British Journal of Management, Vol. 20, S25–S40 (2009) DOI: 10.1111/j.1467-8551.2008.00611.x
Building Organizational and Scientific Platforms in the Pharmaceutical Industry: A Process Perspective on the Development of Dynamic Capabilities V. K. Narayanan,1 Ken Colwell1 and Frank L. Douglas2 1
Drexel University, LeBow College of Business, Philadelphia, Pennsylvania, USA, and 2Ewing Marion Kauffman Foundation, Massachusetts Institute of Technology, Cambridge, Massachusetts, USA Email:
[email protected],
[email protected], fl
[email protected] In this paper, we examine the process of dynamic capability development in a large pharmaceutical firm. Using interviews with multiple managers at different organizational levels, we developed two narratives of the process of developing two separate dynamic capabilities in the same firm. We focus on three areas that prior research has shown to be critical in the early stages of the process of implementing new strategic initiatives: the cognitive orientations of key personnel, managerial action undertaken within the firm, and the firm’s internal and external contexts. We provide evidence that managers undertake specific initiatives based on their own particular cognitive orientations, and that senior managers play a major role in the development of capabilities by imprinting the organization with their specific cognitive orientation and then orchestrating the multilevel organizational routines necessary for actualization of a capability. These replicable actions by senior management during the early stages of capability development can lead to the development of a capability that is not initially in the cognitive frames of lower level employees. Finally, we will show that internal and external contingencies have a profound impact on the decision to develop a capability, and to discontinue its development. Our findings thus suggest that the process of developing new capabilities shares common elements with other strategic initiatives.
During the last decade, ever since Teece, Pisano and Shuen’s (1997) pioneering paper appeared in the literature, the construct of dynamic capabilities has offered strategic management scholars the potential to incorporate managerial action into discussions of the sources of competitive advantage. This focus on managerial action is best highlighted in Eisenhardt and Martin (2000), who defined dynamic capabilities in terms of processes. Yet, from an empirical point of view, the study of dynamic capabilities in terms of processes is rare. Thus, some of the early writings and recent empirical works on dynamic capabilities have focused on linking it to competitive advantage and performance, prompting Helfat
et al. (2007) to argue that progress on this topic depends on a deeper look at process issues. A process view of dynamic capabilities offers two benefits. First, it directs attention to the beginnings of dynamic capability development – actions managers undertake to develop and sustain capabilities, often intentionally and always without any guarantee of eventual success (see Dutton, Fahey and Narayanan (1983) for an elaboration of this point in the context of strategic decision making). We view capability building as contingent upon managerial action, and we will focus our discussion on what managers can do to develop dynamic capabilities, not merely on the link between dynamic
r 2009 British Academy of Management. Published by Blackwell Publishing Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA, 02148, USA.
S26 capabilities and firm performance. This is particularly important because in spite of significant debate in the literature on the specific processes that constitute dynamic capabilities, little attention has been paid to the process of dynamic capability development (Helfat et al., 2007). Second, a process perspective enables us to connect to the rich strategy process literature (see Pettigrew (1992) for a discussion of this literature), which offers a wealth of frameworks and methods that can be employed to study the development of dynamic capabilities in organizations. Thus we are able to integrate a major theme in the strategic management literature into the dynamic capabilities framework. The motivation for our current work was to understand the origins, impetus and dynamics of capability development: What prompts managers to undertake capability building? How do they gather ideas for specific capabilities? Are there replicable steps in development? Using narrative technique, we undertake a comparative analysis of two field studies documenting a pharmaceutical company’s attempts to build two distinct capabilities – fast cycle drug development and chemical biology R&D platforms. In comparing the full lifecycle of the development of these two very different capabilities that both act to transform drug development, we hope to shed some light on the process of developing dynamic capabilities. Although recent literature has emphasized that knowledge is distributed throughout the organization, and that the role of the manager is more to coordinate purposeful action than dictate normative practices (Tsoukas, 1996), both cases of capability development we studied are senior management led, i.e. top-down. They thus offer a contrast to processes driven from lower organizational levels such as those at Intel documented by Burgelman (1983). This study makes three contributions to the literature on dynamic capabilities. First, we highlight the role of human agency in the capability building process. We provide evidence that managers undertake specific initiatives based on their own particular cognitive orientations, and that senior managers can play a role in the development of capabilities by imprinting the organization with their specific cognitive orientation and then orchestrating the multilevel organizational routines necessary for actualization of a capability. These replicable actions by senior
V. K. Narayanan, K. Colwell and F. L. Douglas management during the early stages of capability development can lead to the development of a capability that is not initially in the cognitive frames of lower level employees. Finally, we will show that internal and external contingencies have a profound impact on the decision to develop a capability, and to discontinue its development. The scheme of the paper is as follows. First, we discuss the theoretical underpinnings of our study, and the key theoretical constructs pursued. Second, we describe our research procedures, highlighting the organizational setting, data collection and the narrative analysis of the qualitative data that we collected. In the fourth section, we present narrative accounts of the two dynamic capability development processes. We then analyse and compare the similarities and differences between the two processes, and draw conclusions from this analysis. Our concluding section points to further research directions.
