TUM, Class 3 Thursday
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Transcript of TUM, Class 3 Thursday
JMPennings TUM 2004 1
TUM, Class 3 Thursday
Reinventing Ourselves (Eli Lilly) Internal Ventures and Ambidexterity
(3M, Nokia, Hermes)
JMPennings TUM 2004 2
Strategy and Innovation: Monday 15.30-1830
• Part I, Day 3– Reinventing (Ely
Lilly)– Start New Page
• 3M, • Hermes
• Part II, Day 3– Tipping Point– Networking:
Combining Old or New
JMPennings TUM 2004 3
From Inertia Into Future with new Paradigm
• Today:– Use current skills, structure to add new product
lines (Ely Lilly)– Internal venturing (3M, Hermes)– Networking: Combining Old or New, or
Rebundling Old into New Paradigm
JMPennings TUM 2004 4
Reinventing ourselves:Ely Lilly
• How do we organize, make people work together on an routine vs novel basis?
• How do we know customers? Are are current customers the ones we should listen to?
JMPennings TUM 2004 5
Pharma and Biotech(1)• Key Players: Merck, Glaxo-Welcome, Roche,
Pfizer, Novartis, BMS• Search for New Chemical Entities (NCE), large
R&D budgets in search of a “blockbuster” drug• Hit rate very, very low (lower than roulette!)• First (before WWII) major NCE: Penicillin• From “discovery” to “development” (three
phases), to “approval” to “market launch “
JMPennings TUM 2004 6
Major Thrust of Pharma Strategy
• R&D driven: what enters the pipe line from “discovery” , Phase 1-3 research and testing to FDA approval and market launch?
• Marketing injected: how do we penetrate the therapeutic area where we position ourselves?
JMPennings TUM 2004 7
Pharma and Biotech(2)• Strategy of firms:
– R&D (Merck: beta blockers) or Market (Pfizer:Viagra)) Driven– Joint ventures with biotech firms to latch onto new paradigms– Big consumers of R&D funds to fill the “pipeline”– Regulatory Approval (eg FDA) a key hurdle to get to market
• Is drug safe, and does it produce health benefits?– Top Management, also “go-no.go committee” tends to be science
oriented, but Pfizer, Novo Nordisk etc. are a little more market oriented
– Competencies in certain “therapeutic areas”:• Cardiovascular, endocrine, pulmonary, bones, digestive system, brain, etc.
JMPennings TUM 2004 8
Pharma and Biotech(3)• Examples of blockbusters drugs:
– Prozac (Ely Lilly: depression)– Tagamet ( Glaxo: ulcers)– Zantac (Glaxo: ulcers)– Viagra (Pfizer: impotence)– Cozaar (Merck: hypertension)
• Examples that firm destroying Drugs:– Vioxx (Merck, MSD)
• Patents expire after 17 years:– Generics (Israel, India, China)
JMPennings TUM 2004 9
Pharma and Biotech(4)
• Paradigm Shifts:– Move from chemical to biological
competencies– Doctors as “customers” become less critical in
buying decisions as insurance and other factors become more powerful
– IT is now a major part of drug discovery process (Bioinformatics: programmers become molecular biologists!)
JMPennings TUM 2004 11
Ely Lilly
• General Strategy: market-product positioning?
• Insulin Strategy?• Organization Design?• Fit Insulin Strategy and Design??
JMPennings TUM 2004 12
Ely Lilly• What is Ely’s General (or Corporate) Strategy:
market-product positioning– Therapeutic areas?– R&D emphasis?– Pipeline?
• What is Ely’s Insulin (or Business) Strategy– NE Strategy?
• What is Ely’s Organization design?– Spaghetti or matrix, or functional?
• Fit?
JMPennings TUM 2004 13
Ely Lilly’s Corporate Strategy
• Portfolio of projects:– Like DuPont: LT investments– Filling drug pipeline before current patents
expire– Competencies in R&D, FDA– Competencies in Therapeutic Areas such as
Psychopharmacology and Endocrinology
JMPennings TUM 2004 14
Lilly’s Insulin LoB Strategy
• S-curve Pursuit– Cleaner insulin (“NE”- bias)– Humulin and Match– Pricier– “Detailing” (Internists,Endocrinoligists, HMOs, etc.)– Prozac minset!
• Emergent landscape response– > 1994 IT investments, Internet based education, CDS centers– Diversification (Glucose meters) – Half-baked efforts to get locked into novel insulin market
JMPennings TUM 2004 15
Business of InsulinTwo companies dominate the worldwide insulin market.
In 1999 Eli Lilly had 48 percent of the worldwide market in volume terms and Novo Nordisk had 44 percent,
according to IMS Health, the leading market research firm tracking the global pharmaceutical industry.
A distant third was Hoechst, which has since merged with Rhône-Poulenc to form Aventis, with 5.5 percent.
