Shedding Wings - Pharmaceutical Executive


Shedding Wings

Pharmaceutical Executive

Can you think of another industry in which a company has really taken that strategy and succeeded with it?

There are relatively few companies that have made the choice to specialize in these three businesses. On the product innovation/commercialization side, the closest analogies I could come to would be companies with deep technology expertise in certain areas. There's a Japanese company, Kyocera, which is really deep into ceramics technology. They have taken this fundamental expertise in ceramics technology and spun it out into a very broad range of products that utilize ceramics technology. They've been quite successful leveraging that core expertise. You could look at Corning as an example around glass technology and the various kinds of businesses they've built based on a deep expertise in glass.

The key in those businesses has been finding a core technology that can be leveraged into multiple product categories. If you're truly trying to manage a whole series of product businesses with totally different technologies at their base, that's much more challenging.

In terms of specializing, one of the things you talk about in your book is leaving things behind. That brings up the topic of outsourcing.

It's actually one of the catalysts for writing the book. In my consulting activity, I was dealing with more and more senior executives who had been very active in outsourcing, but treating it as a very near-term operational decision, largely driven by cost reduction.

But increasingly, they were stepping back and starting to get concerned that maybe they'd been thinking too narrowly about these choices, and that they really ought to be thinking about them in strategic terms, in terms of the consequences for what kind of business they're really in.

One interesting example that's still playing out today is in the high-tech area, in computers and related kinds of technologies, where the first wave of offshoring was around contract manufacturing—in other words, taking the basic assembly activities and moving them offshore. Increasingly, they've been starting to offshore product design, which is becoming a whole vibrant industry in Taiwan.

So now, you have the design of your products off shore, done by the specialized third parties. You have the manufacturing and logistics all done by third parties. Often you don't ever touch the product as a company. The strategic question is, if they're not designing and if they're not manufacturing, what business are these high-tech companies really in?

Companies need to think very strategically about these choices and think about them less in terms of cost reduction—although certainly that is a benefit that can be derived—and much more in terms of, how are we going to access distinctive skills and capabilities and make ourselves even more attractive in the marketplace?

I often advise my clients, if they're thinking about finding an outsourcing partner, to spend a lot of time with their partner's human resource department to understand their HR policies. If they're not doing a world-class job at attracting talent, developing that talent very rapidly, and retaining that talent, you're going to live to regret that relationship. As competition intensifies, companies are going to be at a disadvantage if they're not with a world-class [outsourcing] company. Don't just focus on the bottom-line cost of the contract. Focus on the HR policies that are driving that company's success in the marketplace.

One of the things you touch on throughout the book is the way that, when two companies interact, value is exchanged and skills or capabilities are increased. So, when you use an outsourcing company, companies are—if they're smart about it—increasing their capabilities as well. But the danger is that, if you go into it like a traditional US company, just looking at the cost, the outsourced partners are not necessarily increasing your capabilities.

To really get the most benefit out of these relationships, companies have to focus on how they can push each other, as partners, to get better faster. And that actually introduces our notion of productive friction, which in part is a bit of a dig at the old dot-com kind of vision of marketplaces as being frictionless places where everything flowed freely.


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Source: Pharmaceutical Executive,
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