Examining whether glaxoSmithKline has successful internal innovation
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Published: Mon, 5 Dec 2016
1) GSK is a leader in the pharmaceuticals industry with 7 per cent of the world market. Its mission is to better the quality of human life so that the people feel better, live longer and is able to perform the tasks assigned to them properly. This can only be achieved by proper planning and implementation of research and development programmes. GSK’s purpose of merger was to improve R& D (as it would also obtain technology from outside) because it looks to excel in internal innovation by making use of the knowledge and learning provided by individuals of other organisations. These individuals might be experienced, trained, flexible, committed and help the firm to accomplish its goals which is its primary objective. The main aim of internal innovation is to outperform its competition by implementing new ideas into developing new and better products which are sustainable in the market. GSK focuses on providing drugs at a cheaper rate to the developing countries. GSK’s strategy is to nurture, distribute and make things easier. It implements its strategies by employing a large number of people in different countries. The employees’ research to produce new pharmaceuticals to treat the diseases focused on. However, GSK is facing a problem of patent expiry. It has 30 patented drugs that are nearing expiry. So it wants to redefine its range of drugs by focussing on its R & D. The individuals involved must have a positive attitude and should be willing to take risks. They should learn from each other and also understand what others are doing. That would help in implementation. Implementation involves the proper utilisation of resources and capabilities of a firm. It involves the management of innovation and focuses on managing politics, control and fighting with change.
2) GlaxoSmithKline wants to ensure that the firm focuses on the best science. It realised that to be successful in future, it needs to be more innovative. So it reorganised its research and development area to improve efficiency and accomplish its goals. It created 70 Discovery Performance Units (DPUs) which focussed on eight therapy areas for future growth of the company. However, GSK successfully completed or extended 21 new drug discoveries in the year 2008. Innovation involves the implementation of ideas into some new product and the new product leads to new opportunities. In case of GSK, it would generate more revenue if the ideas are implemented properly. New technology provides a competitive edge to the firm.
The four elements of implementation are leadership, engagement, alignment and extension. The 70 DPUs would affect these four elements. The DPUs are compact, fully authorised, determined and integrated teams which are responsible for a small part of the pipeline associated with the production of a drug. The teams include scientists, marketing specialists, engineers and others from key business domains to work on innovations. The exchange of ideas amongst its own scientists through building alliances and meetings are encouraged. They showcase different compounds and potential products. R& D groups of individuals gather and learn about new products and processes. In case of GSK, leadership would focus on creating procedures for innovation and distribute sufficient resources for crucial activities. It would help in the induction of supportive systems and policies and set up adequate infrastructure for achieving the required goals. Engagement would focus on building a knowledge based culture, education, progress and mentoring. Alignment would help in building a competent organisation and would bind rewards to accomplishments. Extension would help in examining organisational capabilities and search for other prospects. It would also develop and share lessons learnt. Implementation ensures that the goals and support of management are understood properly. It also involves looking out for people who possess the necessary skills required to meet the project objectives.
The internal culture and external environment of GSK would also affect the implementation effort. We can expect disinterest, apprehensions, satisfaction, hostility and competition for resources. The teams might become satisfied with their achievements and their ideas could be clashing with each other. They may lack the necessary skills. This would hinder the future growth of the firm and it would not be able to accomplish its goals. However, engagement would help them overcome the problem. Implementation also involves setting up of scrutinising system which addresses possible technical and market uncertainties arising out of radical, continuous change and competition from the external environment. Radical change involves high risk whereas continuous change involves low to medium risk. This is because radical change has a wider impact on the firm as the failure of the product will demotivate the firm and decrease its revenues whereas continuous change has a marginal impact on the firm because improvements are made to the existing product or service. Radical change involves major streamlining of the firm, product line or market. The case study shows that GSK has a background and the processes that support innovation. It also hires individuals to conduct research and develop new products, encourages employees to try out new ideas, undertake risks and experiment. The first part of these processes involves constructing a structure for innovation.
Proper teams and co-ordination between different units in an organisation like GSK are needed for the successful implementation. It needs to organise special training and development programmes for the employees, providing technical knowledge about the product, programmes on marketing the product, focus on building new skills in employees and encouraging cross functional activities.
