Did you miss the inaugural Business Perspectives event at the Cumberland Hotel in London last week? Do not despair as we intend to bring highlights and insights from the day at a webinar on 4th December. Full details of the webinar and how to sign up will be posted here shortly.
The event itself was attended by over 100 practising managers, industry leaders and business academics, and provided a thriving hub of perspectives on innovation, both in the room and on Twitter (#ou_bp).
During the evening session our Visiting Professor and BBC Economics Editor Evan Davis was joined by Ken Keir, Executive Vice President, Honda Motor Europe, whilst Professor James Fleck then joined them both for a lively question and answer session.
The daytime masterclass considered the organisational structures, strategies and cultures needed to cultivate and support innovation, with insights and perspectives from Adrian Simpson (SAP), Win Dhat (Kates Kesler), David Harrison (True Potential), Dr Leslie Budd (OUBS), Imran Razzaq (Microsoft) and Professor James Fleck.
Were you there? How about sharing your perspective of the event on our blog site?
– Shasha Wang, Digital Development Manager, OUBS
Guest blogger:Ourania Koumi, The Open University Business School MBA student
A rich pipeline of potentially marketable drug compounds is the lifeblood of the pharmaceutical industry and the first thing that used to come to mind, when as student, I was applying to companies for jobs. When I was labouring day and night against a lab bench playing paper chase, the thought never occurred to me that one day I would be following the advice of my academic teachers, that is to swap a career in academia for one in a drug company. They warned me that any new ideas I had would have to mould into more restrictive and complex norms, depending on company size. I would have to adapt to corporate culture less forgiving to sudden bursts of innovative trial and error approaches to decision making. But, the magic world of reinvested profit back into research for new drugs could have put the worries of any researcher for funding to rest.
Of course, in my mind, innovation was only synonymous to successful drug development.
I later discovered only part of this held true. It is not enough that a company needs to invest in a costly 15 years of research to decide on a potential new drug. Marketing a newly developed compound is a bumpy road, not for the faint-hearted. It involves many issues; an increasingly demanding regulatory approval process, and a short five-year period in which the compound needs to render profit for the company before patent expires. All bets are on, in a rapidly changing external market which pushes for more at a lower cost, driven by growing generics competition.
Thus, examples of innovation are contingent on dynamic market demands.
- Optimising Research & Development (R&D) spending: The industry has been blamed for falling behind on drug design innovation1. Small biotech companies, which are beginning to take over from big corporations in producing high quality, innovative compounds targeting niche disease areas, do so due to their focus on science, agile decision making processes, inspired talent management and rigorous financial restraint1. As one example, Vertex is on its way to marketing yet another compound shortly after the launch of a first innovative therapy for cystic fibrosis in Europe, while partnering with GSK and Jansen to market new Hepatitis C compounds2.
At the same time, bigger companies seem to be in a state of constant regrouping, where there is room for improvement in communication and in the development of the right mixture of metrics, which can boost productivity and reduce costs. As Knott hints at in her recent HBR article last May3, one reason why ‘R&D spending does not correlate with market value or growth’ lies in the way companies fail to measure productivity of the R&D. Even with universal, uniform and reliable metrics based on Edwards Demings’ TQM system, Knott points out that big companies will have to reduce R&D costs to make up for patent erosion, while simultaneously managing for increased R&D productivity. But for most, the new metrics system may actually justify greater R&D budgets3. While R&D spending optimisation seems to be work in progress3, there are still some successful open innovation strategies like Merck’s initiative of employee idea crowd sourcing to encourage such transformational innovations 3,10.
Companies that are doing better, tend to follow a mixture of strategic imperatives coupled with optimal risk averse financial management in continuous innovation, e.g. polypill design or administering an existing compound in a new drug delivery system, like Ceglene’s Abraxane approved to treat breast and lung cancer4.
- Technology boosts productivity at less cost: Business analytics also present a hot new technological innovation, useful in contributing to cutting costs and improving productivity across the value chain of new product development and marketing. For example, Vertex designs clinical trials in record time using analytical business tools to help minimise errors in trial design and consequently cut costs, optimising the probability of high quality end trial outcomes5.
