Developing-Leaders-issue-27-Fall-2017

Viewpoint

Master innovation and execution Apple is the poster child of innovation but – less known – is also an execution champion. On the innovation side the story is easy. They hire the right people, locate all the innovation activities in one campus, and add some targeted acquisitions. Execution benefits from focus and simplicity in design and product line as well as an organizational set-up where it is clear who is in charge of, say, the iPhone OS software or Mac hardware. They are able to mimic the leanness of a start-up but add the scale of a big player. Combining these two strengths has allowed Apple to come up with one breakthrough product after another, despite its comparative thriftiness when it comes to R&D spending. Apple’s five-year R&D intensity (R&D as a percentage of company revenue) of 2.7% while IBM’s is 6.1% for example. Apple is of course not a normal company. The good news is that firms can compensate for a weakness in innovation or execution. As it turns out, this works better if execution is the true strength. Glaxo’s handling of a me-too product is a good example. In the 1970s the hottest topic in pharma was ulcer medication as the only possible treatment at the time was surgery. Glaxo had a decent R&D group but was aware that it was not likely to be the first one to develop a medication to treat ulcers. So instead it kept several pathways open and intensified efforts once SmithKline successfully introduced Tagamet in 1976. Five years later Glaxo was ready to launch Zantac, a drug which worked in a similar manner. The advantages compared to Tagamet were a lower dosage and an indication – though no medical proof – of fewer side effects. The company decided to use this as spring-board, in the sense that the salesforce was able to concentrate on the advantages of a complicated drug that doctors, hospitals, and insurance companies were already familiar with. Glaxo also took the unorthodox decision to charge more rather than less for this drug. As a me-too product the opposite was expected but a higher price is intuitively linked to better quality, providing the sales people with an additional argument. Finally, Glaxo partnered with Roche in the US, to muster a large salesforce in the most lucrative market. Through the combination of these steps, Glaxo proved to be an execution champion, turning Zantac into the best-selling drug up to that point.

Developing Leaders Issue 27: 2017 | 13

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