Theoretical orientation Although the dynamic capabilities view has emerged only recently as a major theoretical frame in the strategic management literature, there is broad agreement that dynamic capabilities lead to improved firm performance in some way, such as helping firms deal with dynamic market environments (Teece et al., 1997), improving productivity (Makadok, 2001; Zollo and Winter, 2002) or generating new strategies (Eisenhardt and Martin, 2000). Despite the strong theoretical linkage between dynamic capabilities and firm performance, ‘we have limited understanding of where capabilities come from or what kinds of investment in money, time, and managerial effort is required in building them’ (Ethiraj et al., 2005, p. 25). This lack of understanding is heightened by the fact that the evolution of dynamic capabilities may consist of a combination of idiosyncratic and path-dependent elements (Teece et al., 1997) that are unique to the firm as well as industry-wide best practices (Eisenhardt and Martin, 2000). The firm’s path to developing new capabilities may also be highly dependent on the human and social capital of key personnel, as well as their cognitive endowments and the environmental context in which they operate (Helfat and Peteraf, 2003; Zollo and Winter, 2002). r 2009 British Academy of Management.
Dynamic Capability Development in a Pharmaceutical Firm Theoretical work has suggested that dynamic capabilities may be borrowed from outside as well as developed internally. Eisenhardt and Martin (2000) focused on commonalities across firms, and suggested that capabilities may not be distinctive and thus may be sourced externally. Lampel and Shamsie (2003) took this view a step further, suggesting that there are dynamic capabilities that are shared among all major competitors in an industry. Zahra, Sapienza and Davidsson (2006) argued that dynamic capabilities could be sourced either internally, through various learning processes, or externally, through imitation. This theoretical work on dynamic capabilities leads us to focus on three major themes that emerge from the literature on strategic processes: (1) human agency; (2) the origins of new strategic initiatives; and (3) the impact of the external environment. Human agency Strategic process research has identified two major categories of human agency in the initial stages in the development of new strategic initiatives that determine the direction the firm will take: the cognitive orientation of key personnel and the specific managerial actions they take. Cognitive orientation. All new strategic initiatives begin with an idea (Van de Ven, 1986). Having an idea involves not only comprehension of the process necessary to implement the idea (McGrath, MacMillan and Venkatraman, 1995), but also understanding that there is a need for the new initiative in the first place. Cognitive orientations thus embrace both the belief in the efficacy of the idea and the cognitive schemas and knowledge that lead to its effective implementation (Hodgkinson, 1997). For example, although the decision to develop a new capability is often due to a change in the firm’s external environment, individuals within an organization must interpret the relevance of the event and decide on an appropriate course of action. As Meyer (1982) noted, the strategic orientation of the top management is highly influential in how firms cope with an adverse exogenous event. Managerial actions. Having decided upon a course of action, the individual actor begins r 2009 British Academy of Management.
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gathering resources and support for the new initiative. A properly defined strategic initiative contains an economic as well as a technical logic, and relevant employees must be convinced of each (Burgelman, 1983). Narayanan and Fahey (1982) modelled the entire strategy formulation process as a series of political moves by individuals, with the ultimate outcome being the formation of coalitions supporting the desired initiative. Van de Ven (1986) called this part of the process the ‘management of attention’ when the impetus came from the management team. Dutton et al. (1992) called it ‘issue selling’ when the idea initiated from lower organizational levels. Although this phase may begin with the development of effective group functioning and communication (McGrath, MacMillan and Venkatraman, 1995), it may also involve managerial actions such as forcing favoured initiatives (or neglecting ones that they do not favour) and then rationalizing these actions to senior managers (Burgelman, 1983). Origins of capabilities Burgelman (1983) theorized that the idea for new strategic initiatives can occur in two ways. The idea can originate at the lower levels of the organization and be selected and rationalized at higher managerial levels, or it can come from the ranks of senior management with a specific strategic intent. For example, Maritan (2001) found that capital investment proposals initiated at both the senior management and lower organizational levels. However, both of these authors found that new strategic initiatives were most commonly initiated at lower organizational levels, with senior managers generally responsible for filtering and legitimizing the best ideas. By contrast, initiation of major capabilities may also occur at senior levels of the organization. Indeed the trajectory of development in top-down approaches may be vastly different, but extant empirical works documenting this are relatively rare. The external environment Discussions of path dependency generally recognize the role of the external conditions and the firm’s position within its environment. Besides the intentional acts of deciding on a course of
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V. K. Narayanan, K. Colwell and F. L. Douglas
Figure 1. Chemical biology platforms and fast cycle capability in the drug discovery/development process
action and building support for it, the external context in which the actors operate will also greatly influence the strategic direction of a firm. As mentioned previously, an external event is often the impetus for a new strategic initiative in the first place. Eisenhardt and Martin (2000) believed that the dynamism of the firm’s environment was a key mediator in the efficacy of dynamic capabilities. Environmental factors may also impact a firm’s allocation of resources between new strategic initiatives and exploiting existing ones (March, 1991). Teece et al. (1997), in their discussion of dynamic capabilities, explicitly recognize the role played by the firm’s position within the environment.