- Organisational restructuring to offset patent erosion: The more successful companies have followed what Christensen calls disruptive innovation strategy in organising a separate business unit, or independent subsidiary company, to continue marketing their own branded generics, e.g. Novartis’s Sandoz6. In that way, although the subsidiary is functionally and organisationally separate from the mother company, the profits are kept in house6. A hybrid of that strategy is to flexibly diversify business activity according to the needs of the market, as Abbott did after buying Piramal to start selling cheap, generic drugs in India7.
- Marketing strategy optimisation: Fast and effective new customer segmentation and targeting can also be achieved by the use of social media platforms, an effective way of bringing the company closer to its customers and consumers. A social media platform developed to inform, educate and interact with patients was developed by Lilly & Co, which combined YouTube, Facebook and Twitter and was launched in September 20108, despite regulatory impediments that the company faced. Over the last 3 years, more than 74%9 of companies have adopted this addition to their communication strategy, thus bridging the gap between the company and its end-users, in the hope of drawing marketing and competitive intelligence insights and improving corporate image.
Pipelines may have helped thus far6, but investors are not optimistic that results may be as encouraging in 2013. It may be that under extreme pricing pressures the innovation imperative for drug companies in Europe and the US seems impossible to tackle, while sales of new products hardly cover losses from patent erosion in a competing generics market and an external environment driven by regulatory and pricing pressures. Rather than a deviation from the classic Ansoff framework, Nagji and Tuff10 suggest that a winning strategy may be a combination of innovative approaches at the right equilibrium. Managing existing drug/expiries, expanding adjacent ‘new to the company’ business, and developing new drugs covering the ever growing epidemiological needs, especially in the emerging markets, within the same company, may be mandatory.
Total innovation management has worked for Technology and Telecommunications’ markets10. It may be the right survival tactic for pharmaceutical companies, as just having a pipeline of new drugs, just maintaining existing customers with face-to-face sales calls, just relying on marketing to cover for R&D delays, or selling in just Europe or the US, does not seem to cut it in today’s drug market.
1. ‘Pharma 2020: Which Path Will you Take?’, (2007) PricewaterhouseCoopers Pharmaceuticals: ConnectThinking: 1-48
2. Vertex Q3 2012; http://investors.vrtx.com/releases.cfm
3. Knott A., (2012) ‘The trillion dollar R&D fix’, HBR, May: 77-82
4. Abraxane SPC; http://www.abraxane.com/hcp/
6. Novartis Q3 2012 Results; http://www.sandoz.com/media_center/news/2012/press_releases/2012_10_25_Q3_results.shtml
7. The Economist (2012) ‘Battling borderless bugs: Western and emerging-market drug firms are invading each other’s turf’, 12 Jan: Business print edition; http://www.economist.com/node/21542410
8. Ghinn, D. (2012) ‘Pharma gets social’, Jan: http://www.pharmaphorum.com/2012/07/17/pharma-social-lillypad-provides-platform-lillys-corporate-engagement/
9. Cognizant Report (2012) ‘74% of Pharma companies have adopted Social Media…’; Jan: http://www.cognizant.com/InsightsWhitepapers/Adaptive-Social-Media-in-Life-Sciences.pdf
10. Nagji, B. & Tuff, G. (2012) ‘Managing your Innovation Portfolio’, HBR May: 5-11
Disclaimer: The views posted in this article are the result of personal reflective thinking on the already published articles, analyses and reports stated in the References; the current conclusions hypothetical and subject to change in light of new, openly published evidence. The author is currently an MBA student at The Open University and bears no relationship, commercial or otherwise, with the companies mentioned, which she has used randomly to exemplify innovation strategies.
David Harrison, Managing Partner of True Potential LLP, The Open University MBA alumnus
Edited transcript of Business Perspectives Video: Innovation or innovators?
“Most of the organisations I see, they train everybody”
“I have observed first hand that it’s about selection. I’m not necessarily a nature versus nurture addict if you like, but if I was, it would be nature. But if you look at any elite organisation in the world, it will probably be down to selection. So if you look at British Special Forces, as an example away from financial services, they don’t train people until they’ve selected them, on a course of selection criteria which rules out just about every human being possible. The ones that get through, they train them.”
