We are already in the middle of an economical slow down here in Denmark and several other countries (USA, UK, Ireland) have been for a while. I believe it’s safe to say that the global economy will cool off for the next couple of years. Last time we experienced a slowing economy, after the dot-com bubble, CEOs all over the world made serious mistakes to cope with the recession. However, unless you want to compete on price alone, innovation is the last thing you should cut back on. The ability to do sustained innovation is how you keep an competitive edge in your industry.

Unfortunately most businesses use the ostrich strategy, when orders decline and the phones stop ringing. Just as the ostrich buries it’s head and waits till danger passes by, companies have a tendency to forget the strategy and foresight and instead focus on the next couple of months. You might survive the recession this way, however, you will surely lose momentum to competitors who kept on innovating. To survive a downswing is piece of cake, but to succeed at the rebound call for hard working innovation.

Well, here’s a top 10 of What To Do With Innovation When Recession Hits. Or rather here are the first 5 recommendations – I’ll post the rest tomorrow.

1. Communicate openly and honest
Nothing creates more anxiety and speculation than being kept in the dark. Especially during troubled times it’s more important than ever to communicate internally as well as externally about the situation. Make extensive use of the intranet and social media like blogs to get the message out directly without corporate filters. Southwest Airlines is a good example of how much credit it gives to communicate openly about the situation, when they blogged about and explained their much critized Customer of Size policy back in February 2008.

2. Keep and hire talent
During rough times it seems the number one rule of thumb in the CEOs playbook is cutting back on people, especially really smart, high-priced people, a quick way to cut costs. However, as Denmark has extremely low employment rate at the moment, this strategy will only worsen the situation once the economy blossoms again. Rockwool, the leading international insulation company, has chosen to accelerate development projects three years ahead of time, just to keep their engineers employed and to attract even more talented engineers. Read more about their strategy here (in Danish only)

3. Experiment with organizational models
In times of decline in revenue and profit the default organizational model seems to be going back to the top-down command and control model. Instead, consider using the calmer period to experiment with different models that reinforce collaboration and new ways of working. To attract talent with a digital mindset and support the creative capital you need to manage in a much more open and flat non-hierarchical way. This way you also cultivate an innovation culture through-out the company that might lead to groundbreaking products and services.

4. Invest in training and executive development
During an economic boom it’s often hard to find the time and prioritization for personal development and continuing education. But since knowledge is the single most important ingredient for all innovation this should be prioritized even more during recession. Also, this is one of the easiest and most cost-efficient ways to stay attuned to new insights and research.

5. Cut back on technology spending, but not technology use
Web 2.0 tools and services have made it simpler and easier than ever to skip expensive software. And cloud computing has made it very cheap to host your applications/website/mail/data elsewhere. At the same time the new tools are optimized for innovation projects by making knowledge sharing and idea generation much more flexible, agile and efficient. And in our experience they also energize creativity, collaboration and connectedness throughout the organization. I’ve written about our own home cooked Enterprise 2.0 suite before – it’s almost free.

UPDATE: Read the follow-up post with the next five guidelines