Circular Flow Diagram Supply The Factors Of Production From Companies (Re)Designing Organizations

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(Re)Designing Organizations

When it comes to (re)designing an organization – whether a biotech in growth mode, a mature division in need of regeneration, an amalgamation of groups after a merger or acquisition, a new structure for a research group or any other internal reorganization – you are confronted with a plethora of options, each with its own liabilities. The business literature offers many ‘models’, often attractive ones. But how do you know what is best for you?

One tends to go for safe territory. If in your previous company you saw or were part of a merger or a particular reorganization that worked, you may be tempted to reproduce it. This is a dangerous path because what worked was contingent to that particular company, time and circumstances and may not be good for extrapolating here and now. Your management intuition may, by and large, be the best guide, but you may want to use more than that in your thinking and implementation.

There was a time when business schools taught that ‘strategy’ came first and ‘structure’ followed. In other words, make sure you know what you want to do and what the purpose is and then figure out how to be organized, not the other way around. It’s difficult to challenge this logic. However, the world today is more complex than traditional business school linear thinking. The above is true but if you consider ‘structure’ a simple by-product, you are bound to commoditize it because strategies and purposes, at least at a high level, are not necessarily very different. That’s why pharmaceutical companies tend to be organized in a rather similar way and stuck in organizational architectures (structures and operating models) that have not changed for the past 40 years or so.

Architecture is a strategy

For some of us, architecture is strategy. The way of being organized and doing things is itself a competitive advantage and a source of strategy generation. For us, strategy and organizational architecture meet in a circle, not in a straight line.

Pharma R&D organizations in particular face major challenges in terms of maximizing the potential of their structures and systems to deliver high productivity. Pharma R&D leaders should be less pre-occupied with copying what others have done, or trying off-the-shelf ideas, and more focused on reinventing their own R&D in a way that is specifically tailored to their needs. That may entail borrowing ideas from others, even borrowing heavily, but never a total replication. The problem is that few people believe organizational aspects are a real priority. A while ago, a senior leader of a top ten pharma company showed an audience of pharma professionals a dozen or so organizational models and said, “We have been looking at those models for a while but decided not to waste our time.” Judging by the performance of that company, it was obvious he was right: top management had been admiring the models for a while and had done nothing about it.

The reality is that pharma has not even scratched the surface of possibilities for novel structures and architectures. One of the problems may lie in a strong inward-looking tendency. Under the umbrella-label of regulated business, we find an excuse for uniqueness which is misleading. This tunnel vision has prevented us from looking, or indeed accepting that it may be worth looking, outside the industry for organizational inspiration. The competition mantra with its sister, the benchmarking mantra, has taught us that if you are GlaxoSmithKline you look at Pfizer or Novartis. If you are Novartis, you look at GlaxoSmithKline, etc. In other words, you look around, as opposed to outside. The result is incestuous, more-of-the-same thinking. One of the problems my company encounters with its ‘small’ clients is that, consciously or unconsciously, they want to replicate the ‘big’ ones. Size is in the mind. A medium-sized company is not a smaller version of a big one, just as biotech is not a smaller version of a medium-sized pharma. Size is just one factor of importance depending on your ultimate goals.

New Product Incubators

Novel, out-of-the-box organizational architectures may be more able to deliver in the tough times we live in. The idea of New Product Incubators is a way of rethinking the whole area of pipeline filling, particularly exploratory development.

This is how it works. Many research-driven companies have no problem declaring that they expect their own pipeline to be responsible for a proportion of the compounds going through development. The percentage varies between companies and, once acknowledged, it’s usually left to ‘business development’ to come up with the rest of the goods.

Because in-licensing has been seen traditionally as a commercial activity, R&D staff are called to the party only at due diligence time, often as an extra burden on top of everything else and not infrequently as a favor. This leads to a progressive detachment of key scientific brains from scanning the market and making preliminary assessments. This is premise one. Once the pipeline starts to be fed from outside, what you need is a sort of ‘rapid reaction force’ that is able to do fast due diligence (scientific and technical), fast minimal exploratory work on the compound or molecule, and to make fast decisions to answer the fundamental question: do we go with this? The bulk of the work is usually to do with ‘proof of concept’. But in many cases this is undertaken by the same discovery or development machinery that is used when a compound is already in full development. In other words, complex, lengthy and unnecessarily ‘safe’ ways to assess the viability of a molecule. This is crazy. What you need at that stage is the ability to make fast decisions with less than perfect data, a concept pretty alien to the standard researcher.

A New Product Incubator (NPI) is a small entrepreneurial structure that sits neither in research nor in full development, that borrows what it needs from traditional ‘exploratory development’ and incorporates or hosts business development, in-licensing and any due diligence activity. It’s an all-in-one engine of fast assessment that is neither R&D nor commercial, but both. It should attract your best scientific brains and your best commercial ones. It does not have to be a host for someone’s entire professional life – people may apply to belong to this structure for a predefined period. The New Product Incubator is also the best place to learn about the cross-fertilization of science/technology and business, as well as a School of Partnership Management. But the NPI must be governed by rules that are different from the rest of R&D or commercial; it borrows as much as possible from the concept of business or technology incubators and therefore needs the ‘protection’ and the resources to be able to function as an entrepreneurial cell within the larger company. This is just a small illustration of a new architecture; I am not suggesting for a second that such a model will be appropriate for all companies.