“So what people do is set criteria, some sort of hurdle that most people can’t get over, “therefore they are weak, and let’s train that weakness”. And I don’t. I think I ignore weakness, I work with strengths. One strength can be innovation that you have within individuals in an organisation, but there will be other individuals who don’t have that as a strength. People then tend to get angry and say “everyone is creative”, “are you saying I’m boring and dull or whatever?”. And if you are in finance, you may say “I wanted to be in finance, boring and dull, I didn’t want to make a mistake and cost everybody millions of pounds”. So there has to be those people, and those people, I believe, are happy doing that job, because they are naturally endowed with the ability to be careful, to be numerate, to do the things which other people may find boring. They probably think that all creative people are glib, they are chaotic, they create a real mess for these people to tidy up. And I think it’s just recognising in an organisation that there are different people. And I want to separate that form of creativity, that form of real innovation, which may find you in a different market, with a different product and so on and so forth, from what I call the ordinary everyday creativity, which most people have, which can also lead by the way to big leaps, such as improving a process we’ve already got.
So if you look at the organisation we have got, we have got lots of people, they are mostly partners, and I think that helps creativity because essentially what they are doing is, if they bring something to us, then it is to their advantage as well. The more they do of that, the more shares they are likely to have, the more important they are going to be in terms of value for the organisation.”
Guest blogger:Fiona Beukes, The Open University MBA, UK Marketing specialist, BNY Mellon
Innovation in some respects is like the Holy Grail of business – How do you do it: disruptive or continuous? How do you foster it in your organisation: Incentives? Creative downtime? Hire the right talent? Although these are obviously worthy avenues to explore, they do take time to implement.
I think many organisations are hampered by their internal environment which prevents a dynamic, agile response to market change. There is definitely a tension, in my view, between Grant’s internal resource perspective and Porter’s economic view of the workings of the external business environment.
From a practical perspective, I also think many companies find it hard to innovate through disruptive change. In my view, the larger and larger an organisation becomes the more bounded I feel it is to its BAU (Business as Usual) and the day-to-day constraints that just “getting things done” place on its internal environment.
The leaner, younger, more nimble upstart is likely to steal a larger company’s thunder and swiftly re-engineer the external environment. Think of Apple launching the iPod – a lower quality sound compared to compact discs so Sony engineers believed at the time – a product that rapidly caught the attention of a mass market interested in synching their PC to a portable, lighter device. In the end, a good quality product (CDs) lost out to unperceived customers’ needs and wants (iPods).
I think it is this disconnection from the customer which fosters continuous improvement in an organisation rather than disruptive market change. As a product or service exists already and a level of stakeholder engagement is in play – internally and externally – it becomes safer to adapt and improve a product or service rather than launch new ones. Why ruin a good thing?
It is also seems safer to improve the operational side of an organisation by being leaner and more cost-effective rather than radically altering the product or service and risk a customer backlash: something Coca-Cola experienced when they launched new coke in the 1980s. Why risk upsetting the apple cart, and more importantly, an organisation’s shareholders by changing the status quo?
There are certainly many barriers to innovation in organisations – people, culture, shareholders to name a few – and varying ways in which to be innovative. In my mind, how an organisation chooses to innovate is contingent on a range of external and internal factors. And also its strategic, longer-term vision of what the future holds.
Guest blogger:Christopher M. Schroeder, Washington, D.C.- and New York-based entrepreneur, venture investor, and former CEO of the online content and social platform start-up healthcentral.com
This article was first published on Harvard Business Review, October 16, 2012.
We in the West tend to think of innovation as the next, new, shiny, tech, globally-accepted thing. But in emerging growth markets, new access to even existing technologies (e.g., higher-speed broadband, mobile phones, smart devices), can lead to fresh and surprising thinking about local and regional problems, and one day these over-looked corners of the globe may produce world-class innovations as a result.