Research design This paper focuses on the process of developing two specific capabilities – fast cycle drug development and chemical biology platforms – in a major pharmaceutical firm based in the USA over a roughly nine-year period. Although the choice of the firm was due to convenient access to top managers, and the choice of specific capabilities were firm-level managerial decisions (outside the control of the researchers), our analysis is anchored in three crucial research design considerations. First, it accommodates the two different origins of capabilities discussed in the dynamic capabilities literature: internally through various learning processes (Zahra, Sapienza and Davidsson, 2006), or externally through imitation (Eisenhardt and Martin, 2000; Lampel and Shamsie, 2003; Zahra, Sapienza and Davidsson, 2006). Second, we track capabilities at the firm level, and since the firm used projects as the vehicle for developing capabilities, we tracked multiple projects in each capability, thus avoiding the trap of inductively leaping from a single
project to the organizational level (Miles and Huberman, 1994). Third, this paper invokes the narrative analysis approach, one of the major qualitative approaches and arguably the one best equipped to capture the synchronic–diachronic characteristics of the capability building process (Clandinin and Connelly, 2000; Creswell, 2007). The two capabilities we tracked – fast cycle drug development and chemical biology platforms – both pertain to pharmaceutical R&D. As shown in Figure 1, the firm we tracked conceived of R&D as a series of linked activities, with two broad phases – discovery and development. The discovery phase involved the choice of a candidate for drug development, whereas development, the second and longer phase, involved modifying and assessing the drug candidate to meet Food and Drug Administration (FDA) requirements. Fast cycle drug development referred to an organizational capability to achieve organizational speed or reductions in cycle time during development. Since this capability is not unique to a particular firm or industry, it could be sourced externally through the use of consultants. On the other hand, chemical biology platforms are specific to drug discovery. They aim to create biological response profiles by small molecules, selected on the basis of the structure and function of the biological target, and are characterized by a need for extensive cooperation and knowledge sharing between chemists and biologists, which was a completely novel approach at the time. At the time of this study, an interdisciplinary field called chemical biology had begun to be established in academia, but had not yet been implemented in the pharmaceutical industry. Therefore, it was necessary to develop this capability internally. Our study profiles a major pharmaceutical company over a nine-year period. During 1995– 1998, the firm undertook the creation of fast cycle r 2009 British Academy of Management.
Dynamic Capability Development in a Pharmaceutical Firm
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Figure 2. Timeline of firm events during capability development processes (FC, fast cycle; CB, chemical biology)
capability for the development stage of drug commercialization. During 2002–2004, it further undertook the creation of chemical biology platforms for the discovery stage of the drug development process. Although both studies took place in the same corporation, the corporate setting had changed considerably between the first and the second study due to a series of mergers. All the fast cycle projects were either completed or terminated before one set of mergers whereas the chemical biology initiative was interrupted by a second wave of mergers, and abandoned in their wake. In Figure 2, we have provided a timeline which summarizes the key milestones in the development process and pinpoints the data collection time periods. Data collection Our primary source of data was interviews with several levels of management. For fast cycle drug development, we interviewed 27 individuals, including eight executives, 13 directors and managers, and six project team leaders (this includes the project leaders for the four fast cycle drug development teams as well as two other ‘regular’ projects). For chemical biology, we interviewed seven individuals including one executive, two programme managers and four project team (platform) leaders. In both cases, we interviewed all managers with direct day-to-day decision-making responsibilities for the projects at issue. The chemical biology drug discovery platforms had a much more limited implementation, and thus fewer employees were involved in their development. The Appendix profiles the interviewees in the fast cycle and chemical biology platform initiatives. We conducted the interviews during the capability development period, when the events were still fresh in the interviewees’ minds. The managers of the fact cycle initiative that took r 2009 British Academy of Management.
place from 1995 to 1998 were interviewed from 1996 to 1999. The managers of the chemical biology initiative that took place from 2002 to 2004 were interviewed from 2003 to 2004. We conducted the interviews in person where possible (mostly in the case of the fast cycle initiative) and by phone (mostly in the case of the chemical biology initiative) when the participants were out of the country. The interviews were semi-structured and open ended. Senior managers were asked about the logic of developing the capability in question and the challenges of implementation. The focus of these questions was on events and processes, managerial actions and their rationale, and the actual impact of these decisions in order to create a chronology of processes involved in the initiatives. Project leaders were asked to describe day-to-day experiences running the teams, as well as to rate the level of support they received from senior managers. Most interviews lasted between one and three hours. All in-person interviews were recorded and later transcribed. In the case of telephone interviews, the interviewer took elaborate notes. In the case of the chemical biology platforms, the interviews were summarized and sent back to the platform managers for corrections of scientific terms and ideas, as they were outside the realm of expertise of the researchers. The final summaries incorporated the changes made by the participants. We supplemented the interview data with archival data in the form of internal technical documents and external industry reports. Data analysis Process research focuses on how decisions are made, not merely what is actually decided (Huff and Reger, 1987). We employed the narrative technique (Creswell, 2007), ideally suited to handle process data that is composed of dynamic
S30 sequences of events through multiple organizational levels with ambiguous boundaries (Langley, 1999). In retrospective analysis, one of the key advantages of narrative technique is that it allows much more context and detail to be reported than other qualitative methods (Creswell, 2007; Langley, 1999). We distinguish a narrative from a story. A story is a simple account of events, often in chronological order. A narrative, on the other hand, adds plot and coherence to the story (Boje, 2001). One key advantage of the narrative method is that it allows much more context and detail to be reported than other qualitative methods such as paired or comparison case studies (Dyer and Wilkins, 1991). Context may be a particularly critical issue when examining episodes of organizational change (Pettigrew, Woodman and Cameron, 2001). In fact, narratives are the way actors create meaning from a series of events, and may be necessary for organizational sense-making (Weick, 1995). In order to capture the process of dynamic capability development, we created two narratives of capability development, one each for fast cycle capability and chemical biology platform. This required aggregation of data from multiple levels, both individual and project level, into the capability level. We did this in two steps. First, we created a total of eight case studies – four for fast cycle project teams, and four for individual chemical biology project teams, based on the transcribed or summarized individual-level data from the project leaders. Second, based on these eight case studies and the interviews with senior management, we prepared two narratives of the process of developing the two capabilities. Thus, both the narratives adopted a nested case study design (Burgelman, 1994; Leonard-Barton, 1990; Yin, 1994). Although retrospective analyses can be very useful for recognizing overall patterns in the process (Leonard-Barton, 1990), care must be taken to avoid spurious connections between antecedents and consequences, creating a ‘just-so story’ (Pentland, 1999). In this study, we ameliorated this possibility in two ways: (1) the use of a conceptual framework, and (2) care in constructing the narrative, both prescribed in the literature on narrative methods (Creswell, 2007). We used a conceptual framework developed by Narayanan and Fahey (1982) and modified by
V. K. Narayanan, K. Colwell and F. L. Douglas Narayanan et al. (2003) to depict the stages of the capability building process. The early stages of the capability building process – activation, articulation, mobilization and implementation – represent the emergence of the capability, and are the focus of the narratives. The later stages of the capability building process – diffusion and retention – are not applicable to these cases, as will be discussed below. Using this conceptual model of the process of capability development, our analysis unfolded in three phases. In the first phase, we reviewed the interview transcripts to create a basic narrative of each capability development process. Three researchers independently created narratives from the transcripts – one who had conducted the original interviews and two who were not involved in the original research project. Second, we met to compare our narratives and identify the four initial stages for each of the two dynamic capabilities, the key challenges faced by the management team during each phase, and the decisions made in order to deal with those challenges. To do this, we identified the key managerial actions over time for each capability as well as the reasoning behind those actions. This ‘restorying’ (Creswell, 2007) or ‘emplotment’ (Czarniawska-Joerges, 2004) of the narratives into a general conceptual framework is important to create a coherent narrative, since the individuals interviewed did not necessarily present their story in a consistent or chronological sequence. Finally, we isolated the common and distinct elements of each process, paying particular attention to cognitive endowments of key individuals, internal political manoeuvring, and external context in which the initiative occurs. The narratives developed from our case data are deliberately broad, and oriented to address major challenges faced by senior management at each stage of the capability building process, along with actions taken and the rationale for those actions. To this we now turn.
