86
Actually Doing Actually Doing (Technology & Product) (Technology & Product) Strategy Strategy
Actually DoingActually Doing (Technology & Product)(Technology & Product)
StrategyStrategy
Outline:Outline:
Why do I need an innovation strategy?Why do I need an innovation strategy?How will we create value?How will we create value?How will we capture value?How will we capture value?How will we deliver value?How will we deliver value?Doing strategy in practiceDoing strategy in practice
AgendaAgenda
Why making choices is so importantWhy making choices is so important•• (and so hard)(and so hard)
What can be doneWhat can be done
Why is it so hard to killWhy is it so hard to kill project #26?project #26?
ItIt’’s as a ““goodgood”” project!project!–– It meets NPV, ROI goalsIt meets NPV, ROI goals–– An important customer wants itAn important customer wants it–– The CEO/my boss wants itThe CEO/my boss wants it–– ItIt’’s Franks Frank’’s projects project–– It might be the project that saves my baconIt might be the project that saves my bacon
Good managers can meet stretch goalsGood managers can meet stretch goals (and I(and I’’m a good manager)m a good manager)Making difficult decisions takes timeMaking difficult decisions takes time and eats energyand eats energy
What can be done?What can be done?
Measure capacity, track resourcesMeasure capacity, track resourcesMake real decisions with real dataMake real decisions with real dataUse decision tools that allow you to viewUse decision tools that allow you to view initiatives in comparison to each other andinitiatives in comparison to each other and within the context of your strategic objectiveswithin the context of your strategic objectives
Measure capacity,Measure capacity,track resourcestrack resources
Measure resourcesMeasure resources280
260
240
220
200
180
Total FTE Effort 160
(1 Year Period) 140
120
100
80
60
40
20
0
Project A
Project B
Project C
Project D
Project E
Project F
Project G
Project H
Project I
Current Prod & Proc Support
Applied Research
Vacation, Holiday, Sick Time
Total demand all projects by function (1 Year)
Total capacity by function (1 Year)
Projects E
E-C
ombi
ne P
L / E
ng
EE
-P
roje
ct L
eade
r
EE
-D
esig
n
EE
-Te
chni
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ME
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PL
/ Eng
ME
-P
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ct L
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r
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uppo
rt E
ng
ME
-D
rafte
r/Des
ign
ME
-Te
chni
cian
SE
-Com
bine
PL
/ Eng
SE
-P
roje
ct L
eade
r
SE
-E
ngin
eer
SE
-Te
chni
cian
MFG
-E
lect
rical
(ATE
)
MFG
-M
echa
nica
l
Pur
ch -
Mec
h
Test
ing
Doc
. -Ill
ustra
te
MK
TG -
Pro
d. M
gr.
Function
Track Resources Over TimeTrack Resources Over Time
HOURS PER MONTH
�0
�1500
�3000
�4500
�6000
Exploratory projects Innovation projects Product Support Administration
CAPACITY
11-S
ep
1-Ja
n
23-A
pr
13-A
ug
3-D
ec
24-M
ar
14-J
ul
3-N
ov
• An understanding of resource utilization impacts both portfolio planning and project gate keeping.
•Use of funnels and matrices on their own can bring forth an optimized project portfolio. But without adequate attention to innovation capacity, the portfolio’s promise will remain unrealized. In addition to overall resource requirements for the portfolio, it is also important to factor in individual resource constraints. Studies show that the overall productivity for individuals peaks at 2 to 3 projects, and declines rapidly thereafter. For example, when key managers are shown as contributing materially to five or more projects, many of the projects are not happening and the remainder are adversely affected.
Build an understanding of theBuild an understanding of the ““typicaltypical”” projectproject
FTEs
Planned Resource Process EngineeringAllocation: R&D
Supply Chain Marketing
Project X
FTEs Process EngineeringActual Resource R&D
Consumption: Supply Chain MarketingProject X
Jan Feb Mar Apr May Jun
The Pre-quip example shows us that many organizations experience capacity over-commitment.One cause of capacity overcommitment can be poor planning. Often, when companies plan resource allocation over time, they do not take into account changes in the level of functional involvement by phase (shown above).Accurate resource allocation planning requires a more robust model because resource consumption requires time and function resolution.
Making real decisionsMaking real decisionswith real datawith real data
Technology Strategy in PracticeTechnology Strategy in Practice
Strategies are worthless unless they are linkedStrategies are worthless unless they are linked to real resource allocation decisionsto real resource allocation decisionsDecideDecide–– Who will make the decisionsWho will make the decisions–– How oftenHow often–– By what criteriaBy what criteria
An Assignment Given to SmallAn Assignment Given to Small Groups of Managers at XYZ Co.Groups of Managers at XYZ Co.
