Reviewing Innovation Systems and Research and Development

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Innovation is the source of advancement and development and provides sustainability to its creator. It has been recognized that innovation is crucial towards the success of any organization and hold importance in the field of research inquiry (Huang, 2004). According to Sorli (2006) an innovation means introducing something new in a particular environment e.g. a new product or service, a new drug, a new concept of realizing process or a new way of completing a process etc. It is therefore, an innovation always represents the completion stage of a development, an achieved final result and successful implementation. A firm's performance also correlated with innovation and helps to achieve higher sales with better profits and employment growth through new products and improved process (Dickson, 1998). It is no doubt that product innovation is important (Adams, 2006). It is highly desirable that firms consistently review and modify the way their R&D and innovation organized according to the type of industry/business, or the type of innovation and strategic objectives (Erkena, 2005).

Innovation System and the Role of R&D

Historically R&D closely related to technological innovation at a large scope/scale. Large organizations R&D engineering expertise transferred to consumer products and after such a long evaluation it entered into 4th generation where it mainly focus on knowledge, technology and innovation management (Miller, 1999).

Scientific, technological suggestion or discovery, environment and commercial perceptions originate innovation. Innovation is a designed concept or proposed theory on the basis of synthesises over existing knowledge or techniques to generate technical concept of its theoretical base. Innovation is based on the verification of concept and theory and laboratory test for that particular concept and application. There is also evaluation and development of best possible alternatives and a prototype or pilot production of new product developed for market test e.g. clinical value. Innovation presented for initial operational use or commercial introduction. If innovation is able to generate higher expected societal benefits and ROI, it means it has wider impact and acceptance. Towards the final stage generic product/technology used for newly defined markets as proliferation. Innovation development is a vital role of R&D to address market need (Bright, 1969).

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Picture1: Innovation System: source: Total Quality Management & Business Excellence, Sep2010, Vol. 21 Issue 9, p903-918.

Managing R&D for Innovation Excellence

According to Prof. Henry Chesbrough (2008) "It´s time for a paradigm shift in pharmaceutical R&D". Pharmaceutical innovation face crisis and industry need to change both its business model and innovation process to achieve success in the future. (Gassmann, 2008)

To achieve financial results the old traditions of expertise in development, engineering, R&D or manufacturing is no more guarantee. These experts with general business skills can create difference by understanding their role in delivering customer values. It also helps to take decision on daily basis, which helps company to achieve quick targets. Since last 20years pharmaceutical companies focus shifts on new scientific innovation and statically earn more than 80% revenue from less than two year old products. The new technologies develop the concept of smaller patent group (e.g. biotechnology helps to find replacement drugs by using gene therapy and new drug delivery). Pharmaceutical use to produce high tech products for large no of patients and the production & distribution was difficult because the price per unit is very high. Thanks to bio-markers R&D, which change the pharmaceutical focus towards small number of groups and this move overcome the price barriers. Pharmaceutical innovation can only become commercial if someone willing to pay. (Jaruzelski, 2009)

The health care market dramatically changed towards new developments and more customers centric, which requires companies to change their business model accordingly and bring innovation every now and then. It is difficult & complex to manage innovation, as human resource, product development and innovative strategy are involved in the innovation Management process. R&D Management plays an important role to influence the process because it interacts with technological innovation and vice versa, so both areas are important to achieve success. (Granstrand, 1982)

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Picture2: Innovation management for excellence, source: Total Quality Management & Business Excellence, Sep2010, Vol. 21 Issue 9, p903-918.

Innovation management is a challenging and complex job which includes a number of key areas such as innovation strategy, new drug/product design & development and overall HR management. R&D management can influence innovation where as technology can also push R&D management, it is therefore both areas are important to consider. R&D and innovation management can face failure if lack in the areas of poor policy, inadequate strategic planning and less involvement of Top management in R&D management (Granstrand, 1982).

