Throughout the past two decades, biomedical companies have learnt painfully that industrialized management of R&D does not deliver. Using illustrations from the pharmaceutical sector, this article looks back on the principal approaches that were adopted to transform R&D productivity over this period. We reflect on what has definitely not worked well, and in consequence, we discuss how the emphasis is now shifting back to people, relying on human ingenuity and teamwork to innovate – through focus and an open architecture. We conclude by identifying the key success factors and the new challenges that R&D leaders need to manage.
The Holy Grail
Every R&D Head wants an organization that generates valuable innovations and new products – repeatedly, over a sustained period, and for a manageable investment. For the last twenty years, pharmaceutical and medical technology R&D leaders have pursued this holy grail. But despite successive waves of R&D improvement initiatives, independent studies have shown that R&D productivity over this period has fallen relative to the huge investments poured into R&D.
Process Management & Magic Bullets: the Age of Machines
When business school academics and management consultants looked at the pharmaceutical industry in the early 1990s, they sought inspiration from other industry sectors with high R&D spending such as aerospace, automotive and telecommunications. Their view was that like these other sectors, pharmaceutical R&D could be industrialized and made more systematic, with more predictable returns on investment, i.e. R&D organizations could be managed and optimized like “machines” using a Process Management paradigm.
In came portfolio management matrices, net present value calculations, decision tree analyses, project metrics, project stage gates with standardized go/no-go criteria, governance committees, key performance indicators, LEAN/Six Sigma, etc. And to top it all, came the big process re-engineering and re-organization initiatives to integrate all of the foregoing toolkit, often with corresponding IT systems to enforce compliance with the new processes and to enable manpower reductions. The seductive promise to top management of being able to measure and control “what those crazy scientists are doing with our money” was too alluring to resist!
At roughly the same time, in the excitement generated by the Human Genome Project, many technologically-driven “magic bullet solutions” started to appear – high throughput screening of huge compound libraries, combinatorial chemistry, phage display antibodies, fragment-based drug discovery, high content phenotypic screening, computational chemistry, predictive ADMET, knowledge management systems, etc. The popular thinking at the time was that with the right technological engines, the challenges of drug discovery and development could be systematically overcome. Many of the large global drug corporations (“Big Pharmas”) started making big bets, investing to install these solutions in-house and to buy smaller companies already experienced in using such solutions.
The Process Management paradigm was not just a feature of the Big Pharmas. In the late 1990s and early 2000s, many of the medium-sized family/foundation-controlled companies and the rapidly growing biotechnology companies also put in place this industrialized management approach. Influenced by the executives they had hired from the Big Pharmas, they sought to “professionalize” and “modernize” their organizations.
However, the resulting outcomes of aggressive Process Management and Magic Bullet initiatives across the industry were simply disastrous. The industrialization of R&D led naturally to the pursuit of scale, which then created more complexity to manage, requiring even more Process Management – a rapid downward spiral into major scale diseconomies.
As noted by GSK’s former Chief Executive Officer Jean-Pierre Garnier in his Harvard Business Review article of May 2008:
“The leaders of major corporations in some industries, including pharmaceuticals and electronics, have incorrectly assumed that R&D was scalable, could be industrialized, and could be driven by detailed metrics (scorecards) and automation. The grand result: a loss of personal accountability, transparency, and the passion of scientists in discovery and development.”
Given our current level of knowledge of how the human body works, biomedical R&D is too complex, with too many unknown and unquantifiable variables, for either a deterministic Process Management approach or some technological Magic Bullet panacea to ever work.
But worst of all, successive waves of Process Management and Magic Bullet initiatives generated wholesale disillusionment, cynicism and even anger amongst bench scientists and their line managers, as evidenced by this quote by an experienced R&D manager posting in December 2009 on the In the Pipeline drug discovery blog:
“For one reason or another, often on the advice of some consultant who knows next to nothing about the drug industry, management reaches for an endless series of golden bullets. According to these modern day snake-oil sellers, you will inevitably be successful if only you screen at least a million compounds, or if you look for natural compounds, or if you gamble everything on biologicals, or if you invest in fragment-based screening, or if you do drug design by cheminformatics, or if you do phenotypical screening and systems biology, or if you gamble on portfolio management and process excellence, and so on… Often these things have real value, although at least equally often management grasps for straws that are rooted in very loose soil… There are no golden bullets, no magical formulas for success, and focusing your investments in one area while neglecting the others is wasteful because the things you neglected invariably come back to bite you”.