1.1. Identify the salient characteristics of yourIdentify the salient characteristics of your organizationorganization’’ss ““innovation funnelinnovation funnel””
1.1. Where do new ideas come fWhere do new ideas come frromom2.2. When are decisions made?When are decisions made?3.3. Who is involved in these decisions?Who is involved in these decisions?
2.2. Draw a diagram of the innovation funnel thatDraw a diagram of the innovation funnel that captures these characteristicscaptures these characteristics
Group AGroup AQualityQualityControlControl
ResearchResearch
CustomerCustomer
MarketingMarketing
StrategicStrategicPlanningPlanning
OEMOEM
Group BGroup BSenior Management
Screen 1
Marketing Inputs
Injector
Screen 2
Department Changes
Final Evaluation
1010--minute exercise: Funnels Youminute exercise: Funnels You Have KnownHave Known
What does the innovation funnelWhat does the innovation funnel atat youryour company look like?company look like?
The innovation funnelThe innovation funnel
Phase I Phase II Phase III Launch
The Innovation Funnel:The Innovation Funnel:
Defined separation between stages: Clearly definedDefined separation between stages: Clearly defined criteria: a way to killcriteria: a way to kill ““living deadliving dead”” projectsprojects
Senior managers engagedSenior managers engaged at the right timeat the right time Capture ideas from everywhere, manage ideas in anCapture ideas from everywhere, manage ideas in an organized way so that they turn into productsorganized way so that they turn into products
A continuous process:A continuous process: Does this fit with our strategy?Does this fit with our strategy? A picture of the business: an overview of the shape ofA picture of the business: an overview of the shape of the pipelinethe pipeline
Give teams the freedom they need between gatesGive teams the freedom they need between gates
An Innovation Funnel ExampleAn Innovation Funnel Example
Initial marketing and technical
concepts
Idea
Generation
Charter Contract
Launch Proposal
Post Launch Review
Gatekeeper Gatekeeper
Gatekeeper Gatekeeper
Feasibility
Concept refinement and
prototype creation
Product optimization
Commercialization Production & Distribution
Capability Launch & Rollout
One page description of proposed project including objective, rationale and development routes. Early Commercial Assessment
Cross-functional development plan including project plan as contract between team and Gatekeeper.
Launch Plan including CEP approval request.
Tracks success of and key learnings from launched products
KEY
= GATE
= DOCUMENT
Gates:Gates: are major mare major milestonesilestones are intended to allow passage of the projectsare intended to allow passage of the projects more likelymore likely
to succeedto succeed by sacrificing projectsby sacrificing projects more likely to failmore likely to fail asas early as possibleearly as possible
focus decisionfocus decision--making.making. At a gate, a decision is made toAt a gate, a decision is made to either:either:–– Continue working on the project, moving it along toContinue working on the project, moving it along to
the next stage in the funnel; orthe next stage in the funnel; or–– Stop working onStop working on the project,the project, shelving it or cancelingshelving it or canceling
it; orit; or–– Get additional information anGet additional information and reconsider the projectd reconsider the project
for passage through the same gate once thatfor passage through the same gate once that information becomes availableinformation becomes available
Example: The Key QuestionsExample: The Key Questions Answered By Each PhaseAnswered By Each Phase
Phase Review 1 Phase
Review 2 Phase Review 3
Portfolio Review
Phase 1: Concept
Investigation
Phase 2: Feasibility
Phase 3: Development
Phase 4: Post
Release
Current Product Support
E N T E R
E X I T
•Does the product makesense from marketing,technical & financial perspectives?
If yes, then concept
approved& full team allocated
•What is the product spec?
•Can we developit within budgetand schedule?
•Can we produceit at the required cost & volume?
If yes, then prototypeapproved& full team allocated
•Has the productbeen fully verifiedand validated?
•Have productionobjectives been met?
If yes, then full manufacturing
approved& sub-team allocated
•Does the idea fit roughly with our strategy and resource availability?
If yes, then conceptdocument approved
& sub-team allocated
•Is the productmeeting safety,efficacy andbusiness targetsin the market?
If yes, then closeout approved
& handoff to product support
Phase Review 4
Idea Generation
Post-
review
Concept
Gate 3
Gate I
Concept
Less j Greater
Launch
i
Gate 2
Pre-Segment
Recurrent
Non-
Example: Pipeline View by Stage and Project Focus
launch
Business Case Development
Development Exploration
than $xM
Peak-Year Pro ect GSV: Between $xM and $xM
Between $xM and $xM than $xM
Note: Cross hatching ind cates non-resourced concept exploration projects
Review, But Resourced
activities
Resourced
Execution
Of course, effective pipelines must beOf course, effective pipelines must be embedded in a broader strategicembedded in a broader strategic contextcontext
Phase I Phase II Phase III Launch
Innovation strategy & planning systems
Innovation support systems
The Reality?The Reality?