The primary function of current generation R&D is to manage its knowledge economy and innovation. Each stage of innovation process is evaluated by sharing knowledge i.e. testing technology with stakeholders and customers. The complexity and uncertainty is the main focus of R&D managers to deal with to overcome strong resistance to change which is essential at all development stages of innovation. Mostly decisions are based on environment scanning, learning and interpretation to achieve successful innovation process. Environment scanning consists of information gathering from the actions of suppliers, customers, regulators and competitors. Interpretation has done by structured and cognitive schemata which encode past experience so management can decide future action (Fiske, 1991).

Open Innovation R&D

The literature on organizational change provides a new dimension, the way R&D operation can be managed more effectively and bring more value adding innovation to the company through open innovation R&D by moulding organizational structure and functions (Mentzas, 2006). The way managers operate and control business function is open to welcome new ideas, knowledge sharing and technology. In an open innovation R&D, technology exchange and knowledge management can help to provide articulated knowledge to its intensive and science-based operations. The term articulated mean the knowledge that is recorded for retrieval and follows a common code, and helps to provide co-ordination among the researchers across the distributed network in several sites. The sensitivity of articulated knowledge relay on the level of codification & commercialization of knowledge, and required level of scientific & engineering skills (Brenenraedts et al., 2006). It is also important to look at the information systems management for open innovation as the use of information and communication changed. The codification must be done in a highly secret extent so that inter-organizational exchange cannot change firm's boundaries while using web-based information systems, virtual laboratories, data mining, virtual knowledge brokers etc (Verona et al., 2006). In the discussion of open innovation some R&D managers opposed the idea of open innovation and supported close innovation is the only solution to more value adding innovations, so it is interesting to know how Chesbrough provide his idea about open innovation management is the way to succeed. He describes open innovation as "the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the market for external use of innovation, respectively" (Chesbrough, 2006). He did an investigation over a number of multinational organization and found closed and open innovation are opposite to each other and provided a comparison that closed innovation organizations follow a full control over R&D operations for successful innovation, where as in open innovation organizations don't have strict control over their R&D operation for successful innovations. He supports his idea as "enterprises commercialize external/internal ideas by deploying outside/in-house pathways to the market" according to him R&D managers cannot bring all generous or experts into their team under one umbrella. It is therefore they need to open for external knowledge & technology, and capitalize intellectual property rights by alternatives through commercialize technologies. Profit can be generated through commercial use of intellectual properties to other organizations under licensing or joint ventures. Another important factor that supports open innovation is the use of information/communication technology. The concept of openness has long roots in history as organizations significantly relay on consulting and getting information about outside activities or progress made by others. Even though following open innovation model for the successful innovation, organizations still kept close to some operations. (Naim et al., 2010)

R&D Structure

Although every innovation led to success but a good R&D structure plays a vital role. Human efficacy and safe progress of late stage development holds considerable value and optimise physical properties of medicine i.e. the required level of formulation and chemical steps involve in the manufacturing and delivering innovation successfully with confirmed human efficacy and safety. Regulatory team is responsible to sum up result with these steps and submit for approval to the regulatory agencies, and make it possible to deliver for patient use.

R&D Culture

It is important to consider a number of key areas to focus and develop high performance R&D culture e.g. customer insight, entrepreneurship, innovation, technology excellence, risk tolerance, alignment, creative collaboration, and execution. To generate creative high performance culture, it is important for R&D managers to examine attitudes & values. This also involves elimination of any barriers those cause for impeded behaviours, and the required level of strengths to fill organizational gap. Sound R&D leadership can execute product innovation with insight to customer need, the best use of technology & business alignment and by keeping risk tolerance & collaboration in control. In many organizations R&D culture plays an important & vital role towards sustained product innovation and continual growth. Everyone believes in growth & progress through innovation. Although it is complex & difficult to find and implement new opportunities, where as some organizations excel consistently (Jerry, 2009)

Picture5: A high-performance R&D culture is built though a number of potential steps depicted as performance vs. Time

C:\Users\SAHIL\Desktop\project\Innovation driving process.jpg Picture3: culture as input to the innovation process: source: Total Quality Management & Business Excellence, Sep2010, Vol. 21 Issue 9, p903-918.

