The pharmaceutical industry is facing an « innovation crisis » characterized by the drastic decrease in productivity in its R&D. The decrease in innovation capacity of Big Pharmaceutical companies threatens their short and long term economic performance. This crisis has been amplified and reinforced by changes in external factors (pressure of public payers, regulation authorities, development of generic drugs etc.) and internal factors (patent loss, drying up of the innovation pipeline, lack of R&D productivity…) creating a strong pressure on big pharmaceutical companies.
This situation has led them to adapt their strategy and to transform their organization to preserve their income and ability to generate and support innovations. Indeed, in this scientific and strategic environment, knowledge is the source and the fuel of a company. Knowledge maintains and stimulates the development of innovative projects and processes within an organization. To create innovative ideas and projects, the project teams need to have access to the right knowledge at the right time. Its sounds really simple but in practice companies and especially large structures have more difficulties with managing knowledge within their company. New actions are required to generate ideas beyond the boundary of the firm. One of the solutions is to work on building external cross-unit networks so that ideas flow from the new connections that are made. These models of external cross-unit networks are based on Open Innovation Concept. We will analyze different approaches of Open Innovation which are used in the pharmaceutical industry [1].
External Solution Network
A first approach is to develop an external solution network, geared toward finding a solution to a specific problem. This is what A.G. Lafley built at Procter&Gamble. Seven in-house product developers now translate a customer need into a technical brief, which is then sent out to many contact points outside the company to see if someone, somewhere, can provide a solution. The pharmaceutical company Eli Lilly has spearheaded an inventive « solution-seeking web-site » called www.Innocentive.com that Eli Lilly, Procter&Gamble and others use to find solutions among more than 10,000 engineers, chemist and other scientists registered at the site. Companies (« seekers ») post a specific technical problem (one case: « solve how to protect fatty acids from oxidation ») that any registered engineers, chemists and other scientists can tackle. The best solver gets the attached monetary reward (in this case, $20,000).
External Discovery Network
A second approach is an external discovery network, geared not toward finding a solution but to discovering new ideas within a broad technology or product domain. Companies need to develop different « tentacles » in relevant geographies. Consider how Siemens, the $90 billion large German-based electrical engineering and electronics company, does this in Silicon Valley. Since 1999, it has built a 15-person scouting unit in Berkeley near Silicon Valley. Team members have over the past few years developed numerous personal relationships with scientists, Ph.D., students, venture capitalists, entrepreneurs, Governmental labs, and company research centers. In order to identify new technologies and business ideas that can be used by any of the 11 operating divisions. Team members spend their days visiting all these contacts, keeping their eyes open for intersecting technologies and business ideas.
Networks aimed at discovery should be exploratory, not closed -their objective should be to learn, not tell. When managers develop external solution and discovery networks, the key design principle should be diversity and not the number of contacts -that is, tapping into many unique contacts as opposed to interacting with many similar ones. Different kinds of customers provide different kinds of feedback and ideas for new products. Talking to customers, suppliers, competitors, companies in different industries, and university research labs provide more diverse grounds than talking only to a large number of similar customers.
Fully Integrated Pharma Network (FIPNet)
At the end, these two approaches could be used in a global strategy. A good example of combining both external solution and discovery networks is again Eli Lilly. The company has designed a network that is fully integrated inside the company. This network is called Fully Integrated Pharma Network (FIPNet). The transition from their structure before the Fully Integrated Pharma Company (FIPCo) to the FIPNet is an interesting case study.
Transformations from FIPCo to FIPNet
The change concerns a shift to a Collaboration-Centric Business Model. The reasons for this decision were to have a leaner, more productive organization. Lilly uses networks to strengthen areas of focus and expertise while enhancing/leveraging the areas of opportunity. The company increases internal adaptability and continuous network upgrades by understanding the external environment and dynamic geographic distribution of human capital and work. This model enhances to share risk and reward in the execution of an innovative portfolio while enhancing value to Lilly customers and shareholders. Well configured and operational networks can provide:
– open access to greater quality/abundance of molecules, capabilities, capacities, technologies, capital, knowledge and talent;
– leverage to influence public policy and increase market presence and access;
– greater empowerment and accountability.
It must be said that networks are a means to the end and must be configured with desired output in mind.
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[1] This article is based on a collaborative project conducted in 2010 in the ESC Dijon’ Master in Management of Pharmaceutical Industry with Roche.
