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TUM, Class 3 Thursday

TUM, Class 3 Thursday. Reinventing Ourselves (Eli Lilly) Internal Ventures and Ambidexterity (3M, Nokia, Hermes). Strategy and Innovation: Monday 15.30-1830. Part I, Day 3 Reinventing (Ely Lilly) Start New Page 3M, Hermes Part II, Day 3 Tipping Point

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TUM, Class 3 Thursday

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  1. TUM, Class 3 Thursday Reinventing Ourselves (Eli Lilly) Internal Ventures and Ambidexterity (3M, Nokia, Hermes) JMPennings TUM 2004

  2. Strategy and Innovation: Monday 15.30-1830 • Part I, Day 3 • Reinventing (Ely Lilly) • Start New Page • 3M, • Hermes • Part II, Day 3 • Tipping Point • Networking: Combining Old or New JMPennings TUM 2004

  3. From Inertia Into Future with new Paradigm • Today: • Use current skills, structure to add new product lines (Ely Lilly) • Internal venturing (3M, Hermes) • Networking: Combining Old or New, or Rebundling Old into New Paradigm JMPennings TUM 2004

  4. Reinventing ourselves:Ely Lilly • How do we organize, make people work together on an routine vs novel basis? • How do we know customers? Are are current customers the ones we should listen to? JMPennings TUM 2004

  5. Pharma and Biotech(1) • Key Players: Merck, Glaxo-Welcome, Roche, Pfizer, Novartis, BMS • Search for New Chemical Entities (NCE), large R&D budgets in search of a “blockbuster” drug • Hit rate very, very low (lower than roulette!) • First (before WWII) major NCE: Penicillin • From “discovery” to “development” (three phases), to “approval” to “market launch “ JMPennings TUM 2004

  6. Major Thrust of Pharma Strategy • R&D driven: what enters the pipe line from “discovery” , Phase 1-3 research and testing to FDA approval and market launch? • Marketing injected: how do we penetrate the therapeutic area where we position ourselves? JMPennings TUM 2004

  7. Pharma and Biotech(2) • Strategy of firms: • R&D (Merck: beta blockers) or Market (Pfizer:Viagra)) Driven • Joint ventures with biotech firms to latch onto new paradigms • Big consumers of R&D funds to fill the “pipeline” • Regulatory Approval (eg FDA) a key hurdle to get to market • Is drug safe, and does it produce health benefits? • Top Management, also “go-no.go committee” tends to be science oriented, but Pfizer, Novo Nordisk etc. are a little more market oriented • Competencies in certain “therapeutic areas”: • Cardiovascular, endocrine, pulmonary, bones, digestive system, brain, etc. JMPennings TUM 2004

  8. Pharma and Biotech(3) • Examples of blockbusters drugs: • Prozac (Ely Lilly: depression) • Tagamet ( Glaxo: ulcers) • Zantac (Glaxo: ulcers) • Viagra (Pfizer: impotence) • Cozaar (Merck: hypertension) • Examples that firm destroying Drugs: • Vioxx (Merck, MSD) • Patents expire after 17 years: • Generics (Israel, India, China) JMPennings TUM 2004

  9. Pharma and Biotech(4) • Paradigm Shifts: • Move from chemical to biological competencies • Doctors as “customers” become less critical in buying decisions as insurance and other factors become more powerful • IT is now a major part of drug discovery process (Bioinformatics: programmers become molecular biologists!) JMPennings TUM 2004

  10. Strategy • Corporate • Business • Function JMPennings TUM 2004

  11. Ely Lilly • General Strategy: market-product positioning? • Insulin Strategy? • Organization Design? • Fit Insulin Strategy and Design?? JMPennings TUM 2004

  12. Ely Lilly • What is Ely’s General (or Corporate) Strategy: market-product positioning • Therapeutic areas? • R&D emphasis? • Pipeline? • What is Ely’s Insulin (or Business) Strategy • NE Strategy? • What is Ely’s Organization design? • Spaghetti or matrix, or functional? • Fit? JMPennings TUM 2004

  13. Ely Lilly’s Corporate Strategy • Portfolio of projects: • Like DuPont: LT investments • Filling drug pipeline before current patents expire • Competencies in R&D, FDA • Competencies in Therapeutic Areas such as Psychopharmacology and Endocrinology JMPennings TUM 2004

  14. Lilly’s Insulin LoB Strategy • S-curve Pursuit • Cleaner insulin (“NE”- bias) • Humulin and Match • Pricier • “Detailing” (Internists,Endocrinoligists, HMOs, etc.) • Prozac minset! • Emergent landscape response • > 1994 IT investments, Internet based education, CDS centers • Diversification (Glucose meters) • Half-baked efforts to get locked into novel insulin market JMPennings TUM 2004

