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Executive Interviews: Interview with Bala Chakravarthy on Global Economy and Global Managers
October 2008
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By Dr. Nagendra V Chowdary
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Corporate R&D labs used to be the
key for companies to create
competitive advantage. But in the 21st
century, innovation is moving out of
the lab and across the globe. The
research indicates that a real source
of competitive advantage is skill in
managing innovation partnerships.
For instance, Boeing's unique assets
and skills are increasingly tied to the
way the firm orchestrates, manages,
and coordinates its network of
hundreds of global partners.
Innovation is increasingly driven
through collaborative teams due to
product complexity, availability of
low-cost but highly skilled labor
pool and advances in development
tools. At a macro level, what's
driving this trend? Is this going to be
a competitive necessity or a
competitive choice? What are the
advantages to companies that do it
well?
True, the boundary of innovative
firms is fast extending beyond their
organizations to include its partners.
Companies in a number of
industries, such as pharmaceuticals,
medical devices, aerospace,
information and communications, are
increasingly using external networks
to build missing competencies or to
enter new markets. There is a lot of
uncertainty in these industries as to
which competencies, especially
technology platforms, will be the
winners in the future. Building new
competencies is both expensive and
risky as is entry into new markets in
emerging economies. Besides,
competencies can become obsolete
very quickly. Therefore, partnering
and virtual networks are a
competitive necessity. Not just Boeing, but several others
have pursued such a strategy of
distributed innovation. For example,
P&G has created an extended R&D
organization connecting its own 7500
researchers and engineers with the
vast external pool through a
permeable boundary. Its R&D
productivity and innovation success
rate have nearly doubled, while the
cost of innovation has fallen. This is
the kind of advantage that others are
trying to replicate. -
According a recent McKinsey
Global Survey, almost 70% of
executives around the world say that
global, social, environmental, and
business trends are increasingly
important to corporate strategy. Yet
relatively few companies act on the
global trends they think will affect
them most; among those that do act,
only 17% report significant benefits.
Why is there such a
disparity between need and
action?
Great question! I hope you will ask
McKinsey for a response. Let me take
a crack at it though. Recall, I noted
earlier how it is very hard for a firmto
sustain profitable growth. If a firm's
financial performance is poor, it is
hard for its leaders to justify
investments in a firm's social and
environmental performance—even
though these investments may be
necessary to sustain financial
performance over the long run. This
preoccupation with financial
performance in the short term may
explain why there is a major
disconnect between awareness and
action. Unless social or
environmental performance becomes
important to financial analysts, there
will only be lip service paid to them,
especially in firms that are in financial
trouble. Also, there is a tendency to measure
benefits from business initiatives that
deal with the social and
environmental responsibilities of a
firmonly in terms of improvements to
its financial performance. They may
guarantee a firm's license to operate or
minimize the risks of disruptions to
its operations. Both offer significant
benefits to the firm. But these are not
always easy to quantify. Hence these
benefits tend to be systematically
understated. -
Do you foresee a decreasing role
for multilateral international bodies
like, WTO (with the rise of regional
and bilateral trade agreements and
perennial showdown at recent
meetings, including impasse at Doha
round of talks), UNO (with private
sector assuming a great role at
humanitarian activities for instance,
Bill and Melinda Gates Foundation,
Clinton Global Initiative, etc and
increasing role of Social
Entrepreneurship Initiatives and
Microfinance Initiatives, etc), the
IMF and the World Bank?
I wish this were not the case but I am
afraid you point to a growing reality.
Nation states have a natural tendency
to be self centered and competitive.
While cooperative institutions like,
the European Union are refreshing
exceptions, the EU too is having its
fair share of problems in agreeing to a
common constitution or defense
strategy. The UN bodies are far more
heterogeneous by contrast. There are
toomany vested interests and shifting
alliances. Finding a multilateral winwin
solution in such a setting is very
difficult. We are left, therefore, with
the less ambitious arrangement of
regional or even bilateral treaties. Multilateral international bodies are
taking a backseat today because we
have very few world leaders who are
both popular at home and well
respected abroad leaders who can
make the gutsy first selfless move. Without such an action it is hard to
get others to yield.When public
governance fails we have to look
to the generosity of individuals; but
theirs is just a drop in the bucket,
given the enormity of the challenges
that confront the world community -
What according to you are the
important trends that are going to
shape the way global business will
be carried out and what advice
would you offer to the top managers
operating those businesses?
There are many important trends. Let
me just focus on three here:
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