Capability development narratives: comparison and analysis The two capability development efforts were undertaken within the same firm, yet the organizational context, natures of the capability, and the firm’s path towards building were somewhat r 2009 British Academy of Management.
Dynamic Capability Development in a Pharmaceutical Firm Table 1. The two dynamic capabilities contrasted Dimension of comparison Impetus
Strategic purpose Origin of capability
Fast cycle product development Impending crisis for the firm To avert impending crisis
Well-established concepts, imported from outside Focus of Altering capability organizational processes Strategic focus Drug development Applicability Late stage to drug development Approach Project teams linked to functional units
Chemical biology R&D platforms Industry-wide concern for innovation productivity To enhance the effectiveness of drug candidates Ill-defined concepts, internally elaborated and clarified Building a scientific platform Drug discovery Early stage
Autonomous pilot project teams
different. Table 1 summarizes the differences between the two capability development initiatives; in what follows, we compare the narratives of their development along the stages identified by Narayanan et al. (2003), especially activation, articulation, mobilization and implementation as projects; we conclude with a summary description of the termination of these efforts. In other words, we juxtapose the two narratives by stage, which enables us to show the similarities and differences between the two. Activation The environmental context in which the developments were attempted was similar: industrywide declines in R&D productivity. This decline was partially due to industry-wide issues including rising costs of clinical trials, difficulty in recruiting patients, expanding development programmes and longer development times. These conditions, together with increasing societal expectations, put pressure on all pharmaceutical firms to simultaneously speed up and increase the effectiveness of the drug development process. However, the organizational context and the triggers for development were quite different. In the case of fast cycle capability, the then newly formed company had brought in several new executives, who included the Executive Vice President (EVP) of Drug Innovation and Apr 2009 British Academy of Management.
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proval (DIA). Externally, the company was facing a crisis – the threat of significant future declines in sales and profitability as a result of actions by the US FDA. As one Senior VP put it: The FDA had issued a warning on [the product], a major contributor to our sales. Our company was at risk.
In the case of the chemical biology platform, the organizational context had changed because the company had undergone another merger. Over a period of several years prior to the introduction of chemical biology platforms, discussions among very senior R&D managers in the company had led to the conclusion1 that the trial and error approach in drug discovery could be improved by deepening the knowledge of ‘chemical biology’. However, no pharmaceutical firm had implemented a chemical biology platform, and it remained in incubation until a galvanizing event took place. A senior executive of the firm was making a keynote address at the 2000 Drug Discovery and Technology forum in Boston. In the other keynote address, Craig Ventner of Celera Corporation described an incredible breakthrough in the human genome project. The senior executive, not to be outdone, finally decided to publicly commit to the application of chemical biology in his address. As he put it: I was really under pressure. I knew Craig Ventner was going to announce his breakthrough in his keynote address in Boston. My address followed his. I had to do something impressive [to keep the audience’s attention]. After consulting with my senior scientists, I decided to announce the chemical biology platform.
Articulation Both the managerial challenges and the emergent strategy of development during the articulation stage were also somewhat different for the two development efforts. In the first, the new EVP had the vision of imprinting the organization with fast cycle capability, which was already a well-known set of routines in industry at large, in response to the impending crisis. The managerial 1 These conclusions were published in a series of peer reviewed journal articles in chemistry and related disciplines; we have withheld these references to protect the anonymity of the individuals.
S32 challenge during fast cycle capability development was to get some degree of commitment from the rest of the senior management team to launch the initiative. The development of fast cycle capability could not be accomplished without a significant shift in both the beliefs and behaviours of senior management. As a result, the activation stage lasted over a year until the head of DIA decided to confront the issue directly. Two senior managers in particular were publicly supportive of building fast cycle teams while privately undercutting the efforts. This led to delays and missed deadlines. As a senior executive characterized it, We decided to have a ‘come to Jesus’ meeting.
