During a recession, and particularly during a severe recession like the one industry is in today, cost cutting by downsizing factories or closing some altogether is often a natural reaction.

Yet, a company must continue to innovate. In fact, innovation may be even more important in bad times than in good times. But a recent report from management consultant McKinsey & Co. suggests that global manufacturers have much to learn about how to optimize innovation across their “factory networks” when the pressure for cost-cutting is on.

“A better understanding of the way factories interact to create and transmit knowledge can help senior executives not only to spark innovation by balancing portfolios of plants but also to maximize efficiency by locating production resources appropriately,” write Arnoud De Meyer and Ann Vereecke, authors of the report. “Moreover, our research suggests that the importance of actively participating in the creation of knowledge is increasing for individual factories. Those that actively develop and share it offer their companies greater strategic flexibility and seem to have a more stable future.”

McKinsey’s research resulted in the identification of four types of factories when it comes to knowledge sharing. The first, called isolated factories, get few innovations from other factories in a corporate network and transfer few if any themselves, McKinsey says. The second, called receiver factories, get many “innovation injections” from other factories but generally don’t transfer.

Hosting network factories, the third type identified by McKinsey, are defined as having strong network relationships and actively communicate and exchange innovations with other factories. Lastly, active network factories demonstrate a greater intensity for sharing innovations than hosting network factories.

McKinsey suggests that the key to managing a portfolio of factories is that magic word, “balance.” A manufacturer may need to incorporate several types of factories to achieve its objectives. But a company can’t lose focus on how knowledge is created and disseminated throughout the factory network.

“Innovativeness in itself appears insufficient for survival; the willingness to share its fruits with the other players in the network is crucial,” say the authors.