GSK is implementing an internal innovation strategy focused on developing new drugs through 70 Drug Product Units (DPUs) working across 8 therapy areas. This reorganization presents both opportunities and challenges for GSK. Critical issues include cultivating a collaborative culture, incentivizing innovation, focusing on new product development as patents expire, and ensuring effective communication and resource allocation across the decentralized DPU structure. Special programs will be needed to address increased competition between DPUs, potential fears or inertia among employees, and risks around staff retention and confidentiality. GSK will also need to closely evaluate strategic alignment, customer and supplier relationships, organizational structures and processes, new product pipelines, and customer satisfaction to guide innovation efforts and ensure goals are met. Financial,

1. MBA 4642 – Products and Processes<br />ASSIGNMENT 1 – UNIT 2<br />Course assessor: Dr. Okan Geray<br />Submission Date: Jan 23rd 2011<br />Word count: 2200<br />Submitted by: Name: Anuradha Vyas MISIS: M00 340 061<br />Q 1: Based on GSK’s past performance, what do you believe are the critical implementation issues for GSK with regards to internal innovation? Justify your answer. (3 marks)<br />Sol: To implement the internal innovation strategy, GSK needs to evaluate their present status, decide what they want to achieve and how they will achieve it. Following are a few critical issues GSK needs to focus on while implementing their innovation strategy. <br />Culture: With the increased size and new structure of GSK’s R & D division, Leaders need to cultivate a culture of collaboration, sharing ideas, concerns, solutions and knowledge among leaders and employees. Dropping of 35% of the projects at R & D, in 2008, might create a fear in the mind of those involved with current pipeline projects. Efforts to help the individuals overcome that fear and actively share ideas are needed. Employees should be empowered to take risks and decisions to encourage internal innovation.<br />Employee Incentives: It becomes important to have system of rewarding the innovation on the basis of past performance as well as the efforts towards innovation by exchange of ideas and knowledge.<br />Extension: With many of the GSK’s patents expiring in coming future, leaders need to focus on extension activities. Also the firm has introduced relatively few new drugs in the last 10 years (Whalen, 2010). GSK needs to constantly understand the product and market competencies and accordingly should focus on looking for new opportunities and new product development.<br />Organizational Structure: With a network of around 99,000 people in over 100 countries, leaders need to focus on building a fit among the various systems of organization. As GSK goes through an innovation of continuous change, it is critical to encourage the team coordination and idea sharing among peers. An effective reporting system and two way communication, formal as well as informal, should help employees understand organizational goals and efforts required on their part to implement innovation strategy, and at the same time help them communicate their ideas, concerns, suggestions and knowledge with those concerned<br />Resources: GSK should focus on hiring, training and retention of right number of employees with desired skills. Now as the DPU’s face a timeline bound (3 years) evaluation policy of the projects they are working on, timely and adequate allocation of financial resources to DPUs will be crucial for the success of strategy. Whom to allocate and what to allocate becomes a critical issue.<br />Q2: With the 70 DPUs working on eight therapy areas for future growth of the company, how might this affect the implementation effort and would the firm need special programs to ensure that implementation was successful? (9 Marks)<br /> Sol: As 70 DPUs work on eight therapy areas, this can have varied affects on the implementation process and firm needs to work on special programs to address those concerns.<br />Increased competition: GSK has reduced its R & D Staff by 20% in last 4 years. The new DPU structure was establish in 2008 with a given timeline of 3 years to each of them to pursue & prove the worth of continuing the research activities in their given area. The failure could risk in being laid off, as mentioned by Moncef Slaoui, Glaxo’s head of R & D (Whalen, 2010). This may lead to an increased competition and rivalry in the organization. This on one hand may stimulate innovation but on the other hand may give rise to power politics.

2. Fear: The DPUs are already half way through their three years budget they were given in 2008, the clock is ticking on their scientists (Whalen, 2010); it may create fear of being sacked and affect their morale and performance. Contrastingly the contextual confrontation may give a boost to innovation also.

3. Inertia: Individuals who are used to a bureaucratic system and an old mind set may find it very hard to take ownership of decisions in the new set up of small autonomous DPUs. Perry Nisen, a cancer research chief at Glaxo, said in an interview “everyday people come to me and say, “what do you think I should do? Everyday for me, it’s ‘well that’s your decision. What do you want to do?” (Whalen, 2010). Changing the mind set of people to overcome the inertia and accept change will remain a challenge with management.

4. Bureaucratic systems: Now as the CEDDs are further divided into small units of DPUs, it forms one more layer in the already bureaucratic structure of GSK. Hence making the implementation and reporting process even more complex.

