Seize the innovation opportunities that will emerge in the next recession

This is a contributed article by Nick Jones, Vice President and Gartner Distinguished Analyst.

An increasing number of economists are now predicting that a recession may be imminent, with European and American economies at risk of a downturn within the next two years. Of course, the date of a recession cannot be forecast with complete accuracy, but economic downturns are inevitable — and significant time has passed since the last one.

The innovation work that enterprise architecture and technology leaders are involved in will inevitably be affected by any slump. However, an economic downturn isn’t necessarily bad news from a technology innovation perspective. Innovation will remain an inherently in-demand “commodity.” If innovation leaders plan accordingly, they will not only be able to stay afloat on choppy waters, but could potentially thrive. If sufficient contingency plans are in place to weather the storm, organisations could profit from a time of uncertainty by seizing the novel or more affordable acquisition opportunities that will arise.

Before considering how and where businesses can seize the opportunities that arise from a recession, they must first understand the changes the innovation landscape will undergo as a result of an economic dip. The usual channels through which organisations acquire new technologies and innovations — internal innovation labs, partnerships with key vendors and academics, start-up acquisitions, internal development — are guaranteed to feel the effect of any form of downturn. As venture capital firms grow more cautious, withdraw funding and sell companies prematurely to cover losses, start-ups will have difficulty obtaining funding and be forced either to adopt more solid business models or change their goals to achieve profitability.

If we enter a new recession, there are a whole host of other eventualities to consider. The prices of corporate acquisitions will probably fall, and the range of strategic options will expand as both targeted organisations and potential acquirers change their business models, reshuffle priorities and reorganise internal structures. There will also be opportunities in terms of talent sourcing. Redundancy is a by-product of recession, which means that the pool of potential staff may well increase, and talent may become more mobile.

These are just some examples of the likely fallout from an economic downturn that companies can capitalise on. But having identified these different windows of opportunity, organisations must also fully understand the types of technologies and innovations they need, before setting out to benefit from an economic slump.

Once organisations understand the types of technologies and innovations they need, and have assessed the likely impact of a downturn on the people and businesses that supply them, they can search for opportunities.

Seeking out potential acquisitions is a solid starting point. This can be done by scaling up efforts typically invested in identifying small companies, creating a “wish list” of potential targets, and ensuring that the mergers and acquisitions team is fully prepared for increased activity. In addition, businesses should seek out investment opportunities and strive to profit from any fall in stock prices.

One interesting approach that companies may want to consider during a recession is to look for “adjacencies.” This entails partnering with vendors of technologies that almost, but don’t quite, fit the bill. In times of economic instability, small technology vendors are likely to be increasingly amenable to customising their technologies, or even changing their corporate direction, in order to meet a customer’s requirements. Other targets that shouldn’t be overlooked are local innovation hubs and incubators.

For companies unable to invest in acquisitions, forming a consortium is a solid alternative — having a share of something is better than nothing, after all. Consortium collaborations spread the cost and risk of developing a new technology across multiple parties. Another collaborative way to overcome funding shortages can be found within the academic sphere. Academic collaborations can prove an affordable way to develop a technology or prove its viability. Academics are likely to be open to collaboration opportunities as a result of reduced sponsorship — in such cases, corporate partnerships become an attractive option.

Chief technology officers, enterprise architecture and technology innovation leaders should recognise that their fields aren’t immune to budget cuts during an economic downturn. Therefore, it’s advisable that they market their capabilities to executives and explain how an economic downturn could become an innovation opportunity, and how smart investment at the right time could help a company steam ahead of its competitors.

Nick Jones, Vice President and Gartner Distinguished Analyst.