MBA 4642

Product and Processes

MBA 2010/11
Prof: Louise Boulter / Joseph Ogbonna /Hong Woo

GLAXOSMITHKLINE(GSK) –
Successful INTERNAL INNOVATIONT

ASHUTOSH KHANDKAR
M00326647

DATE 10 Jan, 2011

(WORD COUNT 2121)

 Introduction:

GLAXOSMITHKLINE (GSK) has a reputation of being the leaders in innovation in pharmaceutical development
and distribution. It has made ground breaking efforts to provide HIV/AIDS drugs in developing countries at
significant low prices. It has developed leadership in pandemic flu readiness and made other treatments
available. While seeking to help with the treatment of key diseases identified by World Health Organization,
GSK concentrates on medicines that treat asthma, viruses, infection, and mental health diabetes and
digestive condition. They also explore treatment for various types of cancers.

GSK has been recognized by Bill Gates of the Bill & Melinda Gates Foundation for the company’s
commitment to R&D on malaria and other neglected diseases.

GSK is committed towards its research activities. It has high percentage of employees directly working on
research activities. The investments of the company for R&D are also significant. GSK wants to ensure that
the firm focuses on the best science. It has implemented the strategy in accordance to its goal of being the
leader in innovation in pharmaceutical sector

GSK encourages major R&D facility within the company. Seldom does it approach any external agency for
research activities. Thus GSK is a prime example of Internal Innovation.

1. Based on GSK’s past performance, what do you believe are the critical implementation issues for GSK with
regards to internal innovations? Justify your answers.

GSK aspires to be a leader in Internal Innovation in pharmaceutical development and distribution. Research
and Development has been the backbone of GSK since years. The strategic actions taken by the company
have always revolved around improvement of R&D. Over the period of time GSK has reorganized the R&D
department to in increase its efficiency.

GSK focuses on 8 therapy areas. To address these areas it has 70 Discovery Performance Units (DPUs).
These DPUs are fully empowered. This has resulted in a lot of innovative ideas at the same time. However,
this strategy seems to have a few implementation issues. They are as follows:

 70 units for 8 therapy areas are disproportionate. It is difficult to understand the focus area of each
DPU. GSK can have 8 DPUs, with each one concentrating on a specific therapy area. These DPU’s can
have sub departments to work in different areas if required.

 DPUs are fully empowered. This can create management problems. This is not a healthy sign. All DPU’s
must be brought under the control of a central body. This will enable GSK to set distinct goals for each
individual DPU and review the progress periodically. The company will be able to have a better control
on the expenditure for each DPU. This will also solve the problem of having too many ideas and will
result in proper utilization of resources.
  By concentrating on mid size products they are giving up the First Mover advantage. GSK must not
give up the R&D on development on blockbuster drugs. These products can give the company
significant market share and advantage over competitors.

2. With the 70 DPUs working on eight therapy areas for further growth of the company, how might this
affect the implementation effort and would the firm need special programs to ensure that
implementation was successful?

GSK has given a lot of importance to R&D while defining its strategy. It has a well laid infrastructure to
ensure that the firm focuses on best science. It has a team of scientists, market researchers and other from
key domains in the business to work on innovations. They provide vital inputs in development and
improvement of the products. Statistics state that “over 15 percent of GSK’s employees work directly on
research to discover new medicines. Every hour of every day GSK spends over $500000 in research for new
medicationi “

GSK focuses on 8 therapy areas. To address these areas it has created 70 DPUs for 8 therapy areas. Most of
these units are inside the firm, but some are external to the firm. These DPUs are to be compact, fully
empowered, focused and integrated teams having responsibilities of small parts of the pipeline associated
with the production of drugs.

GSK has completed or expanded 21 new drugs discoveries in the 2008 fiscal year. In the same year GSK
received over 30% of its revenue from products that had newly developed. This achievement is directly
attributed to the success of the DPUs.

However, in there are some implementation issues with this structure.

Firstly, 70 DPUs for 8 therapy areas seems unbalanced. There is a possibility that some drugs are getting
more attention that the others. This might create an inconsistency in smooth progress of R&D functions.

Secondly, all the DPU’s are fully empowered. In this case there might be conflict of interests amongst the
DPUs. There can also be a case of duplication of work where in same work is carried out by a number of
DPUs simultaneously. This can result in wastage of time and money and also human resources.

These DPUs exchange their knowledge and ideas between themselves but there is no frequency defined for
these meetings. As a result there are few problems that already exist. One of them being that there are too
many ideas generated. This can be misguiding to the R&D department and cause confusion.

The firm can carry out some special programs to ensure that the implementation was successful

 The foremost requirement is to bring all the DPUs under one controlling body: It should be a part of
the R&D department. A system should be defined for reporting the development of each DPU on day
to day basis. This will lead to better control, communication and coordination within all the DPUs.
  Plan meetings within DPUs more frequently on daily or weekly basis: This will keep a check on the
progress of each DPU. Knowledge can be shared with in the DPUs. So that everyone is aware of the
new ideas and products already being developed and do not spend time on them.

 Reduce the number of DPUs: Ideally there are only 8 DPUs required for 8 therapy areas. Each DPU can
have different departments working for it. There can me an additional DPU with spare capacity to
develop a genuinely new idea which can lead to the discovery of a blockbuster drug.

 Tie-ups and Joint Ventures: GSK develops some of its drugs externally with other firms or universities
or research labs. The company can have a tie up with these groups They share knowledge and
technology to achieve higher targets.