Organizational issues are often dismissed as secondary. The few regional or global pharmaceutical for a (conferences, congresses, etc.) hardly focus on organizational architecture. Air time is taken by sexy science and technology, M&A pros and cons, semi-generic rhetoric about innovation plus an endless repetition of the challenges the industry is facing. But professionals (scientists, marketers, sales people, factory managers, etc.) work and spend most of their life in specific ‘houses’. How that house (company, organization, division) acts as a host for innovation, knowledge-flow or fast decision-making, for example, matters a lot.

What is the best size?

Small is beautiful… and lonely. Big is powerful, and impersonal. What’s the best size? For many companies this is an academic question because they are stuck with a small, start-up structure. Assuming you can do something about your size, the temptation is to produce a beautiful solution that does not address the right question. It has become fashionable to break up anything that is big (for example an R&D structure) in the hope that agility will follow. But without doing anything about the internal barriers for communication or innovation, old behaviors controlling day-to-day life or an intrinsically lousy decision-making process, any break-up into business units, for example, will not solve anything. Worse, it could raise false expectations because of publicizing to the world that now the company will be ‘freer and more independent, therefore more productive.’ It’s rain-making blessed by stock analysts.

Before presenting one of several ways to (re)design architectures, let me comment briefly on the two all-purpose, universal ‘answers’ we have come to believe will solve most of our problems: the ‘matrix’ and ‘the teams’. Both have different meanings depending on companies. Matrix is associated with the idea that you need a crossroads between different constituencies and that if you belong to A, for example, you need to work with other people who belong to B, C and D. The matrix was created as a way to meet in neutral territory and to work outside the boundaries of your own division or group. But matrix needs rules of the game and a clear definition of accountabilities and these are not always explicit. The matrix does not solve problems unless the individuals decide to do so. Matrix is often a word for all seasons. The problems with teams are a mirror of the above. Teamocracy has been established as the preferred way of working but we don’t know much about the liabilities until we hit them. Be wary therefore of people suggesting teams and/or matrix as universal solutions and spend time defining what they mean by these terms.

(Re)designing processes.

Is there a way to (re)design an organization following a rational process? There are many. My company follows a process based upon the principles of behavioural decision-making and multi-attribute decision analysis. If this sounds grandiose, it’s only that, the sound. In practical terms, we ask the client to split into two separate groups for twin-track thinking. We ask one group to think and provide a list of the ‘criteria’ they would use to assess the merits of any potential organizational design. It’s a way to find out what it is you care about. Or where you would put your money. A second group is in charge of producing several potential organizational models, all of them legitimate and each with their own pros and cons. Eventually, after days or weeks of preparation, depending on the complexity, both groups meet, usually over a three-day conference and we try to put together both sets of data. A computer model helps us weight the pros and cons in a way the human brain is not capable of.

The criteria finally chosen for a particular case are weighted against all the potential organizational models and among themselves. The weighting is client-specific. While client A may put a lot of emphasis on innovation, client B may weigh scale-up capabilities more heavily. The real work starts once the maps of preferences are produced. The computer (or consultant) does not make decisions; management does, based on a unique set of maps from its own input. The decision-analysis tool only helps to put some meaning to what is a complex combination of criteria and models.

The client and ourselves examine a significant number of combinations from which a pattern of preferences will emerge. The beauty of the computer model is that one can see different outcomes should the original weightings be changed to accommodate differences in opinion among the client team.

To conclude:

  • Yes, reinvent the wheel. That’s a good start. Ignore off-the-shelf solutions or carbon copies of other companies and invest in reinventing one for yourself.
  • Most organizational structures are good for some things and less good for others. What you care about should drive your choice.
  • There is no correlation between a particular organizational architecture and success. If there was, all companies would look even more the same. You need to find out what’s good for you even if that is different from the average company.
  • It all depends on what you mean by success. A lean and mean, downsized, clean and small organization as the result of the latest pseudo-reengineering may produce short-term deliverables (and therefore success) at the cost of losing talent and becoming an unattractive place to work in the medium term.
  • Use a rigorous process. This is not a case for simple brainstorming or back-of-envelope ideas. Define your criteria for deciding, explore different models and apply tests.
  • Involve your key people in the process; invest time in organizational thinking.
  • Look outside the industry; there is a lot to learn.

For good leaders, there is nothing like ‘a place’ as a legacy. A ‘place to be’ lives beyond short-term product success or financial success. (Re)designing your organization may be the best piece of success-crafting you can embark upon. This is not reorganization for the sake of reorganization. It’s the (re)building and refurbishment of the house that hosts innovation and talent. If you think of yourself as a leader, think also as an architect.

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