Tom Nicholas, a Professor at HBS, has an interesting article in the McKinsey Quarterly today about the lessons in innovation to be learned from the Great Depression. Nicholas' area of expertise is economic history, a subject that should be required for every MBA degree. The major points from the article are:
- Innovation, as measured by patent applications, lagged the growth in GDP during the depression as companies were slow to see the economic improvement and invest in new technology
- Many very successful companies, such as Dupont, HP and Polaroid, did not restrict investment during the depression and emerged in strong competitive positions based on newly developed technologies
- For technologies that take a long time to commercialize, time should not be lost in development even when there is great economic uncertainty. (A previous post on technology adoption that supports Nicholas' view is here.)
A quote from the article is particularly noteworthy:
The Depression-era economist Joseph Schumpeter emphasized the positive
consequences of downturns: the destruction of underperforming
companies, the release of capital from dying sectors to new industries,
and the movement of high-quality, skilled workers toward stronger
employers. For companies with cash and ideas, history shows that
downturns can provide enormous strategic opportunities.
Great economic uncertainty creates a massive reallocation of resources in a free market. Assuming the government does not overstep its bounds, there should be a significant reallocation of resources this time and the consequent bounty of opportunities.
