Forging the Future #2: Innovating to Cut Costs: Keeping the focus on what really matters
April 2009 
Executive summary –Whether tops down or bottoms up, innovation can be an excellent tool for finding ways to stretch budgets. However, there is no special grace for innovators in tough times. Getting attention, making the work a priority and getting a good idea accepted is still a challenge. There is one advantage, though: people are being forced daily to break out of familiar and comfortable patterns. When things and measures and balance sheets dominate the conversation, turning the focus on people, what they need and how relationships can be established and deepened becomes more essential for anyone wishing to pursue innovation even as shrieking headlines compete for attention.

Innovation is usually thought of in terms of inventions, new offerings and the sizzle that can make old products sell. But when new and improved means savings, it can be more relevant in a tight economy. Such innovation can come from tops down approaches, of course. Consultants have long provided reengineering services aimed at taking the larger view of a department, a division or even a whole firm and determining where there are overlaps and waste. The best of these consultants also look outside the enterprise, or even outside an industry, to adapt best practices for new efficiencies.

Many enterprises have already been through reengineering programs, of course, often with mixed results. If the sensing of potential efficiencies does not become part of the culture, or if there are dramatic changes brought about through acquisitions or outsourcing, some of value gained can go away. However, there's no doubt that many reengineering practices have become part of doing business. Many of the questions that emerged as companies undertook these programs have continued to guide people in decisions that reflect broader possibilities.

Of course, in a lean economy the approach to cost cutting often consists of canceling travel, curtailing research and giving each department a 10% cut in its budget. For the last of these, the assumption seems to be that there is obvious waste, and that the people who are on the ground are the ones who can best find and act on it. Although across-the-board budget cuts in an enterprise can be as ill considered as an across-the-board budget cut in a household (does anyone want to tell their mortgage company that this month's check will be smaller?), there is some sense here. People on the ground really do have a good view of where waste is.

Alan Robinson, in his book Ideas Are Free, makes a strong argument for the superior knowledge of people who are directly creating the value, through work with customers and through building products. When these people are encouraged to find more efficient ways to do their jobs, as they are through systematic approaches in firms like Toyota, they can work wonders. There are, however, critical success factors.

First, coming up with the ideas needs to be an expectation, a regular part of everyone's job. Second, these ideas need to be shared around and developed into tasks that can really accomplish the goal. And, naturally, there must be time for coming up with the good ideas, sharing them and taking on the new tasks. The ideas might be free, but putting them to work to save money requires some investment and some commitment.

Underneath this, is an acknowledgment that ideas may come from anyone, not just from people who are paid to do research or development. This usually means all workers need to be given explicit permission to be innovators. They also may need some training, so their ideas are more consumable. And, as stated above, the company needs to put aside sufficient resources to make these things happen. Surprisingly, Robinson says that an awards program may be counterproductive. The greatest incentive for most people who come up with good ideas is to see those ideas put to work.

Even though this is a bottoms up approach to cost-cutting innovation, leadership can play a role beyond providing resources. For one thing, they often can see from their vantage point target areas where new ideas can really make a difference. By articulating what these target areas are -- say, finding a way to make better use of talent in the company, or reducing solid waste from a plant-- they can help focus the creativity and attention of people who are closest to answers that will really matter. There are also cultural approaches, including celebrating ideas that didn't work, not just those that did.

One of the problems with putting the emphasis on bottoms up innovation is that too often those innovations never become broadly available. Leadership can find the natural ways for people to share ideas and successes across the enterprise, and these can take a small success and multiply it, turning it into something that can have a huge impact.

Similarly, the rise of access to ideas through the Web and in particular through social networks – where ideas are attached to specific people who know their contexts - provide opportunities for organizations to discover the small but powerful ideas that are bubbling up in organizations worldwide.

This points to one of the limiting factors. For all the evidence there might be around the ability of new ideas to increase efficiencies, not everyone is going to buy into them. The things that prevent people from adopting new ideas - concerns about risk, communications, resistance to change and lack of incentive - are not suspended during a bad economy. In fact, except when organizations have reached a desperate state, there's a strong likelihood that even simple changes might not be accepted. The focus for most people is on holding onto their jobs, making sure that they've done what they were specifically assigned, avoiding any sort of screw up that might attract undesirable attention... and otherwise keeping their heads down.

There are many other factors that ironically can keep the enterprise from taking the steps in directions that can help people to have enough resources to survive a downturn. For one thing, people with new ideas have to compete for attention in an environment that is filled with anxiety, and often fear. This can be discouraging, (and for anyone undertaking innovation discouragement is part of the bargain and the best of times), but bad times also bring a hunger for good news and hope. Talking about the innovation in terms that encourage (without being unrealistic) becomes part of the job for innovators in a downturn.

Innovation can often be put off. After all, why take on something new when there's so much to be done that's obvious and familiar (and often when there's more to be done, thanks to colleagues heading out the door)? Here an innovator needs to provide the best information available not just on what savings might be achieved, but when they might be achieved. If reluctance to adopt an innovation can be viewed as letting money leak away, it becomes more urgent.

Politics are always part of any attempt to innovate. Someone in the organization is likely to see innovation as a territorial threat, even when a new territory is being created. This stand-and-hold posture will be especially strong when budgets and headcounts are under pressure. It may take some jujitsu, but if a way can be found to show executives and managers that they have a better chance of holding onto their power by adopting an innovation, these enemies can be turned into allies.

Innovations may have one advantage during downturns. Despite their best efforts, many individuals are forced to change. And organizations are forced to change. And when the routine goes away, there is the opportunity for old habits to be broken and new ones to be formed. Though this is most dramatic for organizations that face extinction and must take radical measures, it's also true to some extent for any enterprise that is caught up in a downturn.

A little recognized advantage of shrinking budgets and market challenges is that people are inevitably thrown together in new ways. There's a certain energy generated when this happens. There is the potential for new and stronger relationships. A classic way to build social capital and the trust is necessary for the adoption of any new innovation is doing people favors. And with so many people more dependent on others, there are many new opportunities for building such trust.

Of course, the converse is likely to be true. Some people will see reaching out to others with help as risky. They may even be tempted to mislead others or cut corners to get unfair advantage in a time when they feel personally threatened. In these cases, social capital breaks down, trust is destroyed and there really aren't any opportunities created to do something new.

Keeping both the possibilities for new relationships and the dangers of destroying them in front of people is the responsibility of each individual committed to innovation, no matter where they are located in the organization. Recognizing that human relationships underlie the creation of value and overall efficiency is the most powerful tool for innovators in tough times.

Peter Andrews forgingthefuture@gmail.com
Twitter (@forgingthefutur). 

My news: Innovation Passport is now listed on Amazon and a paper for it has been accepted for October's Atlanta Conference on Science and Innovation Policy.  I'm actively looking for opportunities of all kinds – speeches, podcasts, interviews, workshops – to publicize the book.  If you know of any, please send me a note.