Making a funnel work:Making a funnel work:
Formally:Formally:–– Pacing the funnel to the needs of the business, not thePacing the funnel to the needs of the business, not the
other way aroundother way around–– Involving key decision makers earlyInvolving key decision makers early
Informally:Informally:–– Leadership: toleratingLeadership: tolerating ““high respect, high conflicthigh respect, high conflict””
debatedebate–– Trust:Trust: ““but this would only work if we told the truthbut this would only work if we told the truth…”…”–– ConsistencyConsistency
BUTBUT……..
By what criteria do we make decisions at theBy what criteria do we make decisions at the gates?gates?
Using decision tools thatUsing decision tools that allow you to compareallow you to compare
initiatives against each otherinitiatives against each other
(and the degree to which(and the degree to which they fit your strategy)they fit your strategy)
Analytical (?) ToolsAnalytical (?) Tools for Making Choicesfor Making Choices
Financial Tools:Financial Tools:–– IRR & NPVIRR & NPV–– Risk vs ReturnRisk vs Return–– OptionsOptions
Portfolio Concepts:Portfolio Concepts: –– The Aggregate Project PlanThe Aggregate Project Plan
Scenario AnalysisScenario Analysis
IRR and NPV:IRR and NPV:A great place to begin but a terrible place to finish?
StrengthsStrengths WeaknessesWeaknesses A focus on theA focus on the Forces a focus onForces a focus on ““thethe quantifiable costs andquantifiable costs and numbersnumbers””benefits of the projectbenefits of the project Neglects the role ofNeglects the role of
Allows for easy rankingAllows for easy ranking uncertaintyuncertaintyand comparisonand comparison Neglects strategicNeglects strategic
considerationsconsiderations IgnoresIgnores interdependencyinterdependency between projectsbetween projects
The Risk vs. Return MatrixThe Risk vs. Return Matrix
Return (IRR)
Agg
rega
te P
roje
ct R
isk
MOD
HI
LO
0% 100% 250%150%50% 200% 300% >500%
Forecast Project
Expense
<$1Mi
$1-5Mi
>$5Mi
N Latex Ferritin Liquid
N Latex lgE
N latex SSA
SW V 2
CRP mono
Bence Jones OEM
Procalcitonin
Homocystein
N Latex B2m neu
lgG SubklassenCDT
TTS Cystatin C
SRT 8,9,10
ISD Group
Viva Liquid conversion program
DAT Improvement
6-Acetyl Morphine
BCT/Software 2.0
Cuvette rotor
Software 3.0 Liquid PT
Improvement Fibrinogen standards
Heparin
Controls for Lupus test
Protei n S
Tick Borne Ezyphalitis
Pro C
aPTT reagent
HTLV/I/II HIV p24 Ag
FAST Pharma
CAQ*/Update
rev. C reactive Pro
DOAs
DM Cyclospori n
Glyc HB
rev cTNI
PP (4)
Lithium
SCS Digoxin
Carbonate Sensor
Homocysteine
Cystatin-C (PP) -Direct LDL
Tacrolimus
DM CEA
IMS
Chemilum
TLA Interface ex-Lock-Out
US Update
Decision Tree analysisDecision Tree analysis
-1,000
-500
3,000
3,000
0
-2,000
50/50
50/50
50/50
50/50
25,000
-500 3,000
Why is an option valuable?Why is an option valuable?
Thinking of investments as options valuesThinking of investments as options values uncertainty more appropriatelyuncertainty more appropriatelyDelaying investment until there is moreDelaying investment until there is more information can be very valuableinformation can be very valuable
C1 V1
C0 p
1-p
V2 C2
When is thinking of a project as anWhen is thinking of a project as an ““optionoption”” likely to be fruitful?likely to be fruitful?
When the future is very uncertainWhen the future is very uncertainWhen investing now will create uniqueWhen investing now will create unique opportunities for the firmopportunities for the firmWhen failing to invest now means that it will beWhen failing to invest now means that it will be very expensive to invest latervery expensive to invest later
How much is an option worth?How much is an option worth?