One of the senior managers was asked to step down and the other was reassigned overseas. The strategy that emerged was to focus on a select set of fast cycle projects, to learn from the experience, and then to embed the capability in the organization as a whole. Senior management designated several projects as ‘fast cycle’. These projects were expected to beat the best in class in the industry. These fast cycle projects ran concurrently with ‘regular’ projects that operated according to the accepted practices within the company. A second challenge emerged at this stage for senior management: to tailor general fast cycle principles to the specific organizational context and resource constraints of the firm. On one hand, the firm adopted core fast cycle principles. Senior management encouraged rapid decision making, priority in resource access, and increased autonomy of project teams. The functional units retained key roles in the process including enforcing standards, maintaining quality, and facilitating the transfer of function-specific learning across teams. On the other hand, the firm tailored accepted fast cycle best practices to their specific organizational context. For example, the firm decided not to co-locate project teams and kept fast cycle project teams anchored in the traditional context of the scientific functions that were the backbone of the DIA organization. Resource constraints forced the firm to assign fast cycle status only to a small number of R&D projects. Other firm-specific principles articulated during this phase included the establishment of economic and scientific feasibility criteria for deciding which projects to designate as fast cycle.
V. K. Narayanan, K. Colwell and F. L. Douglas In the case of the chemical biology platform the managerial challenges during articulation involved rank and file scientists more than senior managers. Senior management had a clear conception of what the chemical biology platform should do, but the rank and file scientists who would actually be developing the scientific concepts, models and methods of chemical biology were not part of these early deliberations. Senior management appointed a long-term insider as the leader of this initiative to help deal with resistance from staff scientists. This person was a well-respected scientist with global experience and a strong interest in the philosophy of innovation. The first approach to sparking the interest of the scientists met with mixed results. The firm held a kickoff meeting on chemical biology with 25 promising scientists in the fall of 2000. There was no real excitement and a lot of scepticism. Unlike the senior managers, the scientists did not see much value in the new approach. The leader of the chemical biology initiative initially considered the meeting to be a disaster, stating that it was ‘scary’ to hear such scepticism from young scientists. Mobilization During mobilization, imprinting the fast cycle capability required challenging the long-held central premises of the organization that focused on ‘functional excellence’. Functional excellence, defined as the pursuit and preservation of the highest possible scientific and functional standards above all else, had traditionally been the key tenet that guided R&D operations. The idea of fast cycle, with its more pragmatic approach to R&D and emphasis on speed, often seemed to conflict with functional excellence. The introduction of fast cycle teams created uncertainty for functional managers as well as project team members. Fast cycle teams had more decision-making power and direct access to senior management, partially circumventing traditional reporting relationships. Thus, the role of functional managers evolved from a controloriented towards a more support-oriented role, creating a natural level of discomfort among some affected managers. The conflict for individual team members was exacerbated by the fact that many of them were not fully dedicated to the project team and thus were living in two worlds r 2009 British Academy of Management.
Dynamic Capability Development in a Pharmaceutical Firm with two different belief systems at once. Also, pay and promotions were still largely under the control of the functional units. Many functional leaders did not fully buy into the fast cycle concepts and favoured the status quo. The firm discovered the need to embed new organizational routines to deal with these issues. Embedding routines required compliance by different levels of the organization – senior management, middle management and project team levels. At the senior level, a structured process of portfolio planning, project leader selection and organization-wide communication was implemented. As new, more effective routines emerged in one fast cycle project team, the designated executive sponsor helped to disseminate them to other teams. Newer routines were also needed at the middle management level. For example, during annual performance reviews of project team members, functional leaders had to incorporate the input from project leaders. The most visible organizational routines emerged at the project team level, which had been encouraged to do things differently in support of the project; these routines required both cognitive and behavioural learning. As one senior executive described it, fast cycle team members had to ‘migrate from relying on checklists to a problemsolving orientation for rapid execution’. For example, fast cycle teams were given tight deadlines, and knew the importance of speed. Yet in one project team, senior scientists continued to fax rather than email documents and did not follow up with their counterparts in other countries to ensure the recipients received the documents. In some cases, the faxed documents stayed on the respective administrative assistants’ desks and valuable time was lost. In the case of chemical biology, out of the early experiences with rank and file scientists, a management strategy for mobilization emerged to combat the challenge of producing a major organizational impact while taking an incremental approach. The strategy was built upon three major anchors: (1) a pilot approach; (2) project-focused science; and (3) virtual organizational platforms. The pilot approach was a direct outgrowth of the scepticism of scientists. This convinced senior R&D managers that it was advisable to move slowly rather than adopt an organization-wide approach to introduce and build chemical biology capabilities. The pilot approach involved r 2009 British Academy of Management.
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starting with a small group of scientists focused on a specific set of projects, and over time following up with several other projects. It was easier to locate a small number of enthusiastic scientists within the corporation, and their scientific and organizational successes would ensure the interest of others. Over a period of two years, the firm launched four pilot chemical biology platforms. The scientific challenges in developing chemical biology platforms necessitated interdisciplinary project teams. Chemical biology involved scientific work at the intersection of two divides – basic versus applied science and chemistry versus biology. The focus was on rapid learning and knowledge development through leveraging results of experiments on specific members of a class of molecules to determine applicability with other members in the class. The senior management team chose to focus ongoing project teams to ensure that ‘better compounds, faster’ were produced. Like most pharmaceutical companies, the firm’s R&D organization was a matrix. Scientists belonged to a disease group and to a project team. In this structure, functional excellence and knowledge of the disease were systematically brought to bear upon the drug discovery and development decisions. However, the knowledge of the target classes tended to be ad hoc and judgemental. To avoid this issue, the firm settled upon the concept of virtual platform. A virtual platform is a ‘collateral organization’ made up of scientists with significant experience, working in parallel to the existing drug discovery and development matrix. The virtual platforms were expected to infuse the project teams with knowledge about the targets pertinent to the challenges they were facing. The virtual platforms also had the advantage of a clear internal organizational structure. They each had a platform leader, a core team consisting of several members, a sponsor who was a member of the senior management team, and several strategy groups, each led by a core team member working on specific scientific or science-related challenges and populated with individuals drawn from the R&D organization as necessary. Each platform had significant operational autonomy, although all the platforms were encouraged to learn from one another. Thus, a virtual platform is not a team, but an organization with at least four levels.
