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The seasons have turned and along with the crisp air, a sense of optimism has blown over the UK. Business leaders are seeing greater levels of activity, deals are being done and innovation seems to be on the increase. Yet, at last week’s Criticaleye CEO Breakfast, some questioned whether this increase in innovation is real or just continued cost-cutting under a different name. 
 
It would be untrue to say that innovation is not happening at all.  In these challenging times there is pressure on companies to become more innovative. Bal Samra, Director, BBC Vision Operations & Rights says: “As organisations start to look hard at where they're delivering value, they are recognising that whilst cost-cutting can make things cheaper, cost-cutting alone doesn't necessarily deliver improved value. Organisations will also place more value on innovation, particularly as the speed of technology continues to play an important part in our businesses.” 
 
2010 is likely to see real innovative projects starting up. Unfortunately, the UK economy, and therefore innovation, is still lagging behind because of the lack of confidence. Asia and the US are already seeing a pick up in innovation. Robert Ashcroft, CEO, Hudson Morris Associates explains: “I’m involved in four highly innovative businesses at the moment and only one of them is fundamentally motivated by a desire for greater efficiency. If it’s any indication of sentiment though, it was this business that proved to be easiest to raise money for.”
 
Many CEOs agree that innovative thinking and initiatives can come from cost-cutting, but too much cost-cutting can be detrimental to the brand. 
 
“Meaningful innovation is critical in these times - consumers are examining their spending carefully and want innovation which enhances their lives. Consumers expect their favourite brands to deliver even better value than ever. And value is not just a function of price but better benefits. If brands cut costs and compromise on quality, they endanger their trust and loyalty forever,” says Richard Ellis, SVP Global Research and Development, Reckitt Benckiser.
 
Daryl Dunbar, Senior Vice President – Innovation, Reed Elsevier adds to this: “In my view, innovation is about creating value and not just about new products and services. There are two sides to the value equation; revenue and cost.  To ask if you are cost-cutting instead of really innovating is a falsehood; the two are not mutually exclusive. 
 
“Innovation comes in different types; new products and services, business models, processes and management innovations.  There are also different degrees of innovation; to sustain and grow your existing business, to create new revenue streams, to create whole new businesses or to provide strategic alternatives. Cost-cutting is therefore a form of innovation.  That said, most businesses are finding it difficult to invest in new initiatives in these tough times.  Wise businesses will undertake cost-saving measures in order to create or simply maintain value, but a word of caution – cut too far and you will be poorly positioned as the markets turn around."
 
Often cost-cutting and innovation straddle an invisible line that can be hard to define but it is important to look at the differences. David Long, Managing Director, Skinkers says: “I think the distinction between innovation and cost-cutting dressed up as innovation is a subtle one. Skinkers is a forward thinking company selling innovative products and often our route into organisations is via their innovation department. We have certainly seen an up-swing in the number of incoming calls in recent weeks and getting meetings with large enterprises is definitely easier. This could be because budgets are starting to free up as uncertainty eases, although we are having many more conversations in topic areas such as ‘employee/customer engagement’, ‘video delivery’ and ‘employee/customer satisfaction’ which are certainly innovative, as well as the more cost saving centric ‘service desk alerting propositions'."
 
Andy Stefanovich, Senior Partner, Prophet believes that the innovation taking place is not cost-cutting in disguise. He says: "Cost-cutting is a by-product of the innovation process over the past 18 months.  More recently, in the last 3 to 4 months, companies have moved beyond efficiency toward proactivity in order to get ahead of the curve.  There is a clearer definition for innovation as a vehicle for overall growth and transformation, not just new products and services. Organisations are innovating business models, creating new ideas that serve the triple bottom line and co-creating with clients and partners.  All in the spirit of getting ahead in their category through transformational growth.  We are truly seeing the evolution of innovation from incremental changes like cost-cutting to transformational breakthroughs including new business strategies.”

To read about innovation and cost-cutting why not check out some of our Insight on our dedicated Innovation page.  Also see A Framework for the Intangibles of Innovation, a Criticaleye article by Warwick Business School's Professor Harry Scarbrough and Inspiration as a Discipline for Innovation, a write-up of a recent Criticaleye breakfast forum.

Please get in touch with me if you have any comments on today's topic.

I look forward to seeing you soon.

Matthew