SeeSee ““Investment Opportunities as RealInvestment Opportunities as Real Options: Getting Started on the NumbersOptions: Getting Started on the Numbers””(and references therein)(and references therein)–– by Timothy Luerhrmanby Timothy Luerhrman
In the back of your bindersIn the back of your binders
A Range of ToolsA Range of ToolsRisk adjusted NPV Decision Trees Simulations
e.g. Monte Carlo Closed Formulas e.g. Black-Scholes
Differential Equations
Pros • Established
methodology widely accepted and understood
• Relatively easy and quick to implement
• A building block for more complicated valuation methods
• Incorporates decision making and uncertainty
• Determines optimal decisions
• Transparent and easy to understand.
• Building block for other more complicated valuation methods.
•
•
Allows for complicated and multiple uncertainties spanning both discrete and continuous outcomes. Easier to model non-standard uncertainties
• Elegant, easy to implement with formula in hand
• A numerical solution incorporating optimal decisions and (possibly) both continuous and discrete uncertainties.
Cons • Does not allow for
contingent decisions
• Collapses many decisions and outcomes down to a single scenario
• Does not account for managerial ability to react to
• Trees can become complicated with many decisions and uncertainties.
• Essentially limited to discrete decisions and discrete characterization of uncertainties.
•
•
•
Methods do not determine optimal policies. Programming becomes complicated with many decisions and uncertainties. Less transparent than trees
•
•
Limited to relatively simple decisions and uncertainties. Many simplifying assumptions usually have to be made to obtain closed form solutions.
•
• •
Extremely difficult, if not impossible, to implement in realistic situations. Time Consuming Does not allow for many different uncertainties.
information.
Portfolio Concepts:Portfolio Concepts:Aggregate Planning ToolsAggregate Planning Tools
The Aggregate Project Plan (1)The Aggregate Project Plan (1) Marketing Impact
Entirely new benefit Improvement No change
Radical
TechnologyReach
Off the shelf
Breakthrough
Platform
Derivative
Product Support
Platform projects lay the groundworkPlatform projects lay the groundwork for later extensionsfor later extensions
An ExampleAn ExampleLow Resource
High Resource
Moderate ResourceConsumer Value Perception
Enabling Technology
New Core Product
New Benefits
Radical
Incremental
Base
Next Generation
Derivative
Platform
Breakthrough
No ChangeImprovement Variant
Product Support
An ExampleAn ExampleLow Resource
High Resource
Moderate ResourceConsumer Value Perception
Enabling Technology
New Core Product
New Benefits
Radical
Incremental
Base
Next Generation
Derivative
Platform
Breakthrough
No ChangeImprovement Variant
Product Support
Derivative
Product Support
An ExampleAn ExampleLow Resource
High Resource
Moderate ResourceConsumer Value Perception
Enabling Technology
New Core Product
New Benefits
Radical
Incremental
Base
Next Generation
Platform
Breakthrough
No ChangeImprovement Variant
An ExampleAn ExampleLow Resource
High Resource
Moderate ResourceConsumer Value Perception
Enabling Technology
New Core Product
New Benefits
Radical
Incremental
Base
Next Generation
Derivative
Platform
Breakthrough
No ChangeImprovement Variant
Brand Support
Bxxxx Extension
Cxxxx Lxxx
Vxxxxx Improvement
Sxxxx
Fruit
Lxxxx Export
Natural
Fxxxx Face Cxxxx 2000
Super Cxxxx
Txxxx
Rxxxx Fruit
Cxxxx Fruit
The Aggregate Project Plan (2)The Aggregate Project Plan (2)Process Impact
Entirely new process Improvement No change
Radical
Product Reach
Off the shelf
Breakthrough
Platform
Derivative
Product Support
New Core Product
Next generation of Core Product
Addition to Product Family
Add-Ons and Enhancements
No Change
Process Changes
New Core Next Single Tuning and No Process Generation Dept. Incremental Change
Process Upgrade Improvement
Product Changes
DERIVATIVE / CPS
ALPHA
FINCH
CLEO
SIGMA
ROLAND
B-THROUGH / PLATFORM
HAWK
CROW DELTA O
LEO
ROME V ROME I
OAK
ROME III
ROME IV
CEDAR
PINE
EARTH
WATER
FIRE
CALIFORNIA
NEW YORK
ROME VI
SOLSTACE
KENYA
SPRING
WINTER FALL
SUMMER
DALLAS
AUSTIN
SANTA FE
SPARROW
OWL ROME II
FLAGSTAFF
GEMINI 1-10 (10 PROJECTS)
Before: Medical Products Co.Before: Medical Products Co.
• Company makes an automated diagnostic system that contains three components - electro optical hardware, software and a disposable panel for bio material.
• A lot of derivatives - all small, on all three system components.
• Derivatives character was aimed at increased functionality and features, which was counter to what the customer wanted. They were giving them “more bells and whistles”.
• Not a single new platform in 7 to 8 years.
