronger innovation competence Rather than completely eliminating development training budgets, BAE is currently expanding Innovation training and leadership development through the recession 26
Innovating Out of a Downturn Thinking and Acting Differently Focus and Look Around for Options Companies who are focused on short term survival need to also invest in longer term sustainability as new trends emerge 6. Focus and Look Around for Options Eliminate non-core Stay true to past success Don t add new Focus on low cost side bets and options to drive future growth Focus on more powerful convergent themes and growth platforms What are the Benefits? Connect the dots to drive more compelling and differentiated value propositions Pepsi continues to develop and maintain its expansion into functional foods and beverages to complement its current product line and link into the growing health-conscious trend 27
Innovating Out of a Downturn Thinking and Acting Differently Winning in this market requires thinking AND acting differently to create real opportunities now and as markets improve Follow the Conventional Wisdom Cash is King Think and Act Differently Cash and Other Assets are King Don t Expand Be Prepared to Expand Protect Yourself First Protect Yourself and Your Friends Don t Take Risks Take Some Risks Clean House Clean house and Fertilize Your Garden Focus on Core Focus and look around for options 28
Innovating Out of a Downturn Four Models Companies across industries are making choices about their future Cash Hunker Down Lean Forward Survive or Die Be Prepared for What is Next No Cash Follow Conventional Wisdom Think and Act Differently 29
Innovating Out of a Downturn Four Models Companies across industries are making choices about their future : WHAT CHOICES ARE YOU MAKING Cash Hunker Down Lean Forward What Are Your Resources? Hunker Down Survive or Die Lean Forward 1 2 Be Prepared for What is Next What Are You Going to Do? Survive or Die Be Prepared for What is Next No Cash Follow Conventional Wisdom Think and Act Differently 30