While the declaration of a recession is dependent on an obscure department of the federal government, most people recognize the signs of an economic downturn.  Dictionary.com defines an economic recession as “a period of an economic contraction, sometimes limited in scope or duration.”  For example, in the 2007 to 2009 crisis, the US experienced an economic recession triggered by bad mortgages.  When the housing crisis was righted, the economy largely recovered.

In the previous three parts of this series, we’ve discussed elements of risk that impact innovation and how these components can be managed during an economic downturn.  Managing customer risk means adapting goods and services to deliver value to customers with less discretionary spending.  Innovation can focus on simpler designs to meet the core needs of our customers.  Read Part 1 of the series here.

Financial risk is, of course, the reason we discuss different approaches to innovation during recession in the first place.  An economic recession introduces new financial risks.  For instance, will vendors also be able to weather the storm?  Does the firm have expensive, long-term contracts that put profits at risk?  Should the company invest in cheaper capital during a recession for future growth?  Read Part 2 here.

Finally, in our last article, we discussed an approach to technical risk during recession.  Investing in R&D can be a smart move to position the firm for innovations coming out of recession.  Some of that investment ties to our topic this week concerning people risk.  Read Part 3 – as a primer – here.

People Risk

Since we have categorized customers and markets as a separate risk, we address employees and stakeholders with this discussion of people risk.  One of the key concepts in change management is that individuals adopt responses to change at different rates than to organizations.  Certainly, innovation responses to recession are responses to change and different organizations respond differently.

Layoffs

A common response to recession is to reduce the workforce through layoffs.  This can create immediate cost-savings and preserve profit margins.  However, companies must use caution in laying off product development teams during recession so as not to strip bare the capability or capacity to innovate.

A rough example comes from the airline industry.  During the Covid scare, airlines laid off hundreds of pilots.  When people started traveling again, airlines did not have enough qualified pilots and could not adequately supply their customers.

Competency

Another outcome of laying off pilots was the lack of qualification and skill.  If a pilot cannot fly a certain number of hours, he cannot maintain his license.  Then, he has to re-qualify for the job which is time-consuming and of course, requires flight hours.  That might not be a task he’s willing to do after finding an alternate source of income for two years or more.

The same thing happens with innovation professionals.  During a recessionary period, R&D and technical workers that are not assigned new product development work might get rusty and lose their qualifications.  Running quick tests and analyzing data might become bygone skills.  It is important to maintain a program of skill building for innovation employees if you want to remain competitive upon the end of the recession.

Training

In the past, recessions often resulted in more graduate students trying to build skills for expected future jobs while they are laid off work.  Companies that must hold on to their key talent for innovation can spend very little money to help employees increase education through matching or tuition reimbursement.  Firms can also establish increased in-house training for specific arenas to improve weak skills of the innovation team.  For instance, bring in a trainer to build interviewing skills if the team lacks experience in voice of customer.  Or offer statistics training if the team struggles with data analysis.

Managing People Risk in Recession

A lot of companies give lip service to “our people are our greatest asset.”  While you would not let a piece of machinery sit idle in the factory rusting away during a recession, do not let your people fade away either.  Consider limiting layoffs to maintain core talent.  Then consider investing in their skills to maintain qualifications and competencies yet also increasing their knowledge base.

In this series, we have discussed tactics to manage risk for innovation during the recession.  In particular, we have discussed customer risk, financial risk, technical risk, and people risk.  Feel free to contact us at info-at-globalnpsolutions.com to see how we can help you develop a plan to manage new product development during recession.

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