• Had four very small efforts designed to explore “next generation” 21st Century technologies - while competitors were investing 100s of millions of dollars. Transition to Next Slide: • Within one year of implementing, the company’s product development restructuring process had the following effects...
VENUS
DELTA I
After: Medical Products Co.After: Medical Products Co.
New Core Product
Next generation of Core Product
Addition to Product Family
Add-Ons and Enhancements
No Change
Process Changes New Core Next Single Tuning and No Process Generation Dept. Incremental Change
Process Upgrade Improvement
ADVANCED DEVELOPMENT
Product Changes
DERIVATIVE / CPS
ALPHA
MARS
ZEUS
CLEO
SIGMA ROLAND
B-THROUGH / PLATFORM
ATLANTIS
DELPHI
GAMMA
BETA
DELTA II LEO
ROME V
ROME I
OAKROME II ROME III
ROME IV CEDAR
PINE
DELTA
• Eliminated all but one of the breakthrough projects, and subsequently eliminated all breakthroughs. • Joint ventures between corporate parent to share development resources. • Part of a joint corporate effort to think about next generation technologies. • Eliminated a lot of derivatives and feature enhancements that weren’t adding value to customers. • New partnered platform project:
•Outside companies are doing the hardware and software components.• The client company is doing the bio components. • Sufficient amount of resources have been allocated to ensure that the project is adequately staffed to meet all project requirements.
• Focus Development efforts to be in line with core competencies and establish alliances to do all other tasks outside their own business. Results: • Cut R&D spending from $65mm to $35mm.
Less Is More:Less Is More: Medical Products Co.Medical Products Co.
36
21
5 8
Before After # of Projectsin Portfolio
Before After # of Projects Launched /Year
By focusing their innovation efforts they saw more product launches in 1993 than 1992, even though they had fewer projects and fewer dollars. Transition to Next Slide: The same situation was also evident in a Scientific Instruments Manufacturer.
Project Reach Across Growth Areas
Growth Area Growth
Core Target l Target 2 Target 3 Target 4
Platform
LineExtension
Maintenance/ Enhancement
Proj
ect R
each
Less Between Between Greaterthan $xM and $xM and Peak-Year Project GSV: than $xM $xM $xM $xM
Note: Cross hatching indicates non-resourced concept exploration projects
High risk Medium risk Low risk
Support
Degree of internal difficultyDegree of internal difficulty
Tech
nica
l/Ope
ratio
nal C
halle
nge
Marketing/Sales Capability Challenge
Significant
Generally accessible
Resident capabilities
Builds on existing skills Requires entirelyNew skills
Stretch
Significant Challenge
Degree of Internal Difficulty Marketing/Sales Capability Challenge
Existing Brand AND No New Existing Brand AND New Brand AND No New New Brand AND i i
Tech
nica
l/Ope
ratio
nal C
halle
nge
capabilities
Capabil ties Required New Capabilities Required Capabil ties Required New Capabilities Required
Stretch
Significant Challenge
Support
Significant
Generally accessible
Resident
High riskLess Between Between Greater Medium riskthan $xM and $xM and Peak-Year Project GSV: than $xM $xM $xM $xM Low risk
Note: Cross hatching indicates non-resourced concept exploration projects
External impact & internal skillsExternal impact & internal skills
Low
Strength Of Entrenched Competition
High
Low HighLeverages Current Advantage
Degree of External Impact Consumer Value Perception
Improvement Critical New Benefit
Com
petit
ive
Insu
latio
n
Only We Can Do It
High Barrier
Some Barrier
No Barrier
Advance
Leapfrog
Jump
Very Important New Usage Occasion
Me-Too
Somewhat Important
High riskLess Between Between Greater Medium riskthan $xM and $xM and Peak-Year Project GSV: than $xM $xM $xM $xM Low risk
Note: Cross hatching indicates non-resourced concept exploration projects
Benefits of an Aggregate ProjectBenefits of an Aggregate Project Plan:Plan:
Explicit choice of projects balances the longExplicit choice of projects balances the long and short term, allows for the explicitand short term, allows for the explicit discussion of the match to strategydiscussion of the match to strategyMatch between project type and organizationalMatch between project type and organizational form allows for a focus on the generation ofform allows for a focus on the generation of competencecompetenceFocus builds speed and productivity for theFocus builds speed and productivity for the individual and the organizationindividual and the organization
