2009 in Innovation as Seen by US BusinessWeek

The innovation industry took a hit this year, as executives dialed back on initiatives—and paid the price. But some encouraging trends also emerged

In 2009 the world was no longer flat; much of it was flat broke. Deflated by slumping sales and income, companies roundly did what innovation consultants say they never should—they cut spending on research and development. The U.S. drug industry, historically one of the most lavish spenders on research and development, announced the elimination of a record 69,000 jobs this year, up 60% from 2008. At many companies, quick hits and line extensions replaced more costly, though potentially more rewarding, investments in game-changing inventions.

Still, creativity lives on. Among fresh or fringe approaches that became mainstream tools in 2009: trickle-up innovation, design thinking, and open innovation. And while innovation may no longer be the golden goose it was in flusher times, the penny-pinching has forced companies to break some bad habits—such as wantonly pursuing every new idea—which could help them roll out new money-making products and services as the recession eases and an economic recovery takes hold.

A rethinking of the discipline is long overdue, argues Umair Haque, founder of Bubblegeneration.com, a business strategy Web site, and director of the Havas Media Lab. "Most innovation, well, isn't: It is 'unnovation,' or innovation that fails to create authentic, meaningful value," he wrote on a HarvardBusiness.org blog earlier this year. Among his examples of unnovation: the Hummer SUV and collateralized debt obligations, through which high-risk mortgages were blithely peddled.

Reversing the Trend

Trickle-up innovation may best represent what some are calling today's "good enough" marketplace. Multinationals used to develop their top-of-the-line products for the developed world. These goods then "trickled down" to emerging markets as even better replacements were introduced to affluent consumers. Now the process is being flipped. Companies increasingly are designing low-priced, no-frills products for those at the bottom of the pyramid and trickling them up to the developed world. General Electric (GE) and Procter & Gamble (PG) are in the trickle-up vanguard. Read this BusinessWeek story on the trend, Innovation Trickles in a New Direction.

Design thinking has been around for some years now, but it became a mantra among consultants in 2009. The notion boils down to this: Executives at all levels would be more innovative and therefore successful if they approached problems the way designers do. That means understanding a problem or need from the consumer's point of view and then coming up with the best good or service for the job. P&G, again, is often held up as a corporate role model here thanks, to such products as its dust cloth Swiffer, which opened up a whole new market for the consumer goods giant.

With a quartet of books on the idea published in 2009, including Change by Design by Tim Brown, chief executive of design consultancy IDEO, it's a safe bet that more companies will latch onto design thinking. (See these books and others in our slideshow of the pick of this year's best innovation and design reads.)

Teaming Up With Others

Open innovation spread far and wide as companies sought to offset cuts in their own R&D budgets by soliciting help from outsiders, including customers, suppliers, and freelance experts. While companies such as Johnson & Johnson (JNJ) have used the Internet to vacuum up worthwhile ideas and practical assistance since the previous downturn almost a decade ago, the Great Recession is converting more to open innovation today. Clorox (CLX), for example, says 80% of its new products included input from at least one partner.

"The world no longer favors the closed system," said John Tau, vice-president for open innovation at wood-products giant Weyerhaeuser (WY), at a business conference in December. "We need open innovation."

But can these approaches really make up for the cost-cutting that has decimated R&D staffs at many companies? Maybe not. Holiday sales are slumping because many consumers are jobless or too worried to spend the way they had in recent years. But retail consultants blame a lack of innovation, too. In recent years, shoppers were tempted by truly innovative products such as flat-screen TVs and smartphones. The closest thing this year is the $8 Zhu Zhu robotic pet hamster.

Here, see our pick of the best innovation and design books of 2009.

Arndt is editor of BusinessWeek's innovation and design coverage, overseeing its Innovation channel as well as the magazine's quarterly IN: Inside Innovation section.