Focus & Open Networks: People Innovate, Not Machines
By the turn of the millennium, momentum began in the industry to “focus” different parts of the R&D organization. The underlying idea here is that if you concentrate and specialize a group of people within a defined domain as a key focal point of activity, they will become better at solving problems in that space using a range of approaches that make most sense for that domain, without a need for tight process management from outside.
It started with efforts to focus R&D units on certain diseases and their corresponding physicians i.e. organizing by therapeutic area. Soon there were calls to focus in-house resources on those core competencies which conferred competitive advantage, leading to a succession of outsourcing initiatives. Development began to split into Confirmatory and Exploratory groups, in recognition that the mindsets and management requirements of these two phases were distinct. Exploratory Development began to experiment with alternative philosophies for getting more effectively to Clinical Proof of Concept (PoC) such as “”kill quickly and cheaply”, “invest to learn up-front” and “fast into human”. And some companies applied their exploratory philosophy using innovative resourcing models e.g. Lilly’s Chorus implemented a virtual setup making extensive use of external contract research organizations (CROs) to get to PoC as quickly and as cheaply as possible. More recently there have been initiatives to manage first-in-class and best-in-class projects differently, recognizing that they require different skillsets and competitive mentalities.
Companies started looking for ways to make project teams the “center of gravity” – raising the status of the people in charge, managing budget via the projects (rather than via the scientific functions), improving team performance through team effectiveness training, and delineating different project management roles (program leader, project leader, project manager, team facilitator, etc.).
The Focus trend continues. Under slogans such as “Payer is the Customer”, “Personalized Medicine” and “Patient Power”, R&D organizations today are trying to focus on the needs and dynamics of different stakeholders as opposed to just the traditional physician and regulator. For example, some companies have started initiatives to bring earlier into R&D the market access and health technology assessment perspectives. Others have sought to get their R&D people to adopt a more “patient centric” approach in how they develop new products. And initiatives to ramp up the impact of project teams continue. For example Merck’s Chief Executive Officer Ken Frazier spoke at a conference in January 2013 about a:
“significant change that has happened over the past couple of years […] development of what we call Team at Center, meaning we have empowered project teams that can make decisions on their own; they’re no longer necessarily slaves to the larger organization which has its own rhythm of decision-making”.
In parallel with the growth in Focus thinking, there has been the rise of “open innovation” and “network R&D”. Various independent studies, in particular the widely-quoted “Lessons from 60 Years of Pharmaceutical Innovation” in the December 2009 issue of Nature Reviews Drug Discovery, suggest that the same total spending by many smaller units operating as a network generates greater innovation and more new drugs than one large monolithic unit with the same budget. In a way, this takes the idea of Focus to its ultimate conclusion – each smaller unit concentrates on what it is good at, operating with its own unique culture adapted to these strengths, while relying on collaborators to provide what it lacks.
In theory, the smaller and medium-sized specialty pharmaceutical and biopharmaceutical development companies already have an advantage in this fast evolving world of Focus & Open Networks. But in practice, many had been trying to professionalize themselves by installing the same Process Management tools that had led to Big Pharma’s R&D demise. And the Big Pharmas are trying to catch up – many are splitting their R&D into smaller entrepreneurial units. For example, GSK’s Discovery and Early Development activities have been dispersed into over 40 separate “Discovery Performance Units”, each of which has to assemble and procure funding for a multi-year rolling business plan just like an independent biotech company. In addition, these units are encouraged to collaborate with not just other GSK units, but with lots of external partners to generate new ideas, create innovations and develop them into medicines. Another theme to this strategy for encouraging open innovation is locating a network of R&D units near academic research hubs and high quality scientific talent pools. The Novartis Institutes for Biomedical Research for example has R&D centers in the vicinity of Basel, Boston, New Jersey, San Diego, San Francisco, Shanghai and Singapore.