Strategy and ScenarioStrategy and Scenario AnalysisAnalysis
Strategy and Scenario AnalysisStrategy and Scenario Analysis
Formulating a strategy requires judgmentFormulating a strategy requires judgment about the futureabout the futureBut the future is complex & hard to predictBut the future is complex & hard to predictScenarios provide a way to manage thisScenarios provide a way to manage this complexitycomplexity
Basics of Scenario AnalysisBasics of Scenario Analysis
What it is:What it is:–– A way of mapping the future, of focusing attention onA way of mapping the future, of focusing attention on
critical uncertaintiescritical uncertainties–– A way of buildingA way of building ““robustrobust”” strategiesstrategies–– A means of generating a common languageA means of generating a common language
How it is done:How it is done:–– Generate a list of critical uncertaintiesGenerate a list of critical uncertainties–– Choose the two most criticalChoose the two most critical–– Draw aDraw a ““mapmap””–– Iterate and exploreIterate and explore
Predicting the future ofPredicting the future of the Pharmaceuticalthe Pharmaceutical
IndustryIndustry
The Roots of TurmoilThe Roots of Turmoil
Dramatically declining research productivityDramatically declining research productivityMajor technological shiftsMajor technological shiftsFundamental environmental challengesFundamental environmental challenges Significant new entrySignificant new entry
The Productivity CrisisThe Productivity Crisis
Time Lines (Tufts data, months)Time Lines (Tufts data, months)
? Discovery
21.6 Phase I
25.7 Phase II
30.5 Phase III
~6.5 years
Cumulative probability of becoming a successful drug contingent on success in the previous stages
Discovery
Phase I
Phase II
Phase III
Ind
Tuf ts
0 20 40 60 80
Cumulative Probabilities
80.00
70.00
60.00
50.00
40.00
30.00
20.00
10.00
0.00 Discovery Phase I Phase II Phase III
Tufts Ind
Costs by phase ($m)
140
120
100
80
60
40
20
0
(1) (2)
Tuft IndInd
Disc Phase I Phase II Phase III
Trends in Pharmaceutical Productivity
0
5000
10000
15000
20000
25000
30000
35000
0
10
20
30
40
50
60
R&
D S
pend
ing,
$bn
ND
As
appr
oved
1965 1970 1975 1980 1985 1990 1995 2000 2005
Time
Big PharmaBig Pharma’’s Problems Problem
Revenues/Company (avg.)Revenues/Company (avg.) $10 billion$10 billion
Required GrowthRequired Growth 10%/year10%/year (> $1B/year)(> $1B/year)
Average pharma productAverage pharma product $300$300--400M/year400M/year
Product needsProduct needs ~ 3 to 4 per year~ 3 to 4 per year
Average Product Launches/yearAverage Product Launches/year .5.5
With thanks to Tony Sinsky
Major Technological ShiftsMajor Technological Shifts
FromFrom ““rationalrational”” drug discoverydrug discovery –– Small molecules, hypothesis driven researchSmall molecules, hypothesis driven research
To theTo the ““omicsomics”” andand ““systems biologysystems biology””–– Understanding theUnderstanding the ““deep structuredeep structure”” of disease and theof disease and the
functioning of the genome and the cellfunctioning of the genome and the cell
Pharmacogenetics/genomicsPharmacogenetics/genomics•• Establishing the link between an individualEstablishing the link between an individual’’ss
drug response and their genetic (specificdrug response and their genetic (specific genes) or genomic (all genes) profilegenes) or genomic (all genes) profile
•• Tools may include:Tools may include:•• Sequence analysisSequence analysis•• Expression analysisExpression analysis•• Genome mappingGenome mapping•• Family studies or Population studiesFamily studies or Population studies
•• Personalized medicinePersonalized medicine -- involves treatinginvolves treating specific patient subpopulations based onspecific patient subpopulations based on diagnostic tests that differentiate them asdiagnostic tests that differentiate them as
With thanks to Tony Sinskeylikely responders to a treatment.likely responders to a treatment.