In the U.S. Lilly has an 86 percent share of the retail pharmacy market compared to Novo's 14 percent. But Lilly's share drops to 78 percent
when you factor in insulin use in hospitals and elsewhere where prescriptions aren't required.
Only these two companies manufactured insulin sold in the United States in 1999, although Aventis is poised to enter this market.
JMPennings TUM 2004 16
And in….2003
Danish Novo Challenges American Rival Eli LillyApparently, more and more Americans prefer Danish insulin products to local products and as a result Novohas now a 27 percent share of the world’s largest market. Last year, the American insulin market increased by 7.6 percent. In the same year, Novo’s sale increased by 12 percent and the Danish company is now gaining in on its closest American – and world wide – competitor Eli Lilly. The reason for the increase is that patients are changing from the traditional types of insulin to the more efficient analog insulin that is sold at a higher profit. Novo’s CEO, Lars Rebien Sørensen, informed analysts that the American business of Novo is developing in a positive direction. However, Novo is now left with one problem and that is the depreciation of the American dollar which has caused a lower income for the company in America than expected. In Europe, where the Danish medical company has a 60 percent share of the market the development is likewise positive. Novo is gaining compared to Eli Lilly though the increase is a little less. In Japan, however, Novo has experienced a decrease, though they still hold a 76 percent share of the market.
JMPennings TUM 2004 17
Pure, syringe based
Less than purepen based
Performance demands for old diabetic patients
Performance demands fornew diabetic patients
Purityof Insulin
Year
Same technology, new dominant design, meeting different needs is “disruptive technology”
See, again,... Bulk pack's Rosenbloom & Christensen (Class 2)
NE Strategy
NovoN
JMPennings TUM 2004 18
Lilly’s Organization Structure(note what about Information & Incentive Systems??)
• Corporate:– <1994 R&D-Medical Division-Marketing Research– >1995 Marketing ->Endocrine (with Diabetes Care)-
Central Nervous System-Internal Medicine
• “Affiliates”:– National Markets Marketing-Distribution-Sales
• Strategic: – Planning Committees
JMPennings TUM 2004 19
Ely Lilly in Indianapolis
HQ
R&D Mfct Marketing
Discovery Clinical Pre-Clinical PsychoPharma IMEndocrinePsycho
-Pharma,
Regional Sales
Local sales
Endocrine
Sales “ Affiliates”
JMPennings TUM 2004 20
“NE”
Period 1940s-2003:Fewer side effectsEfficaciousProfitable …but some orphan drugs ok
JMPennings TUM 2004 22
Con
v eni
ence
Who is the ”customer” and does Ely Lilly listen to her?
Insulin
(e.g., Lilly’s Prozac)
JMPennings TUM 2004 23
From Overcoming Inertia to Joining the New Paradigm
• German Setting– Advertising not permitted– EU – Other issues?
JMPennings TUM 2004 24
Ely Lilly Lesson?• Internal Linking: Organizational design impedes or
enhances innovation– insulin product (development, marketing, testing, etc.) located in
wrong departments,wrong levels
• External Linking: Market driven stratgey precludes access to customers-that-matter and their needs– obsessed with endocrine specialists, pharmacists, HMOs, etc
• Similar lessons elsewhere– e.g., Xerox focus on Procurement rather than IT people, bleak
prospects
JMPennings TUM 2004 25
Take-aways on Locking into New Dominant Design, day 3, Part 1
• Firms need to reinvent themselves:– internal linking:
• establish tools for interdepartmental coordination• if necessary, create a new design fitting new product
architecture, with information and reward systems– external linking
• create tools for customer intelligence• beware of talking to the “right” customers• create mechanisms for detecting “wrong” customers, i.e.
discovering new and eventual mainstream market segments
JMPennings TUM 2004 26
“Parking Place” of Projects
• Products take on the organizational environment in which they are placed– Engineering approach– Customer demands– Business Process
• Give a hammer and everything looks like a nail• Examples: Discount retail and Martha Stewart,
Woolworth and Woolco, Endocrine and Insulin pens, IB and retail brokerage
JMPennings TUM 2004 27
Occupational Bias (quotes from your professor)
• If you think carpenter you see hammers• If you give her a hammer, everything to her
looks like a nail• If you meet endocrinologist, you talk or
hear about hormones and endocrine imbalances
JMPennings TUM 2004 28
Why firms are blocked from getting customer information?
