Pharmaceutical Executive Europe - January 2008 - (Page 15) Pharmaceutical Executive Europe January 2008 Corporate Strategy 15 Barriers to success in innovation In any commercial organisation, success means a positive return on investment (ROI) after allowing for the risk involved. Since innovation of any kind is inherently more risky than doing more of the same, investment in innovation has to create a higher return than an equivalent tried-and-tested investment. In short, innovation failure is common because the barrier is higher, as shown in Figure 1. The risk-adjusted ROI barrier doesn’t explain all innovation failure, however. Research into why projects fail in development has supplied many explanations, which tend to fall into two general categories: ● Cultural. Management researchers cite many intangible hindrances to innovation, such as internal politics, lack of management commitment, and the “not invented here” syndrome. All of them have their roots in company culture, which is unsurprising. Innovation involves change, whilst culture, to quote management theorist Peter Drucker, is persistent and pervasive. It’s almost inevitable that the two will conflict. ● Resources. Of the tangible reasons uncovered for innovation failure, lack of time, knowledge and/or financial resources is mentioned in almost every case. They are of course facets of the same phenomenon, in which conflicting corporate desires for high-returns and fast-returns collide. As with culture, the innovation process merely crystallises an inherent dilemma of business. Innovation, as we can see, is difficult not only from a technical and intellectual viewpoint, but also for human and business reasons. When we try to innovate, we focus all the contradictions of business — change and inertia, short-termism and growth — into one spot. It is hardly surprising, then, that it can be very challenging. ● Stage-gate processes, which are typical in pharma R&D and other capital-intensive new technologies such as telecoms ● Piloting, in which ideas are tried on a limited scale. This is common in consumer goods or financial services ● Open models, in which intellectual property is shared. This is common in software sectors. Crucially, none of these approaches can be said to be superior to the others. They tend to dominate in subsectors, because each has their pros and cons, working with slightly different mechanism and therefore fitting better the conditions of a particular context. A comparison of the six approaches is shown in Table 1. As the table also shows, at the centre of innovation management is risk management. By managing the risks inherent in any innovation, firms reconcile their commercial needs for a high rate of return even when innovation risk increases the risk-adjusted cost of the necessary investment. The approaches differ in the way they manage risk: delaying it, spreading it or isolating it. They depend for their effectiveness on different risk profiles of different innovations. For example, some projects, such as a new approach to structuring a sales team that can be tried in a region, country or therapy area, lend themselves to piloting. Others, such as major product launch, are indivisible and the necessary risk can only be ameliorated by spreading it (for example, in a joint venture) or stage-gating the risk. What we learn from considering the approaches above is not which one is best, but which one is best in which context. Lesson in innovation management As might be expected with a subject as large and mission-critical as innovation, there in no panacea answer. However, a helicopter view of the topic does reveal some fundamentals that provide a way of thinking about the problem. These can be summarised as follows: Approaches to managing innovation Understanding that innovation failure is the result of dilemmas inherent in any business brings us part-way to understanding the problem. Persistent culture and the fact that, in business, time really is money are the irresolvable barriers to innovation that, in a commercial setting, will always be present. To improve our innovation processes, we have to examine how other firms, both in pharmaceuticals and other sectors, approach the problem. There are many different models of innovation; they can be seen as variations or hybrids of six basic approaches: ● Incremental approaches, such the transfer of prescription-only medicines to over-the-counter sales ● ‘Skunk works,’ in which