S34 Implementation as projects In the case of fast cycle drug development, some project team members transitioned quickly into the fast cycle way of operation and actually welcomed the increased autonomy, flexibility and responsibility. Others had difficulty resolving the cognitive conflict between the deeply rooted ‘ethos’ of functional excellence and the more pragmatic and speed-oriented fast cycle approach. In addition, not all members thrived in the hard-charging, unstructured, heavily teamoriented environment of fast cycle projects. Intensive training and team building efforts by project team leaders as well as reassignment of some personnel helped to resolve these issues. During this phase, senior management played an active role in monitoring and empowering the fast cycle projects by ensuring they received sufficient resources and also by using their power and political capital to insulate the project teams from pressures to conform to standard functional procedures. Forces from other parts of the organization continually intruded into the implementation of the fast cycle initiative. Although the Board of Directors understood the strategic value of the projects and had approved the fast cycle initiative, several top-level non-DIA executives had limited understanding of the logic of the framework and organizational architecture developed to support the initiative. Some top-level executives did not fully subscribe to the concepts from the beginning. Departures from normal organizational practices communicated through both formal and informal communication channels became occasions for discussion, and senior DIA managers often had to buffer the project teams from the intrusive pressures coming from outside the DIA division. These buffering activities involved protecting the fast cycle experiment, and controlling the boundaries of the initiative. In the case of chemical biology, the firm implemented the four pilot platforms over a two-year period. The main implementation challenge was that the four platforms were oriented to different disease groups, and had different degrees of in-house expertise to rely on. They were markedly different in terms of the key scientific challenges because the targets themselves were different, and because the platforms differed in complexity. The firm tried to create a
V. K. Narayanan, K. Colwell and F. L. Douglas standard template for the internal organizational characteristics of the platforms. However, the tasks confronting each platform and the adopted mode of operations differed from one another in significant ways. Nonetheless, there was an attempt to learn from these pilot platforms. A ‘Book of Knowledge’ was established to capture experiences, problems and solutions as the platforms were established. The first platform group members were reluctant to inject their knowledge into the working of project teams. This reluctance decreased over time. Later platforms adopted a planned approach to knowledge transfer. Technology alliances were common, spanning the spectrum from setting up scientific advisory boards to purchase of databases and outsourcing of certain activities. Table 2 summarizes the narratives in terms of the similarities and differences of key elements at each stage of the capability building process in the case of fast cycle drug development and chemical biology platforms.
Discussion Both of the initiatives examined in this paper were championed by senior managers with specific strategic intents and implemented from the top management team down. Unlike prior research (Burgelman, 1983; Maritan, 2001), the senior managers in these cases were not passive recipients of good ideas from the ranks of technical staff. Nonetheless, both were undertaken in response to issues that arose within the firm’s environmental context. The narratives provide a unique window on dynamic capabilities, not hitherto captured adequately in previous analyses on this topic. We discuss the insights from this process study along three themes: (1) cognitive orientations and organizational routines as interlinked components of capabilities; (2) the role of the senior management in capability development; and (3) the fragility of the development process. Cognitive orientations and organizational routines as interlinked components The capabilities as conceptualized at the senior management levels – fast cycle capability and chemical biology platform – were expected to r 2009 British Academy of Management.
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Dynamic Capability Development in a Pharmaceutical Firm Table 2. Comparative analysis of the two capability building processes Activation Fast cycle drug development Internal and New head of R&D external context brought in from outside the organization Impending firm crisis required decisive action Senior managers resist change Cognitive New head’s belief in the orientation efficacy of organizational capability Embarks on fast cycle capability initiative rather than ‘fixing the immediate problem’ Managerial Obtain commitment challenges from senior management, which is protracted
Managerial actions
New head of R&D retired or reassigned noncompliant managers
Chemical biology R&D platforms Internal and Industry-wide decline in external contexts research productivity, but no impending firm crisis. Senior managers required a galvanizing event to push them into action Cognitive Discussions and debates orientation over a 3–4 year period prior to announcement has crystallized both beliefs in and contours of chemical biology domain Managerial Commitment from senior challenges management evident prior to announcement
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Articulation
Mobilization
Implementation
Some senior managers still resistant to change
Conflict with entrenched norms of functional excellence Uncertainty for functional managers
Merger, initiative aborted
N/A
N/A
N/A
Resource constraints/ existing culture prevent imposition of completely novel processes
Career development and culture were highly tied to functional excellence – had to gain support from all organizational levels to embed new routines
Change culture at all organizational levels while protecting nascent fast cycle teams
Tailor general fast cycle principles to specific firm context Concurrent phasing of fast cycle and regular projects
Intensive communication, new ‘sponsor’ role New performance evaluation system Selection of project leaders and teams
Nurture and protect teams from outside interference Encourage knowledge spillover of new organizational routines Some teams needed to be brought up to speed Monitor and empower the teams Resource allocation issues
Resistance from rank and file scientists