Picture4; R&D Culture for Product Innovation

Information Technology & R&D

R&D is the most vital and integral part of pharmaceutical industry, but in the recent years its productivity has declined and raised concerns among industry and investors. The increasing gap between R&D expenses and new product/drug approvals is one of the indications for declining return on investment (ROI). (Rajesh Gunnam, 2008)

During 1996 Food and Drug Administration (FDA) has approved 53 New Molecular Entities (NMEs) with almost $21.9 billion industry's R&D expenditures. The next 6years only 17 NMEs approved with $42.3 doubled R&D expenditures. R&D expenses continually increased without the desired reflection of new approved drugs and the cost of new drug launch increased as a result. During 1999 new drug launched with less than a billion ($842m) where as this cost reached to $3.5 billion in 2007. Negative pricing put pressure on companies those try to generate higher revenue from novel drugs and industry experts forced to think how to minimize the risk and improve ROI with respect to R&D expenses. (Rajesh Gunnam, 2008)

Pharmaceutical industry took number of measures to improve R&D productivity but still not enough, including acquisitions of smaller biotechnology/pharmaceutical companies with specialized R&D holds capabilities and promising pipelines in the interested area, another move was consolidation of largest mergers e.g. Roche & Genentech, Smith Kline Became & Glaxo welcome, Pfizer & Wyeth etc. R&D restructuring has done to achieve set targets while focusing on the key strategic areas, clinical and preclinical outsourcing with Contract Research Organizations (CRO) and improvement in the existing drugs lifecycle management, but still failed to achieve desired out come. (Rajesh Gunnam, 2008)

Information technology brought a significant change in the recent years as technological interventions such as computer aided drug design (CADD), virtual reality, clinical data management system (CDMS), computer modelling, clinical trial management system/electronic data capture (CTMS/EDC) etc. helped a lot in the R&D processes (discovery, preclinical, clinical drug approval and successful launch). Information technology has provided more control, accuracy and reduces the risk of late stage failures. The other significant advantage is knowledge sharing across the R&D value chain. (Rajesh Gunnam, 2008)

Innovation Evaluation in R&D

R&D plays a pivotal role in the evaluation process of innovation, which is concerned to the market identification; innovation must match its market to achieve success. Information can be gathered as a result of market function through feedback process and pass to the R&D. Identification of opportunities and technological trends can be done through knowledge management in the R&D function. Market opportunities and ever changing needs can source information to develop new ideas or inventions leading to innovation. The simultaneous interaction approach occurs between R&D, production and marketing functions of innovation rather than sequential. Market and technology monitoring at a constant pace can help to evaluate innovation and extend its life span, because new/better innovation replace or supersede the old ones. (Martin, 1994)

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Strategies for Innovation

Mckinsey's 7Ss can be used to enhance innovation quality if applied in the R&D management. He divided these 7Ss into two categories, hard Ss i.e. strategy, system and structure and soft Ss i.e. staff, skills, style and shared values (Peters, 1982)

R&D Structure: It is important to adopt a perfect organizational structure that plays an important role to build co-ordination among R&D teams with expert's diversity and skills to enhance quality innovation.

R&D Strategy: Well defined strategy provides strong base for R&D management. R&D management Strategy should address quality innovation and its successful launch, to meet its targeted customer's requirements, their changing needs and powerful acceptance. It is also an essential part of strategy to develop organizational capacity to create, acquire, exploit and accumulate knowledge for competitive advantage.

R&D System: It is important to design a highly sophisticated system which offer flexible environment at the early stages of innovation but there should be strong control placed over quality and cost to achieve tight time lines and objectives. The second most important part of the system is R&D culture which provides success and sustainability to achieve quality innovation.

R&D Staff: Pharmaceutical R&D scientists should be highly creative and holds extra-ordinary innovative skills. Staff should have highly professional project management experts to successfully coordinate and manage R&D projects. Quality innovation can only achieve if R&D equipped with right mix of people in a particular team.