5. Staff Retention: The revised structure of DPUs is similar to those of small Biotech firms. However, according to Denise Anderson, a healthcare analyst at SIT investment associate in Minneapolis, “Problem with big companies trying to act like biotech is that people who like the really entrepreneurial culture of a biotech go to biotech”. This may also be due to better incentives offered by small companies (Whalen, 2010). It poses a serious problem to GSK in staff hiring and retention.

6. Communication: As the DPUs work on different parts of the pipeline associated with the production of a drug, the smooth flow of information following coordination among them becomes crucial. Duplication of work needs to be avoided at the same time sharing of knowledge and ideas to be encouraged. A compound discovered in one unit might not be useful for them but may be useful for another unit’s research process and may leverage breakthrough in another therapy area.

7. Confidentiality of research outcomes: As the DPUs consists of GSK’s own staff as well as outsourced staff, the confidentially of the data and information becomes a serious issue.Special Programs: To address the concerns raised above, special programs which encourage a culture of innovation through knowledge and reward systems like restructuring and reengineering can be introduced. This may involve the integration and better use of support and staff functions of the organization (White/Bruton, 2007, p.35)<br />\s<br />Q 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 toward stated innovation goals? (9 marks)<br />Sol: The special evaluation needs for a firm like GSK with regards to its internal evaluation can be broadly stated as (White/Bruton, 2007, p.159):<br />\sA closer examination of these, leads to specific evaluation needs like following<br />Evaluation of strategic Path: Examining the general trend of the pharmaceutical industry and the competitors, the firm should evaluate its own strategic actions. For example, if the pharmaceutical industry is moving towards preventive medicines, GSK should evaluate its own strategic goals compared with the current market trends and hence take appropriate actions to match both.

8. Customer and Supplier network: Examining the network with customers, suppliers, regulators etc is also critical to GSK’s success. In pharmaceutical industry the prime customer is the doctor who prescribes the medicine. The quantitative and qualitative level of the network with doctors, suppliers and regulators needs to be evaluated on regular basis.

9. Information System of firm: Communication and information system of the firm need to be evaluated. The information systems should support timely and accurate communication reaching to right people. This is crucial to a firm’s success as it may result in quicker and effective ideas sharing culture and increased operational efficiency.

10. Organizational Structure and Communication: With an extensive framework of 70 DPUs working together towards innovation, there is a need of evaluating the exhisting organizational structure and communication processes. A classic example of how the communication system failed to address problems prevailing is, when GSK’s Cidra, Puerto Rico facility had to be closed down in 2009 due to quality concerns. The then GSK manager of Global Quality assurance, Cheryl Eckard, noticed serious production issues including broken facility, broken equipments, production line failures, medication mix ups, wrongly measures active ingredients, incorrect packaging and wrong handling by employees etc. at the facility. She reportedly informed everything to the vice president for quality and asked to take certain measures but there was a clear communication gap which she shared in an interview on “60 minutes” reporting all these issues. This incident sent a very negative image of GSK in the market and industry (Megget, 2011).GSK admitted the manufacturing malfunction saying it was “inconsistent with GSK’s commitment to manufacturing quality”(www.gsk.com).

11. New Product Development: As the firm is going to have lots of patents expiring in the near future, it needs to constantly evaluate the outcomes which help it sustain its competitive advantage (White/Bruton, 2007, p.162). The number of new compounds discovered, new patents filed, new products going in clinical trials, new products entering the pipeline etc can be a few areas GSK needs to monitor and evaluate to maintain its competitive advantage in future. Also their conformity to the stated vision and mission of the firm needs to be associated with the evaluation process.Customer Satisfaction: Other areas to evaluate may include evaluation of customer satisfaction to retain customer loyalty and have repeated customers<br />Financial and strategic capabilities: The firm needs to constantly examine the revenues generated; reputation and trust gained through its product and other societal activities which help the firm build on its strategic capabilities. Controversies like Avandia, GSK’s top selling Diabetes medicine, getting banned by regulatory authorities in Europe, since a 2007 analysis linked it with a 43 percent increase in the risk of heart attacks, may lead to GSK losing trust of end consumers and strategic capabilities (Wilson, 2011). <br />Characteristics of GSK which can have the most influence on the evaluation process (Trott, 2008, p.299):<br />Size and organizational structure of GSK will have a significant effect on the evaluation process as the evaluation criterion needs to measure the operational efficiency of the staff as well as processes.<br />GSK’s orientation is towards a long term growth and not towards short term profit hence the evaluation criterion will be decided accordingly e.g. in the evaluation of ongoing projects, even if currently a compound is not able to make it to drug pipeline stage but has a potential of being used in future can be approved for funded further.<br />The ability of organization to identify its opportunities and threats appropriately will help GSK revise its goals accordingly and hence revise the basis of evaluation and standards accordingly. <br />The level of acceptance of risks and failures will help GSK decide its tolerance level while setting the evaluation framework<br />The Structure of R & D Department, i.e. cross functional teams will have an impact on how the individual and unit’s performance is evaluated<br />Q4. Identify and explain the kinds of control systems you suggest GSK employ to manage innovation? (9 marks)<br />Sol: GSK can employ the following three kinds of controls to manage the innovation at the firm (White/Bruton, 2007, p.164-181).<br />Financial