So will Focus & Open Networks succeed where Process Management and Magic Bullets failed? At least in this new paradigm, companies are not trying to do the impossible by simplistically attacking a complex multi-dimensional problem. Instead the Focus & Open Networks paradigm is founded on allowing teams of people focused on specific domains to concentrate on where they have most impact, while relying on other better-placed collaborators to help them on other aspects. In other words, relying on human ingenuity and teamwork rather than on optimizing a “machine”. And at a macro level, there is already sufficient historical evidence to show that networks of smaller units are in aggregate more productive. So done sensibly, this paradigm has a good chance to succeed.
But be warned, the idea of “focus” can also be abused and simplistically applied. Some of the strategy consultants who a decade ago advised companies to organize their Research activities by therapeutic area (to align with their Commercial organizations) are now advising companies to organize their earlier-stage activities along “similar biological signaling pathways”. Whereas every Research biologist knew long ago that human biological processes do not align with the way the medical profession organizes itself and classifies diseases. Deep know-how acquired about one particular biological process could lead to drugs for many different diseases e.g. asthma, cancer, psoriasis etc. So narrowing Research too early is wasteful of know-how and reduces chances of finding something valuable. Countless potential candidate drug molecules have been abandoned in the last decade because they did not fit the company’s therapeutic area priorities in the Commercial arena.
Similarly, there have been those initially successful platform technology companies (in antibodies, drug delivery, etc.) who struggled to become the therapeutic area-focused specialty pharmaceutical companies that their strategy consultants and investment bankers advised them to be, eventually disappearing through acquisition or natural demise. It does not always follow that a company built on say, phage display antibody technology should become an oncology marketing company just because its lead compound works for solid tumor cancers.
Focus & Open Networks: Key Factors for Success
It makes sense for the top management of large global corporations to break R&D up into smaller focused entrepreneurial units sited in major scientific hubs. But what about the perspective of an individual R&D organization and its management team? The Focus & Open Networks paradigm works by relying on the diversity of the multitude of separate units to pursue many different avenues. By the statistical law of large numbers, some of them will create valuable innovations and commercially viable products. However the other unsuccessful units will be shut down once they run out of funding or their owners run out of patience. Success in aggregate is no comfort if your unit is the one that is not sustainably successful and disappears. So how does an individual R&D organization ensure creative innovation and market-focused product development? This challenge afflicts both existing smaller and medium-sized companies as well as those units created by or spun out from the large corporations.
The first port of call should be to look at the current Process Management infrastructure. There is a need for some baseline level, otherwise chaos would ensue. But the degree of Process Management in many R&D organizations today is often too rigid and heavy, and in these situations, an effort to slim down and lighten the Process Management infrastructure would be a good start. Rather than relying on metrics and rules to make decisions, an overall framework with some guidelines and a small number of major checkpoints suffices. The aim is to enable good judgmental decision-making by combining the know-how and creativity of the whole project team and their extended network of collaborators.
In parallel, you should pursue only a small set of complementary strategic initiatives within a Focus & Open Networks philosophy. Most companies start too many disconnected strategic initiatives that confuse their people and get in the way of each other. The set of initiatives should be designed to cumulatively create a balanced and synergetic effect, combining what most managers would regard as “strategy”, “process” and “people” aspects.
An over-arching strategy is essential i.e. a policy of what the organization will do more of, what it will do less of, and what it will stop altogether. This strategy should have its roots in certain assets and know-how that the organization already possesses. Said assets and know-how are then strengthened and stretched to get to where the organization wants to go. What to focus on, and with whom to collaborate with in the global industry network are all part of this over-arching strategy. Just because everyone else is running after say a “patient centric” focus does not necessarily mean you should jump on this bandwagon as well – it has to make sense in your strategy, and your strategy has to build off the reality of what you already have and can start with.