Skills: pharmaceutical R&D scientists and management should hold following skills in the area of their expertise to address each stage during the research and development of innovation. R&D staff should hold the ability to search & identify innovation opportunities. They must have strategic vision to promote innovation. R&D management should provide right environment, climate and culture that foster quality and value adding innovation. Management should develop effective plans and control procedure to complete and implement innovation. Integration skills between research, design and market those generate commercially viable innovation.

Style: Organizational hierarchy also play an important role, it is therefore depend on the management style i.e. autocratic or democratic to manage R&D effectively. Ideally R&D management style should be supportive, open and encouraging innovation. It also indentifies changing needs of customers, new markets and potential new users with regards to time by scanning latest information from every source.

Shared Values: organizational culture represent its shared values, it is highly desirable to achieve a shared sense towards a single goal among the people part of the innovation process to achieve quality and successful innovation as a result of shared vision and values.

Research and Development in the Pharmaceuticals

According to Elisabeth Goodman & Jane W. Morrison (2001), the process for new medicine starts from discovery, through development and the point when it launched in the market. The challenge is how to manage lengthy time and high costs and increase speed to achieve target e.g. 1 in 10-20,000 compounds, achieves New Chemical Entity (NCE) status at the cost of average between $400m and $600m.(Andrew, 2001)

To Market



Discovery Development Process 10-20years

Patent Life 20years total 8-10

Picture1: R&D process. Source: pharmaceutical and medicines information Management page144.

R&D Management should provide latest tools & services to manage internal/external information, throughout the R&D process. The efficient use of assets (expert employees), and resources (information providers) can help to achieve speed and efficiency. To overcome delays and costs R&D managers need to focus on global practices of pharmaceuticals, the effective use of knowledge Management, value added services, new technologies, and information market place and user behaviours. (Andrew, 2001)

Balanced Scorecard Pharmaceutical R&D

In average pharmaceuticals spent about $100 to $200 million per year in their R&D operations over one and half decade ago. Nearly 100 researchers work on an average 6 compounds and every one well known to the leadership which holds a great visibility and ease of decision making from top to bottom level. In the last 15years R&D expenditures increased over a billion dollars and more than thousand people are working on hundreds of compounds with in each of top ten pharmaceuticals. The visibility has now dispersed, decision making and funds allocation is become one of the toughest job, priorities are changed and resources deployment become difficult. There are horizontal top-down or bottom-up problems within the organizational structure e.g. it's become difficult to follow strategic vision or objectives from the operational side and day to day activities. Corporate strategy might become urgent and vivid for top management and very often that strategy is irrelevant or short abstract for people who are executing it. Pharmaceuticals require predictable results from their R&D, where as declining productivity led to crisis in the industry. There are many things went wrong to face these crisis but one thing can provide solution to all which is better management (Gen, 2003).

Balanced scorecard R&D provides a better way of managing R&D operations through ensuring discipline, completion of business objectives and better decision making to support corporate strategy. It's not a quite simple task as large pharmaceuticals work on multiple therapy areas, R&D facilities dispersed worldwide, with a large networks of physicians, clinical-coordinators, and patient groups across the globe. R&D managers become aware of the difficulties to structure and analyze information or data produced by their departments. Reports or management tools for fast decision making are too slow and do not allow direct access to managers over business data, on the other hand reports only consists of results and provides little chance for early intervention and kept apart from managers. There are many power full tools become available recently but balance scorecard is one of the best ways to solve these problems. There are many advantages of a balanced scorecard R&D implementation such as alignment of operations and corporate strategy, better communication, better data or information access, opportunities identification for improvements and better decision making etc. It also helped pharmaceutical R&D operations in many different ways while maintaining quality at first e.g. shorten clinical trial cycle time by 34% to 75%, cost reduction by 5%, and patient recruitment increased to 34% per site.(Gen, 2003).