Consider mobile devices in Africa. Throughout the continent — and this is true throughout other emerging markets too — millions of people are glued to their cell phones. Since Africans were never tethered to landlines, innovation has been astounding. Kenya’s M-Pesa, for example, allows customers to withdraw and deposit money via text message. The company is now one of the largest mobile cash-transaction companies in the world — roughly 20% of the country’s GDP passes through it. The growth doesn’t stop there. With hundreds of thousands of cell towers providing reception to the most rural corners of the world, mobile providers have been compelled to build their own power generators. As a result, they’ve spawned entire ecosystems of entrepreneurs who are using the excess electricity to power local towns and build community charging stations. And thanks to “social entrepreneurs,” people with little voice are using mobile technology to report crime and corruption to authorities while holding the “powers that be” accountable — which was impossible even a few years ago.
Long before the Arab uprising in 2010 — and uninhibited by uncertainty and instability today — Middle East entrepreneurs have used innovation to overcome challenges and to find new opportunities for growth. As I have suggested in a recent post here on HBR, the Arab world alone represents a large and hungry consumer market. So it’s no surprise that companies in the region are finding innovative ways to reach consumers. In the face of country-by-country regulatory complexity, Aramex, the region’s largest logistics company, created Shop and Ship, which allows customers to order products from nearly any e-tailer in the U.S. and China and eventually the Middle East. It’s a seamless process. Aramex receives the ordered goods at its facilities, takes care of all the bureaucratic headaches, and then delivers the goods right to the shopper.
Other e-commerce companies are overcoming obstacles in innovative ways as well. With only two million credit card users in the Middle East, and even fewer comfortable using their cards online, and with well over 60% of package deliveries paid COD, payment services create as much friction as regulatory concerns. But innovators such as CashU have created safe gateways (e.g., cash cards) for buyers who are weary about shopping online and on mobile devices.
The fact that new markets are using technology to solve local and regional problems is no longer surprising. But what’s provocative, for me, is at some point these efforts will yield globally-competitive innovation as well. As Dartmouth Professors Vijay Govindarajan and Chris Trimble argue in their new book on innovation in emerging markets, Reverse Innovation: “It is easy to understand why a poor man would want a rich man’s product. But why would a rich man ever want a poor man’s product? The answer is that under certain circumstances, it offers new, unexpected or long-overlooked value.”
This is why, when I travel throughout the Middle East, I look hard for situations and experiences that could foster innovation on a global scale. Simply put, the Middle East — despite its uncertainty — is rife with potential. This is a region that barely knew phone lines, yet mobile penetration regularly nears 200%. And when cheap smart phones (below $40) hit the market — as they have just started to in Africa — mass adoption of mobile computing will follow. What might this market have to teach the world about the future of mobile innovation?
There are other opportunities for innovation as well. The largest untapped resource of fresh water in the world lies beneath the Egyptian-Libyan desert but there isn’t an adequate, cost-efficient, and reliable way to deliver petroleum in order to pump it. What innovation in solar pumping and agriculture may lie here? And what about the millions of people who communicated and coordinated on mobile devices and Twitter and Facebook during the Arab uprisings? They told stories. They toppled regimes. Might the next great global social network rise from these experiences?
There was a day, in my lifetime, when no one could imagine that Japan, or Finland, or Korea would become leaders in hardware innovation or computer gaming. True, there hasn’t been a great, global software innovation outside of the United States in years, arguably ever. But as the region continues to use creativity to overcome its unique problems and as long as access to inexpensive technology continues to spread, “made in MENA” doesn’t seem that far off.
Why large scale infrastructure should not be too technologically innovative.
Evan Davis explains the reasons and shares his views of the challenges to refreshing the UK infrastructure, reflecting on his research for Built in Britain, an OU/BBC co-production.
“Innovation has certainly moved to centre stage recently. It seems that almost everyone now has a view, and at times anything goes. But there is a very solid foundation of excellent theoretical and empirical analysis that often gets lost in the current fashionable buzz around the topic.