12. Strategic

13. Structural

14. CulturalFinancial Controls: As the financial controls focus on measuring whether the revenues generated have been in line with what was desired. To do this firm may measure the expenses done, net profit made and quantitative growth in sales on yearly basis. If a Gap is identified then corrective measures can be taken in the form of cutting costs, increasing production and sales, exploring new markets etc. Keeping the DPU structure of GSK in mind, and the limited budgets allocated to DPUs for 3 years, financial controls to monitor the use of these resources on shorter intervals like half yearly or yearly at DPUs level can help them know if they are going in the right direction or not. <br />Strategic Control: Strategic controls typically involve measuring the conformity of firm’s actions to its strategic goals. GSK’s strategic Direction is to Grow, Deliver and Simplify. Hence a measurement of,<br />how much firm has diversified its business geographically and product - folio wise,

15. how many new products or improvised existing products have been introduced,

16. and how much cost and resource efficiency the operational systems have been These measurements can help in maintaining the conformity to firm’s strategic goals. <br />In case a gap is identified, the corrective measures to be taken may include strategic decisions including allocation of adequate resources, exploring more areas of research and efforts to bring innovation in firms product and processes etc. The strategic control needs to be more focused on long term goals and will help GSK in determining what it needs to do today to get financial benefits tomorrow. <br />Structural Control:<br />Structural controls will ensure that the firm has the best reporting and communication systems in place and hence optimum operational efficiency can be achieved. The control will also help in making restructuring and reengineering efforts if the current structures are not able to meet the desired goals.<br />Cultural Control: This control will help GSK monitor and improve the culture of innovation at the organization. If GSK wants its employees to be innovative, it needs to provide its employees with a culture of innovation where dialogue and sharing of ideas is encouraged without any prejudice. Because of its qualitative nature, its quite hard to measure. However, firm may measure it by observing the level of interaction which happens among its employees, the frequency and the number of ideas shared by employees with the management, the number of ideas transferred from one unit to another and being used in their process somewhere, innovation in the systems and procedures etc. <br />Quality Controls: Being a pharmaceutical firm dealing with the sensitive area of improving people’s health, it becomes imperative for GSK to have Quality control systems in place. They may follow Dr Deming’s fourteen point quality control model to ensure that industry specific as well as standards specific to organizational strategy are met. Improper implementation and miscommunication may result in the issues like what happened at GSK’s Cidra, Puerto Rico facility stated earlier in Q3.<br />It is crucial for GSK to have the entire organization being involved in the evaluation and control processes. The reporting system becomes very crucial in getting the right information to measure the performance in meeting financial, strategic and cultural goals. As <br /> Reference List<br />Glaxosmithkline, 2011, ‘GSK responds to 60 Minutes’, available on <br /> http://www.gsk.com/media/pressreleases/2011/, (accessed on 10th January, <br />2011)<br />Megget K, 2011 ‘GSK defends patient safety after 60 Minutes’ whistle-blower slam’, available at http://www.pharmatimes.com/article/11-01-04/ (accessed on 10th January, 2011)<br />Trott P, 2008, ‘Innovation management and new product development’, 4th Edition, Prentice hall publication, England.

17. White M A and Bruton G D, 2007, ‘The management of technology and innovation: a strategic approach’, 1st edition, Thomson South-western press, Canada.

18. Whalen J, 2010, ‘Glaxo tries BioTech Model to Spur Drug Innovations’, The Wall Street Journal, pp1-2, available at

19. http://www.temperopharma.com/documents/WallStreetJournalArticle6.30.10.pdf (accessed on 10th January, 2011) Wilson, 2011, ‘Glaxo’s Legal Problems Lead to New $3.4 Billion Charge’, available on http://www.nytimes.com/2011/01/18/business (accessed on 20th January, 2011)<br />