• because they do not care
• because they lack intelligence devices– Lead User Analysis (compare Dominik’s
Forschung) – blocked channels – careers and incentives– locked in to wrong types of customers
JMPennings TUM 2004 29
Design: link with each other and link with market
Internal Linking: build bridges between R&D, Marketing and CDCs, between “go-nogo
committee” and ‘affiliates”External Linking: create firm-customer interfaces
JMPennings TUM 2004 30
Issue of wrong customers,or:
how firms get entrapped in vanishing market segments while oblivious of new ones • Market contains current and emerging
segments– price, functionality
• Emerging segments are typically not on incumbents’ radar screen
• Emergent (and thus small) markets cannot satisfy growth
JMPennings TUM 2004 31
Ely Lilly Lessons
• Firm had no parking space in Marketing for convenient insulin products
• Misalignment– pay, metrics, accountability, external linking
• Interventions– Re-matrix the structure– create insulin-based incentives for all silos– create a separate business
JMPennings TUM 2004 32
Strategy and Innovation: Monday 15.30-1830
• Part I, Day 3– Reinventing (Ely
Lilly)– Start New Page
• 3M, • Hermes
• Part II, Day 3– Tipping Point– Networking:
Combining Old or New
JMPennings TUM 2004 33
M anagem ent
R& D5
46
2Production
5
Otherdepartm ents
3
Innovations1
C reativity6
M arketing5
M anagem ent
R& D5
46
2Production
5
Otherdepartm ents
3
Innovations1
C reativity6
M arketing5
M a n a g e m e n t
R & D5
46
2P r o d u c tio n
5
O th e rd ep a r tm e n t s
3
In n o v a t io n s1
C re a t iv ity6
M a rk et in g5
From a Two-Product Firm to....a Three Product Firm
JMPennings TUM 2004 37
Ambidexterity: writing with Left (old) and Right (new) Hand
Expl
orat
ion
Exploitation
BureaucracyThe Document Company
The AmbidextrousOrganization (Adobe, Apple, Palm)
The IncubatorPARC
JMPennings TUM 2004 38
• Cannot create new companies• Warning for all Fortune 500, DAX 50
FTS100 companies and beyond?• It is very hard to write with both hands, to
be ambidextrous
JMPennings TUM 2004 39
Paradigm Shifts from Day 1
• Examples:
– From Wooden Tennis to Wide body Rackets– From 35 MM Film Cameras to Digital Imaging– From Handy to Skype Phones– From Steel to Aluminum Engines
JMPennings TUM 2004 40
Ambidextrous Firm
• Firm with employees who are “Janusian”• Firms who are “Janusian
– (like the locomotive which can go forward and backward)
– Both exploitation and exploration.– Tolerance for differences
JMPennings TUM 2004 41
3M as Example
• 15% Rule: internal ventures• Ambidextrous Firm• Build the ramp up of your new slopes while
old dominant designs fall off the slope
JMPennings TUM 2004 42
3M, innovation and strategy:take-aways
• Strategy dictates portfolio of business, anchored in core competencies
• Dilemma of sticking to the knitting, yet buying options to get out of competency traps, latch on to new customers & technology
JMPennings TUM 2004 43
Hermes• Innovation
– Autonomous– Induced
• Implementation– Five levers
• structure• scorecards • incentives, • culture• people
JMPennings TUM 2004 45
Hermes (2) • Over the past 40 years, much has changed.Memorex (i.e.
Hermes Systems) hs moved from Audio Cassettes (1971) to VHS cassettes (1979). From Floppy Disks (1993) to Recordable CDs (1996). And from Rewritable CDs (1997) to Recordable DVDs with enough capacity to hold an entire set of encyclopedias. Yet while our media continues to evolve, some things remain unchanged. Like our commitment to provide customers with the highest quality products at the best value. By offering quality, value and performance, Memorex has become the digital recording company of the last century. And it's why we'll continue to be the digital company of the 21st century.
JMPennings TUM 2004 46
Hermes (2a)
• Magnetic Tapes (1962)• Audio Cassettes (1971)• VHS cassettes (1979)• Floppy Disks (1993)• Recordable CDs (1996)• Rewritable CDs (1997)• Recordable DVDs with enough capacity to hold
an entire set of encyclopedias– …….memory stick, flesh card, www?
JMPennings TUM 2004 49
….so Memorex
• Still Going Strongly• Successive Paradigms and Their S curves!
JMPennings TUM 2004 50
Hermes: Take aways on Internal Hybrids
• Internal ventures to be part of tomorrow’s dominant design
• Spillover (knowledge transfer) from new ventures to rest of firm
• Challenge of post-IV integration• Re-establish organizational integrity
– people, operations, synergy (scope), culture• Liquidation of dog division when they cease to
produce cash– (i.e., Iomega predecessor)
JMPennings TUM 2004 51
Strategy and Innovation: Monday 15.30-1830
• Part I, Day 3– Reinventing (Ely
Lilly)– Start New Page
• 3M, • Hermes
• Part II, Day 3– Tipping Point– Networking:
Combining Old or New
JMPennings TUM 2004 53
Networking
• The bonding of people to bundle the pieces of an innovation
• WHO you know take precedence of WHAT you know
JMPennings TUM 2004 54
Network Effects
• Direct (benefit is greater if more users)– WiFi, webcafe, Kazaa, fuel cells,
• Indirect (benefit hinges on complements)– Voice IP, Digital Camera, Internet Trading– Enhance the arrival of Tipping Points
JMPennings TUM 2004 55
Networking organizations
• Construction, entertainment and publishing• Broadway and its tipping point…• Hypertext Firms like Berteslmann, Alcoa
and Booz• Do you know a networking organization?