EnvironmentalEnvironmental ChallengesChallenges
Heightened visibility
Drug Expend as % H.Care, US
1800
1600
1400
1200
1000
800
600
400
200
0
1970 1975 1980 1985 1990 1995 2000 2005
i
i
i
Expe
nditu
res,
$bn
0.0
2.0
4.0
6.0
8.0
10.0
12.0
Ser es1
Ser es2
Ser es3
Year
A broad erosion in social/culturalA broad erosion in social/cultural supportsupport
The pharmaceutical industry claimsThe pharmaceutical industry claims to be innovative, but only ato be innovative, but only a smallsmall fraction of its drugs are truly new: most are simply variationsfraction of its drugs are truly new: most are simply variations on olderon older drugsdrugs
Contrary to popular belief, big drContrary to popular belief, big drug companies spend far less onug companies spend far less onresearch and development than on marketingresearch and development than on marketing
The pharmaceutical industry has anThe pharmaceutical industry has an ironiron grip on Congress and thegrip on Congress and theWhite House. It has the largest lobby in WashingtonWhite House. It has the largest lobby in Washington …… andand contributes heavily to political campaignscontributes heavily to political campaigns
Drug companies promote diseasesDrug companies promote diseases to match their drugs. Millions oto match their drugs. Millions off normal Americans have to come to believe that they have dubiousnormal Americans have to come to believe that they have dubious oror exaggerated ailments likeexaggerated ailments like ““generalized anxiety disordergeneralized anxiety disorder””
Drug companies have enormous inflDrug companies have enormous influence over what doctors areuence over what doctors are taught about drugs and what they prescribetaught about drugs and what they prescribe
Drug companies have substDrug companies have substantial control over clinical trials ofantial control over clinical trials of theirtheir drugs. There is good reason to believe that much of the companydrugs. There is good reason to believe that much of the companyFrom The Truth about Drug Companies, Marcia Angell, former
editor in chief of The New England Journal of Medicinesupported research on prescription drugs is biased as a resultsupported research on prescription drugs is biased as a result
Very significant pressure on pricesVery significant pressure on prices
If Sam's Club can negotiate for loIf Sam's Club can negotiate for lower pharmaceutical prices,wer pharmaceutical prices, whywhycan't Uncle Sam? Because the approval by the Congress of a newcan't Uncle Sam? Because the approval by the Congress of a new pharmaceutical benefit for Medicare was saddled with a legalpharmaceutical benefit for Medicare was saddled with a legal provision that prohibits the U.S. government from using itsprovision that prohibits the U.S. government from using its considerable consumer market power to negotiate for lower pricesconsiderable consumer market power to negotiate for lower prices onon medicines.medicines.
Our country already is spendingOur country already is spending more than 2 percentmore than 2 percent of GDP onof GDP on pharmaceutical purchases, and these outlays skyrocketed, longpharmaceutical purchases, and these outlays skyrocketed, long before the Medicare bill was passed. Because the U.S. governmentbefore the Medicare bill was passed. Because the U.S. governmentis obligated to provide some coverage for pharmaceutical drugsis obligated to provide some coverage for pharmaceutical drugs under the new bill, one would think it would seek to at least haunder the new bill, one would think it would seek to at least have theve the flexibility to restrain corporate patent owners from charging exflexibility to restrain corporate patent owners from charging excessivecessive prices for their medicines. In the absence of even the possibiliprices for their medicines. In the absence of even the possibility toty to negotiate lower prices, there will be no price restraints and thnegotiate lower prices, there will be no price restraints and thereforeereforeFrom “The Nader Page”less money for medicine.less money for medicine. http://www.nader.org/interest/112803.html
Significant new entrySignificant new entry
Indian PharIndian Pharmaceutical Industrymaceutical Industry
CompaniCompanies Mentioned ies Mentioned inn this report include:this report include: -- Aarti DrugsAarti Drugs -- Abbott IndiaAbbott India -- Ajanta PharmaAjanta Pharma -- AlembicAlembic --
Astrazeneca PharmaAstrazeneca Pharma -- Aurobindo PharmaAurobindo Pharma -- Aventis PharmaAventis Pharma -- CadilaCadila HealthHealth -- Cipla Dr. ReddyCipla Dr. Reddy -- Elder PharmaElder Pharma -- German RemediesGerman Remedies --Glaxo SmithklineGlaxo Smithkline -- Ind Swift LabInd Swift Lab -- Ipca Laboratories J B ChemicalIpca Laboratories J B Chemical Jagson Pharma K D L Biotech KopranJagson Pharma K D L Biotech Kopran -- Krebs BiochemKrebs Biochem -- LupinLupin -- LykaLykaLabsLabs -- Medicorp TechMedicorp Tech -- MerckMerck -- Natco PharmaNatco Pharma -- Nicholas PiramalNicholas Piramal --NovartisNovartis -- Orchid ChemicalsOrchid Chemicals -- OrganonOrganon -- Panacea BioPanacea Bio -- PfizerPfizer --PharmaciaPharmacia -- RanbaxyRanbaxy -- R P G Life SciencesR P G Life Sciences -- Shasun ChemicalsShasun Chemicals --Siris LimitedSiris Limited -- Sterling BiotechSterling Biotech -- Strides ArcolabStrides Arcolab -- Sun PharmaSun Pharma --http://www.researchandmarkets.com/feats/download_pdf.asp?report_id=35229. Suven Life SciencesSuven Life Sciences -- Torrent PharmaTorrent Pharma -- Unichem LabUnichem Lab -- WockhardtWockhardt -Wyeth LtdWyeth Ltd -- Zandu PharmaZandu Pharma
BUSINESS COMMUNICATIONS COMPANY, INC. CHINESE PHARMACEUTICAL INDUSTRY ESTIMATED AT U.S. $19.4CHINESE PHARMACEUTICAL INDUSTRY ESTIMATED AT U.S. $19.425 Van Zant Street, Norwalk, CT 06855 BILLION IN 2002BILLION IN 2002
Exercise:Exercise: Generate a list of theGenerate a list of the majormajor uncertainties facing theuncertainties facing the pharmaceutical and/or the medical device industrypharmaceutical and/or the medical device industry todaytoday
Choose two, and draw aChoose two, and draw a ““mapmap”” What kinds of worlds have you defined?What kinds of worlds have you defined? Can you name them?Can you name them? Iterate until youIterate until you’’re comfortable you have found fourre comfortable you have found four worlds that are both plausible and strategicallyworlds that are both plausible and strategically importantimportant
Be prepared to present your results to the groupBe prepared to present your results to the group
Why may scenario analysis beWhy may scenario analysis be useful?useful?
