Innovation Calls Across the C-suite: Lessons From Wall Street

July 1, 2013
Richie Etwaru

Pharmaceutical Executive, Pharmaceutical Executive-07-01-2013, Volume 0, Issue 0

The lifeblood of the life sciences industry is continuous innovation-it is not a business that can survive by standing still.

The lifeblood of the life sciences industry is continuous innovation—it is not a business that can survive by standing still. Keeping innovation moving ahead at a steady, productive pace is becoming much more difficult, due to constricting margins, policy changes, and an abrupt redefinition of the traditional roles of patients, payers, and providers. Responding to this challenge requires moving toward an industry design where innovating beyond the product R&D cycle becomes ingrained and commonplace, a standard practice throughout the entire organization. And the best way to make that transition is to look at precedents and best practices in an industry that has confronted similar structural issues and come out ahead: financial services. As one who has experienced the effort to build a new innovation mindset in the office canyons of Wall Street, I'd like to share with Pharm Exec some of the lessons learned.

What drove successful innovation in financial services is the understanding that there is not one but many platforms for advancing it. There are multiple types of innovation, each requiring a set of correlated, comprehensive—and carefully coordinated—structural changes to the underlying organization. These changes go far beyond conventional innovation-building tactics such as that open employee brainstorming jam every Friday. Instead, they impact the heart of how companies are organized. In fact, moving forward often requires a leap of faith, being difficult to define, test, perfect, and install.

A simple way to think about innovation types is in the construct of a 2X2 matrix, mapping "outside-in" versus "inside-out" innovations, and "evolutionary" versus "revolutionary" innovations. Since this matrix is not named, let's call it the c-level four quadrant (C4Q) innovation matrix (table below).

Mapping innovation types triggers attention to the processes needed to capture and/or cultivate each innovation type. What operating model, organizational design, and incentive model changes may be needed? What kinds of partnerships are required to cultivate each innovation type? The C4Q Innovation Matrix is also illustrative in demonstrating that, in the financial industry, thinking and acting to foster innovation is not just a job for the CIO or CTO but requires the other "c suite" functions, including CEO, COO, CFO, and CMO, to make material contributions as well.

Whatever the model, experience in the financial sector shows that companies must avoid a situation where good ideas are trapped in the traditional command and control organizational structure, in which case the structure will dictate the strategy. Instead, a true innovation redesign requires the reverse: that the strategy will determine the organization's structure, and that rewards and incentives will follow that strategy rather than being guided by the notion that the larger a leader's proverbial ship, the larger the said leader's compensation.

In other words, the biggest challenges are internal. First and foremost is the negative incentive that employees confront when asked to innovate, best expressed in the simple question: what does it mean to me and my job? The hard reality is that when inside-out innovations create better work streams and enhanced efficiencies, the result can lead to the elimination of entire departments, product lines, and the individual career paths associated with them.

One key lesson in tackling this implicit barrier to innovation is to introduce a new organizational design, one where employees are encouraged to innovate themselves out of a role. This example of encouraging leaders to cannibalize themselves to achieve something innovative confronts the elephant in the room. It changes the conventional thinking from "if I don't have anything to do, then what is my value" to "I can't wait to innovate away everything I do, so I can deliver new value." This creative manner of thinking about the implications of organizational change is easier realized when innovation is thought of in types, instead of as a single entity.

The COO as change coordinator

Another precedent drawn from financial sector is the importance of changing the mindset in allocating program and project budgets. Traditionally, project work originates from the requirements of the line business and thus carries a strong ROI component. Innovating companies have abandoned that hard and fast stipulation and actually insist that a specific portion of the project budget be earmarked for innovation. The concept has been adopted in funding for product R&D in life sciences, but it needs to be extended out further, to the entire supply chain, including manufacturing, technology, logistics/operations, sales, and distribution. This horizontal extension of earmarking for innovation beyond R&D must be a COO responsibility. The investment governance process must be deliberately designed to fund innovation projects past the idea phase into the championing and execution phases, avoiding the tendency for progress to stop at the very moment when an innovation is endorsed.

One key example from COO leadership in the financial sector is to design and install an innovation chargeback model, much like the line of business chargeback models for shared services such as IT network, storage, and human resources. This allows lines of businesses closest to the customer to take innovation seriously as a shared service, and to better identify, prioritize, and install voice of customer, outside-in innovations. In this type of operating model, governance changes are many times best executed by a COO instead of a CIO or CTO. Reorienting innovation funding through the chargeback model also discourages the use of prioritization measures, which in their short-term focus and reliance on measurement tend to avoid taking a real stake in something as potentially disruptive as innovation. And stopping "un-innovation" is an important element in innovating.

CFO: the networked partner

Small, sell-side vendors are becoming interesting sources of innovation. Larger organizations are advised to cultivate their innovation roots by establishing a constant supply of relationships with them. Yet large organizations often lack the insight and experience to productively engage with this group. CFOs can accelerate internal innovation by designing partnerships where other "c suite" CIOs, CTOs, and COOs can "make space" for these relationships, in contrast to traditional thinking that selectively chooses and then displaces one vendor with another. An example of how to make space for new small vendors is creating a quasi-venture capital company within the larger organization, which can ring-fence investments in small, co-creating mini-ventures, away from the process and bureaucratic overhead of large organizations. This is already happening in life sciences on the R&D front, but experience in finance shows it can work effectively to drive innovation in many other critical pharma support functions. CFOs should take the lead in creating the commercial environment for this larger partnership ecosystem around small vendors.

The CMO: listening and mapping the customer

As many management consulting companies predicted, the Chief Marketing Officer (CMO) is spending more on technology and is usually closer to the customer than other c-level officers. In the life sciences sector, where many companies have consumer OTC businesses, listening to customers is not new. However, the issue of where we listen, the veracity of the information we obtain, the new vocabularies around value that we listen to, and the speed in converting data sourced from just listening to value creating insight has changed. While this is very much a big data and social media conversation, it is hardly a CIO- or CTO-only topic. CMOs are consistently pressed to listen to new types of customers, on new types of channels, and around new streams of data. There is rich potential for this externally focused dialogue to deliver true, "outside-in" innovations. In life sciences, where the customer can include the physician, the patient, the pharmacist, the payer, and the public, often all at the same time, listening could not be more important to product success. We know it has never been more complex than it is today.

Technology enchants us as consumers by serving electronically everything we want: where we want it, when, and how. This expectation of being emotionally satisfied is increasing, spreading beyond the value delivered to us digitally, to the value delivered to us physically. Financial services learned the importance of anticipating such "emotional requirements" early in the product lifecycle. The practice here is to add emotional requirements as a precursor to the business requirements, to satisfy the consumer's heightened insistence on engaging emotionally with a product.

Achieving this is particularly critical to innovating in medicine, due to the uniquely personal implications of striving to maintain and improve health—the precondition for all good things in life. Following the models devised in financial services to make customers more comfortable with a similar personal connection—building a secure, lifetime income—Big Pharma can reboot its own innovation machine, based on organization designs where innovation is the deliberate driver, not a haphazard result.

Richie Etwaru is Group Vice-President, Cloud and Digital Innovation, at Cegedim Relationship Management. He can be reached at Richie.Etwaru@Cegedim.com.

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