This case presents innovation and other research considerations in the Pharma industry, probably one of the most competitive sector. Indeed, billion are spent yearly by the MNC’s for creating new drugs and medicines, making a worldwide promotion and to fight fiercely the other competitors for the market shares. It also shows that innovation is a certain advantage but that it is not given to everyone to master the process and the skills that such an activity requires. Issues related to innovation depend then of general facts, such as culture, business area, or team management consideration and also of others that are specific to each market

1. Competitive Strategyp gy
McKinsey case
Innovation in Pharma
Marie Thuilier, Henri Forestier,
Michel de Marsano
Université de Lausanne (UNIL)
Semestre de printemps 2013

2. Executive summary
-------------------------------------------------------------------------------------------------------------------
Nowadays, the economic sphere has become global and a fierce competition is reigning on markets. Considering this
environment, the best way for companies to stay profitable and efficient is to innovate. For McKinsey, innovation has to be
considered as a high level priority by the management of each competitive firms. Being innovative seems to be the best card
to s cceed in the present and to prepare the f t re b creating solid financial and technological basis that o ld s pportto succeed in the present and to prepare the future by creating solid financial and technological basis that would support
further developments.
This case presents innovation and other research considerations in the Pharma industry, probably one of the most
competitive sector. Indeed, billion are spent yearly by the MNC’s for creating new drugs and medicines, making a worldwide
promotion and to fight fiercely the other competitors for the market shares. It also shows that innovation is a certain
advantage but that it is not given to everyone to master the process and the skills that such an activity requires. Issues
related to innovation depend then of general facts, such as culture, business area, or team management consideration and
also of others that are specific to each market.
In order to insure efficiency in the innovation process of today and tomorrow’s companies, a set of rules has to be followed
by the management from the very beginning of the process. Considering that an innovation strategy will impact the firm , at
least, for the next 3-5 years, the set up plan has to be smartly designed and strictly followed to lead to success.
This paper presents and outline some of the key factors that a successful innovation involves going through questions onThis paper presents and outline some of the key factors that a successful innovation involves, going through questions on
the location of the research unit, the corporate culture and the internal organisation.
The results of this analysis point out the importance of the firm’s environment and the necessity to establish a collaborative
atmosphere and to articulate smartly the different teams while splitting the creative activities (new products) from productivity
activities (increasing process) when a cooperation isn’t needed.
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3. The location advantage
(Does the location matter to be innovative?)
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In our decade, the location has take more and more place in the business competitiveness and now, external
environment is at least as important as the internal environment. Here are some reasons why the location is
important:p
First of all, the location is important for innovation by the talented person there are next to the firm. A
good pool of competence is really crucial and can help to differentiate the enterprise from thegood pool of competence is really crucial and can help to differentiate the enterprise from the
competitors by having talented people and an inimitable know how.
In a second time a great location can allow firms to take active steps to access local strength andIn a second time, a great location can allow firms to take active steps to access local strength and
enhancing the environment for innovation and commercialization in the place they are . They also can
benefit from synergies resulting from the location and from the proximity of the shareholders. (ex: The
Pharma pool around Geneva’s lake region).
Also, choosing a subsidiary’s location for conducting research allow sometimes to benefit of an
advantageous legal framework, which permit the company to develop and use processes which are not
legal in the headquarters' country. This point is really important for the Pharma industry consideringlegal in the headquarters country. This point is really important for the Pharma industry considering
legal issues that impact this market.
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4. Key characteristics for an innovating culture
(What are the characteristics of an innovative culture?)
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Many factors must be taken into consideration in order to determine what makes an innovative culture in a
company or a laboratory. List all these elements is complicated and depends on the specificities of each
company however it appears 4 main points that seem essentials for having an innovative culturecompany, however, it appears 4 main points that seem essentials for having an innovative culture.
1) Implement a clear strategy and define clearly the roles:
 Having a clear strategy that is related to the company’s vision and mission from the beginning
allow to stay focus on the company objectives through the time. From a research point of view, it
means that the company has to stay constant in the research organization, changing the process
only when it’s needed (change in the business model, change in the value chain set up, recent
restructuring,…).
 Defining clearly the roles is also a key point for having an innovative culture. Indeed, it is only
when tasks and roles are clearly distributed between the different shareholders of a project that
they can assemble efficiently each part of the puzzle (make a good articulation between the
teams). In other words, their works have to be additive through all the innovation process.
 Following these rules will lead, month after month, to build an effective project management
system that will allow synergies, time control in the project and that meets the objectives that
have been set.
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5. Key characteristics for an innovating culture
(What are the characteristics of an innovative culture?)
