Pharmaceutical companies, buffeted by regulatory changes, new drug technologies that alter entry barriers and competition, price pressures, and an estimated 300,000 job cuts since 2000, seem to fit the popular narrative of large organizations unable to deal with disruptive forces. In the 1990s, for example, pharma firms were regulars on Most Admired Company lists.
Change and innovation are choices, not givens, in any organization, and there are managerial levers for making these selections wisely. With its Emerging Businesses (EB) group (where one of us serves as President), Merck started a journey about three years ago with a core investment thesis: there are areas of growing unmet need in health care that intersect with its established competencies. Within EB, Merck first created a Global Health Innovation Fund and then a Healthcare Services and Solution unit to identify, develop, and operate nascent opportunities that fit that thesis.
Here are the philosophies and strategies that Merck’s EB group has used successfully, and each has implications for companies seeking new routes for profitable growth. They also debunk the common notion about disruption that big companies must willfully forget what they learned from prior periods of growth and success.
Integration is key. Contrary to current conventional wisdom, evangelists of new ideas must engage in a purposeful way that fosters collaboration with wider organizational networks, not ignore or pretend to forget them, for a couple of reasons. For ideas to become reality, a company needs repeatable processes, not only out-of-the-box insights. Also, most billion-dollar ideas don’t start that way; they can benefit from the established operations, go-to-market or service capabilities, and other corporate assets that help to scale rapidly.
Experimentation is vital. The lean-startup software ethic of launching minimal viable products in order to fail fast and learn is a challenge in many businesses and especially in healthcare where no one wants a minimum viable pacemaker or “lightly tested” drug. But translating an experimentation mindset to the relevant industry conditions is key for innovation in a large corporation.
It’s not just products. From Edison to Jobs, we’ve tended to associate innovation with products, and nowhere is that more true than in pharma, where new products are key to success. But innovation in solutions and business models is equally important because new health-care tools and technologies create beyond-the-pill opportunities.
Usually, companies often want to utilize “core competencies” in order to expand into “adjacencies.” But it is naïve to expect busy line-of-business or R&D heads to do that kind of ideation, experimentation and business-model assembly. It would also be surprising — or simply hit-or-miss — if a separate group of bright people from outside found traction for their ideas in a large organization wrestling with changes and quarterly earnings goals.