Recessions bring cuts in the size of the labour force, in capital expenditures, in advertising budgets, in travel, even in the loss of coffee and donuts from our meetings. Sadly, investments in research and development and innovation, the seed-corns of our future, are not insulated from these realities either. Over the past four quarters, the total R&D expenditures of S&P 500 companies (based on the approximately 200 companies that report them quarterly) declined 13 per cent – from a total of $43.1bn in the fourth quarter of 2007 to $37.4bn in the third quarter of 2008 – with more cuts almost certain in the near future.

Companies wanting to innovate will have to do more with less. But how? The process boils down to three issues: determining the overall magnitude of cuts that need to be made; deciding which projects to cut and which to maintain; and reconsidering the locus of innovation, including whether it can be done outside the traditional boundaries of the company.