Innovation often occurs on two extremes—when there is a pressing need OR an abundant opportunity.

Pressing need

People are forced to innovate during downturns in the economy or when costs are greater than profits. For example, innovation is often cited as a benefit of a business cycle. It forces people to think of alternative methods, cheaper methods, and large-scale changes. Plus, many people are laid off during downturns and all of sudden have the free time to figure out how to pay the mortgage payment. This can create more entrepreneurial initiative.

Abundant opportunity

When cash abounds, companies seek out new ideas to further sustain value and invest their assets for new returns. They may buy innovation via acquisitions or create innovation via resource allocations but they have the cash flow and resources to think of what’s ahead versus just being pinned down to operational demands. A good example of this is venture capital firms, cash-rich, who are constantly seeking out innovation.

In Maslow’s Hierarchy of Needs, representing the pyramid of human motivation, you can also see how innovation fits into both extremes. Creativity and spontaneity occur in the uppermost tier where you have time (time is the same as money/cash surplus) for self-actualization. On the other hand, one worries about the safety of employment and resources at the base of the pyramid and this often requires a fresh start to create new value when there is a downturn in the economy / unprofitable situation. This sort of innovation is more about survival.

In the middle

If you can pursue innovation in the middle when inertia to change is possibly its greatest, you should pat yourself on the back (my thinking). This will theoretically generate repetitive upward cycles of long-term value. I was involved in a consulting project for a global company that made large innovative changes to organize their company around market types instead of geographies. Many wondered why they would pursue new unproven wide-scale change that undoubtedly had more risk. There was no pressure to change, but like many companies’ properly motivated leadership, there is a personal drive for large increases in value. Since the changes have been implemented, I’ve been a witness to significant leaps in stock prices. Often innovation in the middle depends on a leader who embraces innovation: something new/fresh that creates value.

During any stage, innovation stagnation and inertia can bite you. Stagnation often happens when things are going well and complacency and pride set in. Consider Sharper Image for example—the CEO reflected, “We were lulled into a period of complacency because of the success of the Ionic Breeze.” A couple of years later, they were forced into bankruptcy.