In a recession, companies can resemble squirrels storing nuts and preparing to hibernate.

They should be tossing their acorns out of the tree to generate potential growth. A huge share of a company's sales and profits come from innovation. A hot, new product will yield a much higher margin than its second-best product, and it will attract new customers.

Capital expenditure is a key measure of innovation. So it is bad news to learn that nine companies in ten have cut their capital expenditure by between 10 per cent and 50 per cent, according to the Management Consultancies Association (MCA).

In a survey of its members, which work with 90 of the FTSE 100 companies, it discovered an average cut of 25 per cent in capital expenditure, equating to a £3.9billion drop in their research and development (R&D) budgets this year.

Two thirds of organisations will cut their capital expenditure by at least another 10 per cent in the next 12 months, the MCA found.

Cutting costs in a recession can be essential for survival, but firms that hunker down for too long may find that their customers have abandoned them and their products have been upstaged by entrepreneurial upstarts.

A lack of funds is not the only barrier to innovation, the MCA found. In the past two years, innovation has slipped down the agenda in about half of all companies.

Eighty per cent of consulting firms said that they believed the lack of investment in R&D was compromising companies' long-term competitiveness.

Other barriers to innovation identified by the MCA include:

Industry culture In sectors where innovation is crucial, such as telecoms or high tech, companies are more likely to protect their R&D spending. In sectors where innovation is already low down on the priority list, it is tempting to cut back further.

Internal barriers Managers become more guarded in hard times as they strive to achieve their own targets and save their skins, which makes the sharing of ideas hard. Innovation is often regarded as a distinct process, when it should be central to all organisational activities.

Out of touch When the economy is growing, organisations are often lulled into thinking that they understand customers' needs and stop talking to them. When recession strikes sales, they find that the market has moved on.

Fear of failure Innovation involves risk. People are much less likely to invest in something that may cost them time, money or their job.

Herd mentality Despite the importance of differentiating to secure competitive advantage, organisations often copy one another, waiting for a bull market to make acquisitions at premium prices and then selling assets when prices are low.

Short-termism This is the biggest obstacle, the survey found. Managers responding to immediate problems are unable to take a long-term view.

The MCA is also calling on the Government to offer tax breaks on R&D, which more than two thirds of firms cited as the most important action it could take to help businesses.

Alan Leaman, the chief executive of the MCA, says: “As soon as innovation stops, companies slip down the league table and start to lose customers and their drive. The Government needs to act now if it is serious about protecting the UK's long-term competitiveness.”

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