Companies

Innovation needed for long-term sustainability, says Prof. Thomke of HBS

N.S.Vageesh Mumbai | Updated on January 23, 2018 Published on August 20, 2015

Stefan Thomke

'Innovation is not just the R&D department's job ... it is for all employees and the CEO to pursue, if the business has to be sustainable in the long-run.'

Professor Stefan Thomke, William Barclay Harding Professor of Business Administration, Harvard Business School, is an Indophile – he has been travelling to India regularly from his student days when he roughed it out on a backpack and an Indrail pass. Years later, as part of the Harvard Business School faculty, Prof Thomke returns frequently to teach at the HBS executive education programme at Mumbai.  

His knowledge of the city’s geography, its lifelines, quirks and customs would make a local proud.  That depth is explained partly by his professional interest in the city — he authored a popular case study on the Mumbai Dabbawallahs, the lunchbox delivery system unique to the city of Mumbai.  In this interview, conducted recently when he was in Mumbai to teach a programme on innovation, Prof Thomke throws some light on some of his recent research work as well as on his famous Dabbawallah case. 

He defines innovation as something that is novel and has value and urges companies to be innovative as part of a drive towards long-term sustainability.  It is not just the R&D department’s job, he says. It is for everyone in the company and for the CEO to wake up to that reality, he adds.  Edited excerpts:

How did you get interested in the subject of innovation?

I am a trained electrical engineer, originally from Germany and then moved to US, did a PHD in electrical engineering, worked with Mckinsey & Co. and then joined the HBS twenty years ago.  Given my engineering background, it is not surprising that I was interested in product development, R &D management, manufacturing productivity, improving factory output, and so on. When you are in a place like HBS and interact with leaders, you tend to get broader in your scope of work. It was a kind of natural evolution.

For a growth market like India, what is the incentive for companies to innovate? When is the best time for them?

 

My answer is all the time. Of course, when the market is growing, and core businesses are doing well, they are distracted and there is no time.  When times are bad, when things slow down, companies feel they have no money for it, that they have to save capital. 

 

One of the companies that I worked with addressed this issue during the global crisis in 2008-09.  When everybody else applied the brakes, the CEO of this firm increased spending (even though the board was opposed to it) and put money into projects and product development.  When the business revived and customers started placing orders, he was the only game in town – and was able to jump ahead of the competition.

When you take that path, isn’t it a gamble with the result being uncertain?

 

Innovation is not something you switch on and hope it will happen next week.  It may take years. So you have to do it all the time. And you must do it when the end result is not clear.  If you are always looking for assurance, then maybe you are not ready to be CEO. When you look at it closely, it is not that risky.  Think about what you are going to leave for your successor. I deal with these issues in a case study on Lego, the famous plastic toy builder company.  This is something I divide into four periods — the first, where the founders built one of the greatest brands.  In the second phase, they look around, see other great brands such as Disney/Coke and feel that they are too small relative to the significance of their brand.  So, they engage in what is called brand stretching and get into all kinds of businesses — watches, amusement parks, etc.  It doesn’t work.  In phase three, they bring in a turnaround specialist to save the company.  He does a lot of things by the book — and ends up bringing the company to the edge of bankruptcy.  So in the fourth phase, a new CEO is appointed, 35 years old, does one of the most amazing transformations in the last decade and turns it into the number one in terms of revenue and profitability.

 

What did he do?

Many things.  He cut the complexity that had accumulated in product development under the earlier CEO.  He managed innovation in an interesting way.  There were two groups – one for breakthrough innovation and one for incremental innovation.  If you give both to one group, they struggle.  So the incremental innovation group was told that most of what they do will go to market and they were not to take too many risks and just extend the product line. The other group was told that most of what they brought out would not go to market.  Responsibilities and resources were assigned accordingly. Then he went out and courted retailers.  This wasn’t being done earlier, because they were not considered important. But the retail game had changed and the company had to keep them happy. That is the short version of the story.

Tell us about your case on Mumbai Dabbawallahs.

 

People may think it is a logistics case.  I didn’t position it like that.  It is a case about getting the most out of people. Almost any manager has this issue - This year, you have met your goals, but your boss will tell you that next year he wants more. The bar is set higher and higher.  You are always expected to produce exceptional results. Now, the problem is you have to do it with the same people.  You can’t always go and hire stars and replace people.  You don’t have that option.  You have to get more performance out of the same people. We are all ordinary, so how do you heighten it.  Then I introduce Dabbawallahs.  If you take any objective measure – whether it is education, resources, diversity or other accomplishments, we would agree they are less than ordinary.  But what they do is extraordinary.  The answer to how they do it is that you need a system.  You just can’t hope and pray.  You need an approach and a system.  This is an example of an organisation that has done it.  That’s what the case is about and we unlock the secret.

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Published on August 20, 2015
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