JMPennings TUM 2004 56
Networks in Broadway Musicals
ChoreographerProducers
Librettist
Lyricist
Director
Composer
Costume Designer
The Business and Artist Network Network Emergence
JMPennings TUM 2004 63
1892Year 15
1893Year 16
1894Year 17
1895Year 18
1896Year 19
1898Year 21
SW: No SW: No
SW: Yes SW: Yes
SW: Yes SW: Yes
ArtistsCont:35New:05Total:40
ArtistsCont:40New:10Total:50
ArtistsCont:50New:38Total:88
ArtistsCont:088New:075Total:163
ArtistsCont:163New:056Total:199
ArtistsCont:199New:099Total:298
JMPennings TUM 2004 64
Number of New Plays and New Artists
0
20
40
60
80
100
120
Years
Artists
Plays
Tipping Pt
JMPennings TUM 2004 65
Number of Artists in the Network
0100200300400500600700800900
1000
Years
Arti
sts
Tipping Pt.
JMPennings TUM 2004 67
What’s Next
•Tipping not only in market or sector, but also within firms•Change agents, innovatorsand palace revolutions as creators of internal tipping
JMPennings TUM 2004 68
Could a new, incompatible innovation or paradigm gain a
footing within Booz:
• A (superior) new paradigm may not gain a footing
• Many new, incompatible paradigms have been introduced to firms successfully
JMPennings TUM 2004 69
Strategy and Innovation: Monday 15.30-1830
• Part I, Day 3– Reinventing (Ely
Lilly)– Start New Page
• 3M, • Hermes
• Part II, Day 3– Tipping Point– Networking:
Combining Old or New
JMPennings TUM 2004 70
Networking and ArchitectureSocial Capital as Core Rigidity
• Organization Structure and Two-key car “architecture” (GM)
• Social capital as key asset (Seafax) • Strategic Alliances, MP and who shall I ask for a
dance to produce a Tipping Point?• Dismantling Booz’ networks to create new
template for consulting
JMPennings TUM 2004 71
Core Competencies
• Knowledge that provides a competitive advantage
• Core capabilities are embedded in: – human capital – social capital– technical systems– managerial systems
• While core skills enhance development, they might also inhibit development
JMPennings TUM 2004 72
Core Rigidities (as distinct from core competencies)
• Competency Traps– NE Strategy
• Forgetting Difficulties– Old skills get in the way (Cobol vs C++;
driving on the wrong side of the road in Ireland vs BRD)
• BA&H’s??
JMPennings TUM 2004 73
BA&H: competencies and rigidities
• Old Assets– Fiefdoms– Customized Consulting– Free market
• Lots of structural holes, and weak ties
• Each network engenders its own unique consulting service architecture
• New Assets– Formal networks (Matrix!)– SIGs and KOL– One-size-fits-all
• Dense network, formal and informal, social and virtual
• Pre-imposed network assumes well established consulting service template
JMPennings TUM 2004 74
BA&H Core Rigidities
• Integrated Solutions rather than “Products” (e.g.BCG)
• Partners’ fiefdoms with shared brand equity• Internal free market “as a disability”
JMPennings TUM 2004 75
Booz Allen 1994 efforts to move away from old skills
• V2K (Build Internal Social Capital):– Target Clients– Triple Crown Teams– Knowledge Engine (Matrix, SIGs, KOL)
• One-size-fits-all: replication templates– Standardized Solutions– Sourcing, BPR thru “campaign selling”
JMPennings TUM 2004 76Reach: How Many Clients and what impact do we have?
Few Many
Richness:Level ofCustomization
High
Low
Management Gurus
Standardized “Products” BPR, BSC, SigmaSix, “Waterfalls”
Custom Solutions
JMPennings TUM 2004 77
Possible Solutions BA&H
• Rotate partners across clients• New Consulting Outfit, with different brand
name• Re-engineer the sales process• Compare Oticon
JMPennings TUM 2004 78
Booz Allen’s 2000-4 Internal KM Innovations
• “e-Audit”• “Fast Track” KM Capability• “e-Education Webcast” (weekly)• Career Development Passports• Occasionalization (reports on current
issues)
JMPennings TUM 2004 79
Implications BA&H
• Even in firm with prima donnas, there are distinct capabilities, processes
• You got network internally, before launching a service externally
• Many innovations exist already deep in the trenches; challenge is to locate and to transfer them