Your strategy must also be transparent and inspiring. To ensure successful strategy execution, everyone needs to have ownership of the strategy and is intuitively able to translate it into their daily project team decisions. And that strategy should align with a higher purpose, whether formally stated or otherwise, that goes beyond merely creating shareholder value. Few scientists in the life sciences are motivated by ever increasing financial rewards. Once you pay them fairly, they are more motivated by overcoming a technically difficult challenge, creating something that adds to the world and improving the health of society at large.
Structural changes are the “hardware” which creates the foundation for change, but it is the “software” that makes it work. All too often, strategic initiatives plateau into merely structural changes e.g. a new organization, team structure, operating process, collaboration partner, etc. And the measure of short-term success is their “implementation” i.e. they are in existence. But without corresponding changes in both the mindsets and the behaviors of the people, you do not get the high performance R&D organization you seek. For example, a new organization has no value if the people in it are so confused and disillusioned by reporting line changes that the initiative does more harm than good. Similarly a scientific collaboration with another company delivers no value if both sides do not work closely with each other to create complementary benefits. Signing a collaboration agreement might have a positive effect on the company’s share price in the short term, but it does not last if there is no delivery. Two different organizations can implement the same theoretically sound structural changes but the impact can vary by several orders of magnitude – depending on whether their people think, work and collaborate in ways that leverage or destroy the impact of those structural changes.
The behavioral aspects mentioned above often carry a “culture change” label. But culture change is not just a communication exercise with inspiring slogans, fancy icons and other hype orchestrated by a brand identity agency. Nor is yet another training program enough for permanent culture change either. Granted, such internal communication efforts and training programs are part of the solution. Nevertheless, permanent culture change only happens when people get opportunities to safely practice and become steeped in new behaviors through successive trial and error i.e. people learn to behave differently through experiential learning, reflection and adaptation. So if you want people to collaborate creatively, you give them opportunities to do just that – while other supportive activities like training and communication help and enable, there is no substitute for learning by doing.
Last but not least, sheer persistence, patience and staying power goes a long way. The change journey is not a linear path but one strewn with twists and turns, with both positive and negative surprises to be negotiated. It takes a lot longer than you think, but done well, it often delivers beyond your initial expectations.
The Next Frontier
As Focus & Open Networks become widespread in biomedical R&D, we see two major opportunities becoming increasingly prominent for the management teams of R&D organizations. Firstly, to develop and execute a well thought-out and differentiated R&D Business Strategy. And secondly to enable their organization to Innovate and Manage Know-How Collaboratively across the network of internal departments and external collaborators.
We have mentioned in the previous section the need for an over-arching strategy, one which is also transparent and inspiring. An R&D Business Strategy sets the direction for how the R&D organization will continually create and capture value from its know-how and its activities. It is not just a traditional “R&D strategy” of deciding which technologies and skills to rely on, and which customers’ needs to target. Neither is it just a “value maximization” strategy to create a portfolio of valuable assets that can be sold or partnered out. Additionally, it is about how an R&D organization could view itself as an economically sustainable and differentiated business in its own right. And how taking this perspective can create new impact for its scientists, management team and corporate owner.
Furthermore, biomedical R&D organizations of the next decade need to dramatically improve how their people Innovate and Manage Know-How Collaboratively across their networks. Innovation and know-how are not two separate elements but different sides of the same coin – know-how interchange drives innovation while innovation drives know-how creation. If it was not already difficult enough to collaborate across different scientific disciplines on a single R&D site, now it has to be achieved across a dispersed network of internal and external collaborators. And ideally, achieved with synergy i.e. creating more than the sum of the parts. This is not just a question of putting in place the right collaboration processes and IT-enabled social media tools for crowdsourcing. It is also a question of the necessary behavioral changes, which as mentioned previously require experiential learning, reflection and adaptation in addition to communication and training efforts. Last but not least, it is a question of developing the next generation of leaders – those who will lead science, projects and people in the next decade for a scientific workforce that will increasingly comprise Generation Y and Z people blessed with a healthy disrespect for authority and continuously connected via social media to peers and alternative opinions worldwide.
We believe the state of the art for exploiting both the above opportunities is far from being reached, with no universally-adoptable best practices nor repeatable recipes for success. We have a long way to go!