It focuses attention away fromIt focuses attention away from ““the officialthe official futurefuture”” and allows the robustness of a strategyand allows the robustness of a strategy to be evaluatedto be evaluatedIt focuses attention on critical uncertainties,It focuses attention on critical uncertainties, allowing the organization to track them overallowing the organization to track them over timetimeIt may spark creativity, imagination and aIt may spark creativity, imagination and a rethinking of core strategyrethinking of core strategy
Making choices using analyticalMaking choices using analytical tools: Summarytools: Summary
Financial tools are critically important, butFinancial tools are critically important, but should not substitute for strategic thinkingshould not substitute for strategic thinkingChoices must be made as a portfolio, so thatChoices must be made as a portfolio, so that different projects are explicitly traded offdifferent projects are explicitly traded off against each otheragainst each otherIt may be important to consider the robustnessIt may be important to consider the robustness of a strategy: what will happen if the worldof a strategy: what will happen if the world looks very, very different?looks very, very different?
SummarySummary
Effective strategies answer three keyEffective strategies answer three key questions:questions:
How will we Create value?
How will we Capture value?
How will we Deliver value?
Understanding the life cycle isUnderstanding the life cycle is critical :critical :
Ferment
Takeoff
Maturity
Technology Markets
Competition Organization
Technology strategy on one slide:Technology strategy on one slide:
Create
CaptureDeliver
?
What happens onWhat happens on Monday morning?Monday morning?
Or: Getting there from hereOr: Getting there from here
Acting as a strategic catalyst requiresActing as a strategic catalyst requires mastering many rolesmastering many roles
Information gathererInformation gatherer–– What are the problems and opportunities?What are the problems and opportunities?
AnalystAnalyst–– What are the key choices? What should we do?What are the key choices? What should we do?
Advocate and teacherAdvocate and teacher–– Presentation of information and analysis in ways thatPresentation of information and analysis in ways that
stimulate debate about the key issuesstimulate debate about the key issues
LeaderLeader–– Modeling the use of time and attentionModeling the use of time and attention–– Supporting the team in making real decisionsSupporting the team in making real decisions
Two case studiesTwo case studies
MedtronicsMedtronicsKirkham InstrumentsKirkham Instruments
Successful Implementation:Successful Implementation: Common LessonsCommon Lessons
Senior management commitment &Senior management commitment & involvementinvolvement–– Senior steering committeeSenior steering committee –– Empowered championEmpowered champion
Diagnostic phaseDiagnostic phase–– Aligned with the marketAligned with the market–– As well as with the existing culture and organizationAs well as with the existing culture and organization
A designed implementation planA designed implementation plan–– Up frontUp front–– With appropriate expectationsWith appropriate expectations
Allocating resources to match the design.Allocating resources to match the design.
Typical Execution TimesTypical Execution Times
Diagnosis Design and Pilot
Organization Wide Roll-out & Implementation
Phase Duration 0.5-3 months 4-6 months 6-12 months
Core Project Team 4-82-6 4-8(FTEs)
Who’s Involved • Key stakeholders • Dedicated project • Dedicated project team team shifts members• Senior management
sponsor • Access to pilot teams • Whole organization • Key stakeholders • Key stakeholders • Senior management • Senior management
sponsor sponsor
• Interviews w/key • Customize and create • Training of new stakeholders process and tools tools / processesKey Activities
• Process mapping • Pilot and test tools/ • Documentation of process in “real time” process• Assessment of key
issues • Refine and enhance tools • Automation of process• Create steering team • On-going review and
assessment with senior • Organizational management change and cultural
alignment
Good Luck!Good Luck!