-------------------------------------------------------------------------------------------------------------------
2) Enroll talented teams:
 Having talented people in the company is, of course, one of the key points for having a innovative
culture. Following this rule has the same importance for the research pole than for the
management pole, in order to build teams with diverse, but complementary, backgrounds that willg p , , p y, g
use different approaches for solving problems. Technical skills are needed, but intellectual
capabilities and scientific curiosity have to be also highly valuated.
 Having talented teams is the result of a selective recruitment process, but it’s also the
responsibility of the company to attract these talents. It can be make through salary and socialp y p y g y
benefits, but it’s especially by publishing the research papers and by providing a preview of the
activities undertaken by the company (on the internet site, scientific revues) that the HR will
attract talents.
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6. Key characteristics for an innovating culture
(What are the characteristics of an innovative culture?)
-------------------------------------------------------------------------------------------------------------------
3) Set a collaborative environment:
 One of the causal factor in innovative projects failure is the lack of comprehension between what
the management wanted and what the searchers understood. The main solution to overcome this
problem is to establishes a close contact between the management and the rest of the teams inp g
order to match the work with the objectives. Another advantage of this close contact is that it will,
over time, permit the management to know well each team members. Thus, it will allow to match
the right talent with the right job when the task is assigned.
 Setting a collaborative environment avoid to fail projects, but it also leads to the creation of
synergies in the company. Working in an environment which facilitates the sharing of ideas and
information facilitate the development of an internal link through the research pole and the rest ofp g p
the organisation. This link will then, over time, improve the quality of the project’s output while
reducing the inputs needed for such a result (everyone can contribute efficiently).
 It is also important to note that a collaborative environment with external entities of the companyp p y
can be as important as the collaboration in the company itself.
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7. Key characteristics for an innovating culture
(What are the characteristics of an innovative culture?)
-------------------------------------------------------------------------------------------------------------------
4) Instaure a continuity of the research projects:
 The research process is one of the key point for an innovative company, but it represents only the
beginning of a project. Indeed, it’s the company responsibility to take advantage of the innovation
by reaching it to maturity through a development process, and to bring it to the public through
marketing. Then, each project must follow the following process in order to turn the innovation
into profit:
Research Development MarketingResearch Development Marketing
Science
Firm know
how and Communication
 Having a continuity in the research projects means also that firm and talents must not consider a
brilliant innovation as a one shot project but rather as a regular basis in order to rebuilt projects
talents
on. In other words, we can say that the company must take the opportunity to grow many
branches from the same tree (which is also called synergy).
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8. The density effect
(Does higher people density increase innovation?)
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The density effect is an external factor for a company and this factor can be usefully exploited. We will
see how in this slide.
It is scientifically proven that when people live closely, the opportunity of interacting and sharing
ideas with people increase a lot. This means that people can easily communicate with each other,
share on different subject and solve problems together by sharing and collaborate.
When the population density is high, there are some problems that arise that would not come
with fewer people. Those issues are complex and force people to innovate in order to provide
solutions using collaboration as the best force to succeed together This is also relevant in andsolutions, using collaboration as the best force to succeed together . This is also relevant in and
outside companies.
“MIT researchers think they know why when you double a city’s population that its economic MIT researchers think they know why when you double a city s population that its economic
productivity goes up 130 percent. Not only does total productivity increase with increased
population, but so does per-capita productivity.” This effect is defined as the population’s synergy.
Considering these points, MNC’s have all interest to implement innovation pools in cities/regions that
have a high density index in order to benefit of economies of scale using the synergy effect.
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9. How to create the best innovative site
(What are the key design principles to build a best in class innovative site?)
------------------------------------------------------------------------------------------------------------------
Finally, building a best class innovative site results from the articulation of 3 key factors that the company
should master…
Clear
strategy,
collaborative
Location
Talented
environement
Talented
people
Best class
innovative site
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10. How to create the best innovative site
(What are the key design principles to build a best in class innovative site?)
------------------------------------------------------------------------------------------------------------------
… while separating the development from the research when a collaboration is not needed. (those 2
function have different organizational requirements):
Innovation
B
O T
Creativity Productivity
O
T
T
O
T
O
P
Primary source Turn innovation
O
M
U
D
O
WPrimary source
of innovation
Differentiation
p y
Turn innovation
into profitability
Process
excellence
U
P
W
N
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11. References
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Innovation in Pharma, McKinsey&Company, 2013
Breakthrough innovation and growth Rob Shelton David Percival PwC 2013Breakthrough innovation and growth, Rob Shelton, David Percival, PwC, 2013
Innovative Workplaces: Benefits and best Practices, GSA Office of Gouvernmentwide policy, 2006
http://sloanreview mit edu/article/innovation-location-matters/http://sloanreview.mit.edu/article/innovation location matters/
http://www.tobiasbuckell.com/2013/06/06/more-on-densitys-effects-on-innovation/
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