the project teams are locked away — as in Xerox’s famous Palo Alto Research Centre or Pfizer’s ‘Blue Sky’ project — to look at the future of their markets ● ‘Big Hairy Audacious Goal’ projects, in which the future of the firm is bet on a single project. The Boeing 747 is the most famous example of this, but biotech start-ups often bet on a single molecule Figure 1: Innovation and Value Creation Innovations that create returns above this line create value Return Position of line determined by cost of capital Innovations that create returns below this line destroy value Risk http://www.innovation.org/index.cfm/InnovationToday/KeyIssues/Incremental_Innovation http://www.hi.is/~joner/eaps/cs_xparc.htm
Table of Contents Feed for the Digital Edition of Pharmaceutical Executive Europe - January 2008 Pharmaceutical Executive Europe - January 2008 Contents From the Editor News and Analysis Calendar Corporate Strategy: Walking the Line Executive Profile: The Pharmacist’s Friend Q&A: An End to Drug Counterfeiting Healthcare Cost Assessment: Ready to Make NICE? Pricing and Reimbursement: Through the Reimbursement Barriers Generics: India Inc. The Mix: New Models of Excellence Last Word: Mid-size Matters Pharmaceutical Executive Europe - January 2008 Pharmaceutical Executive Europe - January 2008 - Pharmaceutical Executive Europe - January 2008 (Page 1) Pharmaceutical Executive Europe - January 2008 - Pharmaceutical Executive Europe - January 2008 (Page 2) Pharmaceutical Executive Europe - January 2008 - Contents (Page 3) Pharmaceutical Executive Europe - January 2008 - From the Editor (Page 4) Pharmaceutical Executive Europe - January 2008 - From the Editor (Page 5) Pharmaceutical Executive Europe - January 2008 - News and Analysis (Page 6) Pharmaceutical Executive Europe - January 2008 - News and Analysis (Page 7) Pharmaceutical Executive Europe - January 2008 - News and Analysis (Page 8) Pharmaceutical Executive Europe - January 2008 - News and Analysis (Page 9) Pharmaceutical Executive Europe - January 2008 - News and Analysis (Page 10) Pharmaceutical Executive Europe - January 2008 - News and Analysis (Page 11) Pharmaceutical Executive Europe - January 2008 - Calendar (Page 12) Pharmaceutical Executive Europe - January 2008 - Calendar (Page 13) Pharmaceutical Executive Europe - January 2008 - Corporate Strategy: Walking the Line (Page 14) Pharmaceutical Executive Europe - January 2008 - Corporate Strategy: Walking the Line (Page 15) Pharmaceutical Executive Europe - January 2008 - Corporate Strategy: Walking the Line (Page 16) Pharmaceutical Executive Europe - January 2008 - Corporate Strategy: Walking the Line (Page 17) Pharmaceutical Executive Europe - January 2008 - Executive Profile: The Pharmacist’s Friend (Page 18) Pharmaceutical Executive Europe - January 2008 - Executive Profile: The Pharmacist’s Friend (Page 19) Pharmaceutical Executive Europe - January 2008 - Q&A: An End to Drug Counterfeiting (Page 20) Pharmaceutical Executive Europe - January 2008 - Q&A: An End to Drug Counterfeiting (Page 21) Pharmaceutical Executive Europe - January 2008 - Healthcare Cost Assessment: Ready to Make NICE? (Page 22) Pharmaceutical Executive Europe - January 2008 - Healthcare Cost Assessment: Ready to Make NICE? (Page 23) Pharmaceutical Executive Europe - January 2008 - Healthcare Cost Assessment: Ready to Make NICE? (Page 24) Pharmaceutical Executive Europe - January 2008 - Pricing and Reimbursement: Through the Reimbursement Barriers (Page 25) Pharmaceutical Executive Europe - January 2008 - Pricing and Reimbursement: Through the Reimbursement Barriers (Page 26) Pharmaceutical Executive Europe - January 2008 - Pricing and Reimbursement: Through the Reimbursement Barriers (Page 27) Pharmaceutical Executive Europe - January 2008 - Generics: India Inc. (Page 28) Pharmaceutical Executive Europe - January 2008 - Generics: India Inc. (Page 29) Pharmaceutical Executive Europe - January 2008 - Generics: India Inc. (Page 30) Pharmaceutical Executive Europe - January 2008 - The Mix: New Models of Excellence (Page 31) Pharmaceutical Executive Europe - January 2008 - The Mix: New Models of Excellence (Page 32) Pharmaceutical Executive Europe - January 2008 - The Mix: New Models of Excellence (Page 33) Pharmaceutical Executive Europe - January 2008 - The Mix: New Models of Excellence (Page 34) Pharmaceutical Executive Europe - January 2008 - Last Word: Mid-size Matters (Page 35)
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