Firm had no history of interdisciplinary teams
Merger, initiative aborted
Scientists have legitimate concerns regarding career impact of new platform – must convince silo-bound scientists to work in new, interdisciplinary way Kickoff meeting to introduce initiative was ineffective
Efficacy of interdisciplinary teams
N/A
Development of an organizational approach
Unique platforms run risk of silo thinking – do not want to ‘reinvent the wheel’. Codify and standardize learning when each pilot platform is highly unique
S36 Managerial actions
V. K. Narayanan, K. Colwell and F. L. Douglas Appointed a trusted insider as leader, listen and respond to concerns Sequential phasing of chemical biology platforms so teams can learn from prior efforts
alter the drug development process in manifest ways. In the case of fast cycle capability, this could be observed not merely in the fast completion of specific projects, but in overall reduction in development times and faster discontinuance of projects relative to the past, as well as relative to competitors. In the case of the chemical biology platform, deployment of chemical biology in drug discovery and the effectiveness of drugs chosen for development were expected outcomes of the capability. However, to bring this about, the respective capabilities required a shift in cognitive orientation among some or many members of the organization, and organizational routines to actualize the capability. Table 3 presents a comparison of cognitive orientations and interlinked organizational routines witnessed in these narratives. An important point can be made in this context. The concepts that we have employed – cognitive orientation, organizational routines and environmental context – are at a sufficiently high level of abstraction that they allowed us to compare two disparate capability initiatives. However, as shown in Table 3, the two capability initiatives differed significantly in the content of cognitive orientation and organizational routines regardless of similarities in the external context. Future work should develop a more fine-grained way of capturing these concepts. As we mentioned earlier, the shift in cognitive orientation appeared to be more difficult in the case of fast cycle drug development relative to the chemical biology platforms, and the changes in organizational routines appeared to be just the reverse. Nonetheless, both capabilities required shifts in both cognitive orientation and organizational routines. Thus, capabilities are more than routines or processes but encapsulate cognitive orientations to be imprinted among significant segments of an organization. In top-down approaches, as we have studied, this may be a very significant task to be
Take an incremental approach to introduce interdisciplinary teams for the first time; use pilot projects for proof of concept, virtual platforms
Create standard template, encourage knowledge sharing
Table 3. Profiles of the two capabilities Fast cycle drug development Cognitive endowments
1. Speed is a primary criterion for market success 2. Fast project completion and discontinuance are BOTH value creating 3. Speed requires integration Organizational 1. Stretch goals in routines timeline 2. Continual innovation in project team conduct 3. Attention to strategic phasing of project activities 4. Project–function coordination Manifest 1. Reduced indicators of development times capability for projects 2. Fast discontinuance of unworthy projects
Chemical biology R&D platforms Knowledge of the chemical biology paradigm
1. Communities of practice to develop chemical biology principles 2. Infusing knowledge of chemical biology in discovery
The degree to which drug discovery decisions are influenced by chemical biology
accomplished by senior management. We now turn to this topic. The role of senior management In extant discussions of strategy formulation, the role of management has garnered significant attention. Previous work has identified and categorized managerial roles in terms of resource allocation (Peteraf, 2005) as well as traditional management roles (Mintzberg, 1985). Although we find pervasive evidence of these kinds of activities, our narratives also uncover two additional roles played by senior managers: path finding and negotiating resistance. r 2009 British Academy of Management.
Dynamic Capability Development in a Pharmaceutical Firm Path finding. In both narratives, neither the external nor the internal firm context was sufficient for the development of the capability at the time the decision was made to move forward. In both cases, there were competing alternatives that were not necessarily identified by the interviewees. In the case of fast cycle, the central player could have focused on salvaging the product under FDA warning, a choice that would have helped the firm survive the crisis. In the case of chemical biology, there were many other competing alternatives. For example, some competitors had adopted a strategy of alliances, which was perceived as successful within the industry. The choice or the path ultimately chosen was idiosyncratic to the organization, and perhaps to the senior manager in charge. It was clear from the interviews that ‘capability building’ was the central theme in the belief structure of the central actors. As the executive responsible for both of these initiatives put it: I view my task as building organizational capabilities.
Various internal and external triggers brought this belief into play, and the central actor settled on capability building as the way to frame the challenges faced by the firm. At the same time, alternatives were available to address the challenge at hand. It is as if the problems could be discovered and formulated only when the central actors had access to alternatives they could frame as solutions to the problems. The belief structure of the central actor remained the same in both efforts, whereas the complex of triggers, information ecology and the specific actions taken displayed considerable differences. Negotiating resistance. In both narratives, the senior manager was called upon to negotiate resistance with various sectors of the organization. Recall that fast cycle capability was an organizational platform, grafted from outside with the help of external consultants, and was embedded directly into the existing organizational context of the project teams. The decision to build the capability was made very quickly by a newly appointed executive responding to an impending crisis. This organizational platform involved a power shift from functional units to project teams within the existing matrix structure, and imposed significant behavioural changes on r 2009 British Academy of Management.