  15. Business of Insulin Two companies dominate the worldwide insulin market. In 1999 Eli Lilly had 48 percent of the worldwide market in volume terms and Novo Nordisk had 44 percent, according to IMS Health, the leading market research firm tracking the global pharmaceutical industry. A distant third was Hoechst, which has since merged with Rhône-Poulenc to form Aventis, with 5.5 percent. In the U.S. Lilly has an 86 percent share of the retail pharmacy market compared to Novo's 14 percent. But Lilly's share drops to 78 percent when you factor in insulin use in hospitals and elsewhere where prescriptions aren't required. Only these two companies manufactured insulin sold in the United States in 1999, although Aventis is poised to enter this market. JMPennings TUM 2004

  16. And in….2003 Danish Novo Challenges American Rival Eli LillyApparently, more and more Americans prefer Danish insulin products to local products and as a result Novo has now a 27 percent share of the world’s largest market.  Last year, the American insulin market increased by 7.6 percent.  In the same year, Novo’s sale increased by 12 percent and the Danish company is now gaining in on its closest American – and world wide – competitor Eli Lilly.  The reason for the increase is that patients are changing from the traditional types of insulin to the more efficient analog insulin that is sold at a higher profit. Novo’s CEO, Lars Rebien Sørensen, informed analysts that the American business of Novo is developing in a positive direction.  However, Novo is now left with one problem and that is the depreciation of the American dollar which has caused a lower income for the company in America than expected.  In Europe, where the Danish medical company has a 60 percent share of the market the development is likewise positive.  Novo is gaining compared to Eli Lilly though the increase is a little less.  In Japan, however, Novo has experienced a decrease, though they still hold a 76 percent share of the market. JMPennings TUM 2004

  17. Same technology, new dominant design, meeting different needs is “disruptive technology” See, again,... Bulk pack's Rosenbloom & Christensen (Class 2) NE Strategy Purity of Insulin NovoN Performance demands for old diabetic patients Less than pure pen based Pure, syringe based Performance demands for new diabetic patients Year JMPennings TUM 2004

  18. Lilly’s Organization Structure(note what about Information & Incentive Systems??) • Corporate: • <1994R&D-Medical Division-Marketing Research • >1995 Marketing ->Endocrine (with Diabetes Care)-Central Nervous System-Internal Medicine • “Affiliates”: • National Markets Marketing-Distribution-Sales • Strategic: • Planning Committees JMPennings TUM 2004

  19. Ely Lilly in Indianapolis Sales “ Affiliates” JMPennings TUM 2004

  20. “NE” • Period 1940s-2003: • Fewer side effects • Efficacious • Profitable • …but some orphan drugs ok JMPennings TUM 2004

  21. From Overcoming Inertia to Joining the New Paradigm JMPennings TUM 2004

  22. Who is the ”customer” and does Ely Lilly listen to her? Convenience (e.g., Lilly’s Prozac) Insulin JMPennings TUM 2004

  23. From Overcoming Inertia to Joining the New Paradigm • German Setting • Advertising not permitted • EU • Other issues? JMPennings TUM 2004

  24. Ely Lilly Lesson? • Internal Linking: Organizational design impedes or enhances innovation • insulin product (development, marketing, testing, etc.) located in wrong departments,wrong levels • External Linking: Market driven stratgey precludes access to customers-that-matter and their needs • obsessed with endocrine specialists, pharmacists, HMOs, etc • Similar lessons elsewhere • e.g., Xerox focus on Procurement rather than IT people, bleak prospects JMPennings TUM 2004

  25. Take-aways on Locking into New Dominant Design, day 3, Part 1 • Firms need to reinvent themselves: • internal linking: • establish tools for interdepartmental coordination • if necessary, create a new design fitting new product architecture, with information and reward systems • external linking • create tools for customer intelligence • beware of talking to the “right” customers • create mechanisms for detecting “wrong” customers, i.e. discovering new and eventual mainstream market segments JMPennings TUM 2004

  26. “Parking Place” of Projects • Products take on the organizational environment in which they are placed • Engineering approach • Customer demands • Business Process • Give a hammer and everything looks like a nail • Examples: Discount retail and Martha Stewart, Woolworth and Woolco, Endocrine and Insulin pens, IB and retail brokerage JMPennings TUM 2004

  27. Occupational Bias (quotes from your professor) • If you think carpenter you see hammers • If you give her a hammer, everything to her looks like a nail • If you meet endocrinologist, you talk or hear about hormones and endocrine imbalances JMPennings TUM 2004

  28. Why firms are blocked from getting customer information? • because they do not care • because they lack intelligence devices • Lead User Analysis (compare Dominik’s Forschung) • blocked channels • careers and incentives • locked in to wrong types of customers JMPennings TUM 2004