This goes back to Schumpeter (who popularised the term entrepreneur and gave it its modern meaning) and Solow, who both demonstrated the crucial contribution that innovation makes to economic growth. More recent contributors include Abernathy and Utterback, who identified the product-process innovation lifecycle; von Hippel, who has explored the sources of innovation; Freeman, who examined the policy aspects of innovation and created the standard definitions now used to measure innovation around the world; Pavitt, who examined the role of intellectual property rights such as patents in innovation, and Christensen, who has articulated the notion of ‘disruptive innovation.’
Studies range from the careful empirical to the deeply theoretical and have moved our understanding on apace. However, the challenge remains of communicating these insights. This blog series seeks to do just that – bring researchers and practitioners together to discuss, share and debate this fascinating topic, which is crucially important for building a better world.”
“Organisational Innovation; a survival imperative?”
15 November 2012. Location: Cumberland Hotel, London W1.
The theme of this event is ‘Innovation’, a subject area identified as critical to ongoing professional development in recent research findings from the OUBS alumni. As a result we have developed a masterclass combining industry-leader and academic perspectives that will explore how innovation can be fostered at all levels within an organisation.
A separate but complementary evening event will be hosted by the Dean of the Business School, Professor Rebecca Taylor with guest speakers Evan Davis and Ken Keir, Executive VP, Honda Motor Europe.
Talking of quotes, I’ve always been fond of Nick Negroponte (he of MIT Media Lab fame) and his
“The best way to guarantee a steady stream of new ideas is to make sure that each person in your organization is as different as possible from the others. Under these conditions, and only these conditions, will people maintain varied perspectives and demonstrate their knowledge in different ways.”
Trouble is, such diversity is a necessary but not sufficient pre-condition for innovation capability; that people are different is not enough – they’ve got to be allowed to think and behave differently too.
Which brings us to culture. I’m not going to dwell on definitions, at least in part because all too often we believe – erroneously – that if we can pin a label on something, it helps us to understand it. If only. Culture is deep; culture is slippery; culture is unmanageable; all of the usual claims are true, partial, and largely unhelpful.
In very crude terms, culture may indeed be – at a quite deep level – the way the place ‘works’, but for the purpose of this discussion, I’m going to tweak that a little, into ‘… so what does one have to do to get on around here?’ My motives should become clear a little later.
If culture is such an elusive concept, how do cultures emerge in the first place? In the beginning, an organisation has purpose but generally few people; if the initial ideas prove successful, it usually grows. This means a balance between two processes: recruitment (= who comes on board) and retention (= who stays).
Let’s take recruitment first. I often tell my students that there are two rites of passage en route to becoming a good manager. The first is to stop recruiting in your own image; most of us eventually achieve this. The second is to start recruiting people who disagree with you. This is much more difficult and sadly many don’t get that far, notwithstanding its increased popularity after both Gordon Brown and Barack Obama started recycling some of Abraham Lincoln’s political philosophy. Given these two rules, it should be quite clear that recruitment, who does it and against what criteria (explicit or otherwise), is a crucial lever on culture.
Then there’s retention; if folk find the environment conducive they’ll probably stay, if not they’re more likely to leave (going back to the quote at the start, do they feel they’re allowed to be different or do they feel pressure to conform?). I will also argue that retention is intimately tied up with the reward system in place, which needs to be three things: it needs to be perceived as being fair, it needs to be congruent with the organisation’s aims, and it needs to at least allow (or even actively encourage) people to be different. People who are rewarded by the organisation are the role models, to be emulated by all those others who want to ‘get on’. And if only one sort of behaviour gets rewarded, bang goes your diversity.
Some of us believe passionately in the power of innovation; problem is, if culture is so vital, and recruitment and retention/reward are key, who’s got their hands on the levers?
 OK, if you insist on definitions, the seminal article is probably Schein (1990) ‘Organizational Culture’, American Psychologist (February)
 If you doubt it, go back to your Belbin, or maybe some Myers-Briggs, or maybe just look again at the Negroponte quote.
 I cite John Cleese in a famous video where he quotes Sam Goldwyn: “I don’t want any Yes Men in this organisation, I want people to speak their mind. Even if it does cost them their job!”
 The classic text is Steven Kerr (1975), ‘On the Folly of Rewarding A While Hoping for B’, Academy of Management Journal