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senior managers. This resulted in a protracted articulation phase, due to lack of cooperation by some key executives, and ultimately led to a management shakeup when the initiating executive perceived that some managers were not on board with his decision. Unlike fast cycle capability, chemical biology was a scientific platform. The changes required were technical rather than managerial in nature, and the knowledge necessary to succeed with this capability had to be developed internally. The novelty of the chemical biology platform made it difficult to recruit enthusiastic scientific personnel from the internal labour market. Many of the younger scientists were afraid of a dead end in their career paths if they participated in this effort. This concern contributed to the incremental approach adopted by the firm. Both path finding (Kaplan, 1989) and the negotiating with middle management (Woolridge and Floyd, 1990) have been discussed in the related literatures. Our narratives provide evidence to both these roles. Indeed, taken together, these roles capture the essence of leadership in development of capabilities. Finally, few of the activities we documented in the narratives – resource allocation, traditional management roles, path finding and negotiating resistance – appear to be inimitable. Although their effectiveness may vary over contexts, the activities themselves appear to be replicable by other managers. Thus it is possible that the early stages of capability development may be characterized by managerial activities that may appear to the onlookers as routine managerial work. The fragility of dynamic capabilities The implementation challenge was similar in both cases – to integrate the best practices developed by project teams with the organization as a whole. However, the challenges faced differed greatly due to prior decisions that were made as well as the differing nature of the capabilities. In the case of fast cycle capabilities, the initiative still faced significant resistance from both senior management and members of functional units. Senior management who were ‘on board’ took actions to buffer the project teams from outside interference while encouraging them to continue their development. The integration of chemical biology platforms was much more an
S38 issue of codifying and sharing knowledge outside of the pilot teams. This effort was made more challenging by the fact that each pilot platform was highly unique. However, the pilot approach limited resistance from scientists, and buy-in from senior management was not an issue because this initiative did not require any new beliefs or behaviours from them. What is most notable is that even after implementation both the capabilities remained vulnerable. Even after the successful transition to the institutionalization phase, when the firm had begun to exploit the benefits of the fast cycle capability, the merger created a context in which the ‘new’ senior managers did not recognize the emerging capabilities. In the case of chemical biology, when in 2004 this firm participated in another merger that involved a senior management shakeout, work on these nascent capabilities was discontinued. Thus, a capability is fragile even after it is built. Just as natural resources have economic meaning only when they are complemented by technologies to exploit them, dynamic capabilities, which are conceptual in nature, have organizational consequences – both economic and human – only when they are part of the top management schema.
Concluding comments The beginnings of capability development in the two different top-down initiatives in the same company, summarized in this study, witnessed the important role played by senior managers in these efforts. An analysis of the senior managers’ actions suggests the influence of their beliefs about the efficacy of the capability and development of their cognitive orientations, the political challenges they had to confront, and the managerial actions – resource allocation, traditional management roles, path finding and negotiating resistance – they undertook. Their actions do not strike us as unusual, and indeed many of their political resolutions and managerial actions are easily transferable to other settings and easily imitable by other managers. Put another way, our analysis highlights the persistent dedication, but not the intellectual brilliance or visionary execution, of the senior managers. Since both the initiatives we studied atrophied due to mergers and acquisitions, we could not
V. K. Narayanan, K. Colwell and F. L. Douglas trace their evolution into later stages of implementation, and hence we are in no position to make any claims about their linkages to firm competitive advantage. Nonetheless, our analysis of the managerial actions suggests an intriguing theoretical puzzle. Although some have suggested that capabilities can be transported from outside, others have offered the hope that dynamic capabilities may lie at the core of a firm’s competitive advantage and are hence inimitable. Yet our managers did not seem to have engaged in inimitable actions. This raises an intriguing question: how do replicable managerial actions (in the early phases of capability development) accumulate to generate an inimitable capability? This is a theoretical puzzle that calls for further theory development and clarification. Finally, we underscore the need for further process studies to link dynamic capabilities to the strategy process literature. These studies typically provide a view of the capability development from the beginning, where managerial decisions are made without any guarantee of eventual success. As we noted above, our analysis is of terminated initiatives. This analysis thus offers a complementary perspective to those studies which take the capability as a given, thereby confining themselves to only successful examples of development. We need to be able to juxtapose the lessons from both successful and unsuccessful experiments to distil lessons for practising managers.
Appendix 1: Interviewees for fast cycle and chemical biology narratives Position at the inception of the dynamic capability development process Fast cycle interviews Executive VP of R&D (Head of DIA) Senior VP of Operations, Technology and Quality Senior VP of Clinical Senior VP of Development VP of HR VP of Clinical VP, Fact Cycle project sponsor VP of Regulatory Senior Director, Drug Safety Senior Director, Pharmaceuticals Director, Project Management Director, North American Development Controller Director, HR Director, North American Pharmacokinetics Director, Quality and Operations
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Dynamic Capability Development in a Pharmaceutical Firm Fast Cycle Project Team Leaders (six total) Non-Fast Cycle Project Team Leaders (two total) Head, Clinical Research Operations Head, Development–Operations Interface Team Manager, HR Manager, Development Publishing Chemical biology interviews Executive VP of R&D (Head of DIA) Scientific VPs (two total) Senior Directors in Charge of Platforms (four total)
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V. K. Narayanan is the Associate Dean for Research and the Stubbs Professor of Strategy and Entrepreneurship at Drexel University. During Spring 1998, he held the Fulbright-FLAD Chair in Management of Technology at the University of Aveiro, Portugal. Narayanan has published four books and monographs, including Managing Technology and Innovation for Competitive Advantage, published by Prentice Hall (2001). His articles have appeared in leading journals such as Academy of Management Journal, Academy of Management Review, Journal of Applied Psychology, Journal of Management, Journal of Management Studies, Management Information Systems Quarterly, R&D Management and Strategic Management Journal. Ken Colwell is an Assistant Professor of Management at the LeBow College of Business, Drexel University. He holds a PhD from the University of Oregon. His research interests revolve around university technology transfer and the strategic factors that lead to success for startup technology firms. His current research focuses on regional economic clusters and other network structures that form due to the commercialization of radical new technologies, and the role of individual action in the emergence and evolution of organizational fields. Frank Douglas is a partner of PureTech Ventures and a Senior Fellow at the Ewing Marion Kauffman Foundation. Douglas founded and was the first executive director of the MIT Center for Biomedical Innovation. At MIT, he also was a professor in the Harvard-MIT Division of Health Sciences and Technology. Formerly, Douglas was executive vice president, chief scientific officer and member of the board of management of Aventis, where he headed drug innovation and approval.
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