In the past, that was justified because it was much more efficient to have all these activities within one company, rather
than relying on partners. Increasingly, we think that logic is less compelling and that the logic of accelerating capability
building, getting better at your particular area of world-class capability, becomes the primary objective. Being able to shed
these other two businesses and focus on one of the three is a prerequisite to growing more rapidly and accelerating capability.
By focusing, you'll be able to move much faster and build capability much more effectively than if you're trying to do it
across all three of these businesses.
From The Only Sustainable Edge, (Harvard Business Press).
So we think most executives are going to have some pretty difficult choices to make going forward. They are going to have
to decide which of these businesses they are really in and how they can develop relationships with other companies to get
access to the other two kinds of businesses.
If you're a pharmaceutical company, I think it's probably fairly easy to let go of some of the manufacturing. But to choose
between the development of new drugs and the marketing of drugs, that's a tough choice. If anything, the industry has been
moving toward integrating those two things more. Do you have advice for people who have to make that choice? Or do they even
really have to make that choice? Can't they just shed some things on the side?
I think the pattern that you're seeing in the pharmaceutical industry is very consistent with the pattern being seen more
broadly across many other industries. The first business that's typically shed is the high-volume routine processing kinds
of activities like manufacturing and logistics. Those tend to be the first activities that get moved outside.
And in fact, there's a lot of learning that occurs as a result of moving those outside. It is quite a different management
proposition to manage somebody else providing these services than it is having them within your corporation. So it's a valuable
learning process. We think it sets executives up for the next set of choices, which is between these two activities—the marketing
and customer relationship side, or the product innovation, commercialization side.
A lot of the recent trend in the pharmaceutical business has been towards sourcing more and more of the products from specialized
third parties. [There has been an uprising] of very focused biotech companies that are developing interesting new products,
and then the pharmaceutical companies are leveraging their relationships with the medical community to get those products
into market quickly.
Right. In pharma, you might have to draw the line slightly differently, so that instead of innovation and commercialization,
it's innovation, then commercialization and customer relationship might fit together a little bit better.
Yes. Although a lot of the testing process is a pretty high-volume, routine processing kind of activity.
And is frequently outsourced.
Exactly. So, it's an open question as to whether a pharmaceutical company really needs to have that process inside, or whether
they really should be focusing much more on building effective relationships with both the physicians and the end consumers,
in terms of building awareness and acceptance of their products.
Is innovation a business where scale helps a lot? Scale really has obvious advantages. With innovation, sometimes it seems
like having a thousand little companies scrapping for success is a good way to innovate.
That's the interesting challenge. We often talk about these three different businesses, and two of the three businesses—the
customer relationship business and infrastructure management business—have very clear economies of scale and scope, which
we believe will be very large concentrated businesses over time. Typically, creative talent seeks smaller homes, if you will,
to really flourish, and tends to have a much harder time surviving and thriving in very large corporate entities.
So I think the challenge for a large company that chooses to focus on product innovation is, can they really provide that
home for creative talent to flourish much better than they would in more fragmented, smaller companies?