3) GSK needs to evaluate its total organisational performance because it is large, the external environment factors (political, social, economical, technological and competitive factors), the strategic environment, information systems and structural analysis. An organisation involves human, physical, financial and information resources and how these resources are used in the management, operations, production and integration of ideas and actions. The output is the products and services. However, it needs a process to evaluate the diverse ideas and products because it produces far more ideas and products than it can follow at any given time. Cost plays a crucial role when it comes to evaluating an idea. GSK also needs to evaluate the innovation cost which is the internal cost to develop and distribute and also the true cost to the customer to purchase and use. It needs to calculate the costs for development and marketing, market penetration and sales when evaluating a new product and service. It needs a business plan (expected revenue, cost of producing a product or service and profits to be generated) to commercialise the ideas. The evaluation process helps GSK in assessing the kind of innovations it should continue supporting or initiate support for. The team promoting the product should have the ability to justify the product at each step of the process. It should continue with ideas or products that are generating revenue and doing well in the market. It should also start developing new products which have the potential to do well in the market because that will provide competitive advantage to the firm. It would create new opportunities and customers. The shareholders would not hesitate to invest in the firm if it is doing well because they would get appropriate returns on their investment. The evaluation system is designed to be flexible and helps GSK to discontinue those projects that are not meeting expectations. In other words, those projects are hindering the growth of the firm.
GSK’s disciplined and focussed approach has the most influence on how well it evaluates progress towards stated innovation goals. It sees where and how resources are allocated within R& D. It terminated more than 35 per cent of discovery projects following the reorganisation in 2008. Those projects might not be meeting its expectations. The DPUs were given financial support for three years after the termination of the projects. The financial support aids the R& D group to focus on granting the best science and the best product for the consumers but at the same time it also gave them tough timelines to produce a profitable product. If the product is not profitable it will reduce the revenues of the firm. In that case the firm would have to discontinue with the product. In 2008, GSK received 30 per cent of its revenues from products that had been in existence for less than three years as an outcome of these innovation efforts. It means its revenue was coming from new products. It gained the first mover advantage. However, it needed to improve its old products. GSK’s widespread internal development efforts often lead to innovations that do not fit with the company’s main focus.
4) There are three types of control systems: financial control, strategic control and cultural control. They all have advantages and disadvantages. The advantages of financial control are that it is quantitative and easy to understand. The disadvantages are it can become narrow, internally focussed and analysis paralysis is possible. The example of financial control is that it leads to percentage of profit increase from new products. GSK employs financial control because 30 per cent of its revenue has come from products which have been in existence for less than three years. The advantages of strategic control are that it sets direction, more qualitative and fits environment. The disadvantages are it is hard to justify based on some financials, can lose sight of where the firm is. The example of strategic control is that it leads to increase in market share. The case study shows that GSK employs strategic control because its widespread internal development efforts often lead to innovations that do not fit with the company’s main focus. The advantages of cultural control are that it is very behavioural and qualitative. The disadvantage is it requires managers to be involved on a personal level. The example of cultural control is that it leads to value enhancement. GSK employs cultural control because it develops external discovery teams with other firms or universities or research labs.
However, it can be seen that GSK faces a vague institutional environment because it emphasises both on financial and strategic control and firms that prefer strategic control to financial control adopt strict corporate authority. The choice of innovation mode is affected considerably by the firm’s internal control procedures. Therefore a model was developed to look at the relationship between a firm’s internal control procedures and preference of innovation mode. Using a sample of 585 Chinese firms, this study tests the proposed model. The findings show that strategic control has a negative relationship with incremental innovation but a positive relationship with radical innovation, while financial control has a positive relationship with incremental innovation but a negative relationship with radical innovation. So, GSK should employ strategic control for radical innovation and financial control for incremental innovation.
There is a need to make amendments if a gap is identified between goals and performance. This can only be achieved through proper planning.
GSK needs to be more cross functional by rethinking of the business processes. In particular the knowledge, equipment and processes must be managed and controlled properly.
The processes used by the firm for its internal innovation must be redesigned and looked upon for improvements to meet its objectives. It will help GSK gain competitive advantage.
Key decisions should be made by those involved in the innovative process. They would identify new opportunities and find solutions to the existing problems.
GSK should develop new goals if the existing goals do not match its capabilities. The goals must be rational and easily achievable because that would save time and money. The individuals involved must have strong personal idea and ethics with the firm’s values and goals.
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