Welcome to Part 3 in our series on project risk during a recession. Part 1 focused on customers as a risk factor. You can read here about adjusting price decisions to meet customer needs during an economic downturn. In Part 2, we looked at a few financial risks that are presented to innovation teams during recession. Read here about re-examining your business model to serve low-margin/high-volume or low-volume/high-margin markets to maintain financial security with long-range product development.
In this article, we’ll look at the third project risk factor – technical. Of course, a firm’s decisions around technology adoption, expansion, and abandonment are directly related to customer, financial, and people decisions. Technology development during a recession has key benefits of a slower pace of development, retaining critical workers, and building competitive advantage. For example, the Apple iPod™ and Amazon Web Services were products developed and introduced during the dot-com recessionary period.
Technical Development Quality
When the pace of innovation is slowed, such as during a recession, the quality of the technology may be superior. R&D teams have more time to ensure that anomalies are tracked down and addressed. Instead of releasing a partly acceptable minimal viable product (MVP), companies can take the time to validate functionality of a new product before it goes to market.
There are several benefits to slowing down technical development and commercialization in new product development (NPD). First, errors and mistakes are reduced by taking the time to do it right the first time. Next, in taking more time to release a new product to market, the development costs can be somewhat lower. Rushed development usually involves larger teams and more quality issues to fix after launch. Using the available time and moving carefully along the development pathway can improve product quality while saving investment in post-launch fixes.
Finally, tying back to customer risk (read here), product development during a recession gives innovation teams more opportunities to interact with real consumers. Technical development should not start until after customer needs and requirements are identified, regardless of your NPD process (waterfall, agile, hybrid).
When customers are pressured financially, they are more likely to demonstrate fundamental needs. These requirements then become the building blocks for technology design and development. When the economy recovers, you can add luxury features and functions to differentiate the product. Yet, the basic features are fixed from the deepest needs of customers expressed during their leanest consumption times.
Retain Key Workers
Working on NPD during a recession gives a firm advantages in building the capacity and capability of the technical staff. Because the pace of development slows, your R&D staff can invest in continuing education to build skills. Often when we are in the “hurry up” mode of rapid product releases, there is not time for technical staff to learn new things. You must keep your technical workers skilled in emerging technologies to maintain a long-term competitive advantage.
Next, while you may take the opportunity of a downturn to clean house, you will want to reward and retain specific employees with critical knowledge competencies. When times are slower, it’s also a time to establish knowledge exchanges and reward cross-functional collaboration. Let technical staff try their hand at small marketing projects to expand their skill sets and build depth for new product development.
Abandon and Replace
A recession is a good time for the business to clean house. Products that are not performing well in the marketplace should be abandoned. If there is enough demand and growth opportunity, an economic downturn can be used to replace the product with one that is less costly to manufacture or uses less expensive raw materials. Ask which products can be reduced in inventory and which technologies are too expensive to continue. Some good metrics are sales and general administration (SGA) per unit, market share, and market growth potential. If the product is underperforming now, will it improve when customers have more money in their pockets?
Technical Risk During Recession
All innovation projects involve a degree of risk to design, develop, and commercialize to a finicky market. Goals of new product development include delivering value to customers and creating value for the organization. In an economic downturn, customers want to stretch their dollars because they feel the effects of inflation and low wages. Government expansion is hindering private growth so jobs may not be as plentiful as public reports indicate. Companies are pressed to maintain profit even when raw material and supply chains are skyrocketing. It’s hard to find workers that will come into the office and stay on the job.
In light of these concerns, an organization can choose to continue investing in R&D workers during a recession. Complex technologies take time and dedicated resources to develop. Using a slow sales cycle to position innovations when the economy recovers might be a smart move. Companies should consider retaining key technical staff and upskilling employees to manage technical risk during a recession.
In the final segment of our series on product development risks in recession, we’ll discuss managing people (employees and stakeholders).
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