  29. Design: link with each other and link with market Internal Linking: build bridges between R&D, Marketing and CDCs, between “go-nogo committee” and ‘affiliates” External Linking: create firm-customer interfaces JMPennings TUM 2004

  30. Issue of wrong customers,or: how firms get entrapped in vanishing market segments while oblivious of new ones • Market contains current and emerging segments • price, functionality • Emerging segments are typically not on incumbents’ radar screen • Emergent (and thus small) markets cannot satisfy growth JMPennings TUM 2004

  31. Ely Lilly Lessons • Firm had no parking space in Marketing for convenient insulin products • Misalignment • pay, metrics, accountability, external linking • Interventions • Re-matrix the structure • create insulin-based incentives for all silos • create a separate business JMPennings TUM 2004

  32. Strategy and Innovation: Monday 15.30-1830 • Part I, Day 3 • Reinventing (Ely Lilly) • Start New Page • 3M, • Hermes • Part II, Day 3 • Tipping Point • Networking: Combining Old or New JMPennings TUM 2004

  33. From a Two-Product Firm to....a Three ProductFirm JMPennings TUM 2004

  34. The Challenge of Ambidexterity New Businesses Old (“Rustbelt”) Businesses JMPennings TUM 2004

  35. How Do Innovators Develop New Organizations? JMPennings TUM 2004

  36. From Paper to Electronic (Virtual) Medium JMPennings TUM 2004

  37. Ambidexterity: writing with Left (old) and Right (new) Hand The Incubator PARC The AmbidextrousOrganization (Adobe, Apple, Palm) Exploration Bureaucracy The Document Company Exploitation JMPennings TUM 2004

  38. Cannot create new companies • Warning for all Fortune 500, DAX 50 FTS100 companies and beyond? • It is very hard to write with both hands, to be ambidextrous JMPennings TUM 2004

  39. Paradigm Shifts from Day 1 • Examples: • From Wooden Tennis to Wide body Rackets • From 35 MM Film Cameras to Digital Imaging • From Handy to Skype Phones • From Steel to Aluminum Engines JMPennings TUM 2004

  40. Ambidextrous Firm • Firm with employees who are “Janusian” • Firms who are “Janusian • (like the locomotive which can go forward and backward) • Both exploitation and exploration. • Tolerance for differences JMPennings TUM 2004

  41. 3M as Example • 15% Rule: internal ventures • Ambidextrous Firm • Build the ramp up of your new slopes while old dominant designs fall off the slope JMPennings TUM 2004

  42. 3M, innovation and strategy:take-aways • Strategy dictates portfolio of business, anchored in core competencies • Dilemma of sticking to the knitting, yet buying options to get out of competency traps, latch on to new customers & technology JMPennings TUM 2004

  43. Hermes • Innovation • Autonomous • Induced • Implementation • Five levers • structure • scorecards • incentives, • culture • people JMPennings TUM 2004

  44. Hermes (1) • http://www.memorexlive.com/index_flash.html JMPennings TUM 2004

  45. Hermes (2) • Over the past 40 years, much has changed.Memorex (i.e. Hermes Systems) hs moved from Audio Cassettes (1971) to VHS cassettes (1979). From Floppy Disks (1993) to Recordable CDs (1996). And from Rewritable CDs (1997) to Recordable DVDs with enough capacity to hold an entire set of encyclopedias. Yet while our media continues to evolve, some things remain unchanged. Like our commitment to provide customers with the highest quality products at the best value. By offering quality, value and performance, Memorex has become the digital recording company of the last century. And it's why we'll continue to be the digital company of the 21st century. JMPennings TUM 2004

  46. Hermes (2a) • Magnetic Tapes (1962) • Audio Cassettes (1971) • VHS cassettes (1979) • Floppy Disks (1993) • Recordable CDs (1996) • Rewritable CDs (1997) • Recordable DVDs with enough capacity to hold an entire set of encyclopedias • …….memory stick, flesh card, www? JMPennings TUM 2004

  47. Hermes (3) JMPennings TUM 2004

  48. Hermes (4) • Computer Storage • Memorex, Hanny, HK (HNNYF) JMPennings TUM 2004

  49. ….so Memorex • Still Going Strongly • Successive Paradigms and Their S curves! JMPennings TUM 2004

  50. Hermes: Take aways on Internal Hybrids • Internal ventures to be part of tomorrow’s dominant design • Spillover (knowledge transfer) from new ventures to rest of firm • Challenge of post-IV integration • Re-establish organizational integrity • people, operations, synergy (scope), culture • Liquidation of dog division when they cease to produce cash • (i.e., Iomega predecessor) JMPennings TUM 2004

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