 GSK is concentrating on higher volume of mid size products: They can have a unit exclusively to
concentrate on blockbuster drugs. Success of these drugs can drastically give advantage to the
company and place it ahead of its competitors. They can have two tiers of DPUs. One concentrating on
mid cap drugs which will need mass production and another concentrating on blockbuster drugs.

With the use of the above mentioned points GSK can ensure successful implementation.

3. What are the special evaluation needs for a company such as GSK, with regards to its internal innovation?
What characteristics of GSK do you believe have the most influence on how well GSK evaluates progress
towards innovation goals?

GSK gives a lot of importance to its R&D activities. Its strategy revolves around improvement of its R&D
function. Hence it is essential that the management lays some evaluation techniques to know about the
developments within the R&D function.
The evaluation techniques must be such that it gives a snapshot of the position of the R&D department. The
management should be able to identify the trends and direction of progress against the defined target

Following are a few criteria where GSK can evaluate the progress of its Internal Innovation.

 Revenue generated from the new drugs launched: This will help the company to evaluate the success
of its new products. The company like GSK continuously faces problems from expiration of patents.
There are also cases where certain drugs of GSK are on a decline. This evaluation will help the
company to regain its lost market by penetration of new products into the market.

 Percentage expenditure on R&D: Every company has a certain budget allocated for R&D. in 2008 GSK
spent 10% of its revenues on R&D. GSK should define target for the amount that it wishes to spend on
R&D every year

 Total Man Power directly working on R&D: The management can get a record of the number of
people directly working on research of new products.
  Number of new products launched periodically launched into the market: This data will portray the
efficiency of the R&D department to convert innovative ideas in actual products. Please refer Fig 1.1
for Product life cycle.

Fig 1.1 Product life cycle

 Number of ideas scraped or outsourced for development: This data will show the paradigm of the
generation of ideas within the DPU. This will help the management to understand the effectiveness of
its workforce and introduce a new therapy area if required. For example. If most of the ideas
generated lead to discovery of a drug which is not in the 8 therapy areas, the management can add
another therapy area and continue with the research on the given drug

GSK has shown characteristics that it is an ideal company for innovation.GSK has a heritage of being a
innovative company. The management has always encouraged the research work done in the company. It
has facilitated R&D by updating it facilities to the get the best output. It has encouraged its workforce to
carry out the research activities.

The company is ready to spend what is needed research and launch a new drug. It has also employed the
manpower needed for research on drugs. It has gone to the extent of recruiting marketing experts to
promote its product. The strategy of the company is summarized by three words GROW, DELIVER, SIMPLIFY.
Thus the company will leave no stone unturned to achieve leadership in R&D.

These characteristics make me believe that GSK will keenly evaluate the progress toward stated innovation
goals.

4. Identify and explain the kind of control systems that GSK should employ to manage innovation.

Control can be categorized into three types: Financial, Strategic and Cultural. In GSK’s case it is necessary to
have control on

a. Strategy: They should reconsider the strategy of concentrating on only 8 therapy areas. If the DPU’s
are constantly coming up with new ideas, GSK can widen their scope to more diverse products
 b. Cultural: the DPUs at GSK enjoy full empowerment. This is hindering their effectiveness. The
management should take vital decision to rearrange these DPUs and bring them under a control of
the R&D department

c. Financial: GSK readily spends funds for encouraging research. Considering the company want to
become a leader in innovation it won’t be acceptable to lay control over the finances. However, it is
vital that there is proper budgeting don’t and strictly followed.

GSK defining a control system will play a major role in success of the R&D department of GSK. During
innovation and research activities there can be cases where the researchers are drifting away from the
target. It will not only keep the employees focused and motivated, but also make the innovation reviewable.
The management will be able to check the progress and the direction of progress due to the control system

We can use the Evaluation and control process for this purpose. The flow chart is shown in the Fig 1.2.

Fig 1.2 : Evaluation and control process flowchart

The steps in this process are as follows

a) Establish objective: Each DPU should be give a specific objective. The scope of this objective must
be well defined. A time frame to achieve this objective must be decided.
 b) Establish standard: Standardization in process always leads to smooth flow. The process can be
easily handed over to the next stage. It eliminates the need of training for each process. It sets a
common benchmark for all activities. There must be a common standard defined across all the
DPUs. This will facilitate easy flow of information and technology within the DPUs.

c) Measure performances: Measuring of performance will improve the efficiency of the work force.
While working on innovative ideas the researchers might tend to get carried away. Hence the
periodic performance measure scheme will help them to remain focused and motivated.

d) Compare performance to standards: Defining standard facilitates defining of common benchmarks

over the different department. Hence there is a common basis for evaluation. If the performance is
at par the expected level we can continue with the procedure. If the performance is below the
expectation then there is a necessity of corrective action

GSK can also implement this flowchart for their research procedures

a) Each idea will be built upon with a specific aim in mind. The idea must be transformed into product
in a specific period of time.
b) There must me well defined standard procedures to work on the innovation. This will help in
facilitating quick work on the ideas. In case of change in personal the next person who works on it
will have clear knowledge of the status of the project.
c) The Performance of the product must be measured periodically. If it is as expected it can be used for
further development. If it is not up to the mark then it can be discarded.
i
Referencing
GlaxoSmithKline annual report. 2009.http://www.gsk.com/investors/build-report.htm. Whaler, J. 2009GlaxoBig Beton
Battling Pandemics. Wall Street Journal (oct 9): Al, A 16