Assistant Professor Oleks Osiyevskyy and Professor Marc Meyer were selected to receive the Best Practitioner Paper Award at the 2015 Annual Meeting of the U.S. Association for Small Business and Entrepreneurship for their academic paper, “The Impact of Recessions on R&D Expenditures of Innovative New Ventures.”
#LeadersatWork spoke with Oleks about his research around the impact of recessions on the innovative activities of organizations and how organizations big and small can prepare for an unknown future through strategic business models.
Oleks and his colleagues explored the activities of nearly 5,000 new ventures and small businesses that started in the United States in 2004 and tracked them through 2011. Through analyzing research provided by the Kauffman Foundation for Entrepreneurship & Education, they were able to gain a better understanding of how entrepreneurial ventures react and respond to a recessionary period by examining where those firms were when the financial crisis hit, and how they handled the consequences.
“Our initial findings indicated that in general, a crisis impacts most organizations in some way or another, but it hits the most innovative companies the hardest,” Osiyevskyy explained. “Following the 2007 financial crisis, many of the highly innovative companies that were accustomed to allocating up to 30 percent of their revenue into R&D decreased that number to 20 percent or lower, in an attempt to cut their losses.”
To many leaders, it didn’t make sense to pump crucial resources into research and development when the revenue stream was falling. Rather than focusing on how they could succeed through their next big idea, many prioritized selling what they already had.
However, according to Oleks, the companies that not only endure, but thrive, post-crisis, are the ones that maintain or even increase investment in research and development throughout the crisis.
For example, take tech giant, global innovator and one of the world’s most recognizable brands, Apple. During the recession, while most organizations seemed to be re-allocating R&D budgets, Apple remained dedicated to finding its next big idea. They started developing the iPad in 2007-2008, during the heart of the recession. By the time Apple was ready to release its first version of the technology, consumers’ demand was ready, and the product was hugely successful.
Oleks and his colleagues found that the few companies, regardless of size, that continued to innovate during the recession came out on the other side with higher growth rates than their competitors and a greater chance of increased profitability.
“Innovation is a possible pathway through a period of crisis,” said Osiyevskyy. “One of the most important points to bear in mind about a recession is that eventually, it ends. The companies that continue to invest in tomorrow, like Apple, are the ones that will come out on top.”
But how should entrepreneurs, new ventures and startups get ahead of a potential crisis, so that they can come out ahead? Oleks, whose primary area of research and expertise lies in analyzing and designing innovative business models, says that a business strategy that prioritizes R&D initiatives must be in place.
“Leaders and entrepreneurs alike must be aware of two key points when it comes to disruptive change,” said Osiyevskyy. “First, every industry will be disrupted one day or another. Second, no one can actually predict when the disruption will happen and what it will be. Yet, a business can prepare itself for disruptions without accurately predicting them”.
It’s up to the business leaders to mold a plan that keeps the long-term interests of their company in mind. Crises will always occur and when they do, it’s another opportunity to showcase just how innovative and forward-thinking your product can be. The Corporate Education Program at D’Amore-McKim is training leaders who understand how today’s innovations impact tomorrow’s business.
How did your organization handle the recession of 2007? Were investments into innovation and R&D halted or increased?