Three Case Studies on Innovation Strategy
Three pharmaceutical companies — Able, Baker, and Charlie — are among the most successful pharmaceutical businesses in the world. Able and Baker are very large. Charlie is medium-sized, but growing fast. All three companies spend about the same percentage of their revenues on research. There the similarity ends. Each of them approaches research quite differently.
Baker’s aim is to come up with a small number of drugs in each field that are clearly superior and offer significant advances to medical practice.
The strategy of Baker Company is completely different. Its research lab, perhaps the most famous in the pharmaceutical industry, works in an enormous number of fields. It does not, however, enter a field until the basic scientific theoretical work has been done. Then it goes to work. Of every ten products that come out of its own laboratory, the company itself markets no more than two or three. When it becomes reasonably clear that an effective drug will result from a line of research, the company carefully scrutinizes the product and, indeed, the entire field. First, is the new product likely to be medically so superior as to become the new “standard”? Second, is it likely to have major impact throughout the field of health care and medical practice rather than be confined to one specialty area, even a large one? And finally, is it likely to remain the “standard” for a good many years, rather than to be overtaken by competitive products?
If the answer to any of these three questions is “No,” the company will license or sell the development, rather than convert it into a product of its own. This has been highly profitable in two ways. It has generated licensing income almost equal to the profits the company makes on the drugs it makes and sells under its own name. And it has assured that each of the company’s products is considered the “leader” by the medical profession.
ACTION POINT: Test your organization’s innovative strategy against that of Baker Company.
Management Cases
* Source: The Daily Drucker by Peter F. Drucker