Portfolio Management in New Drug Development - Innovation and Marketing in the Pharmaceutical Industry - page 108

3.4.1 Organizational Design

While some technologies will be acquired from other firms, a large percentage of
R&D spend continues to be invested in internal projects. The key question is
whether to staff a centralized or decentralized R&D organization to execute a port-
folio. In Sect. 3.1 , we reviewed GSK and Pfizer's approach to organizational design,
which is in the direction of decentralized “Centers of Excellence” (CoE). The benefit is
the focus within each CoE that is realized by reduced levels of management hierarchy.
However, this directly impacts the synergies that can be leveraged across programs.
For example, it is possible that two different therapeutic areas may both benefit
from the same underlying molecule, and decentralization may not easily enable
cooperation across units.
Argyres and Silverman ( 2004 ) examine the relationship between internal organi-
zational structure and innovation outcomes. They find that centralized R&D facili-
tates more distant or “capabilities-broadening” search, generating innovations with
a broader impact and drawing from previous research in a wider set of technological
domains. In contrast, decentralized R&D tends to encourage proximate or
“capabilities-deepening” search. There is a rough analogy between this work and
that of Kauffman et al. ( 2000 ), which suggests that centralized R&D organizations
are better equipped for radical innovations (since they can more easily look across
domains) and decentralized R&D organizations are more suited for incremental
innovations. Based on their findings, the trend of firms focusing on smaller decen-
tralized units may result in further investment into incremental drug portfolios,
which could impact long-term growth.
Further research is needed to analyze the impact of different organizational
structures on new drug portfolios. We suggest that facilitating some cross-
fertilization of ideas across decentralized units through mechanisms such as annual
technology fairs (where people come together from different units) or a corporate-
level team that maps out the synergies between units may be an intermediate step.
Marketers may also have a role to play in connecting market opportunities to tech-
nologies which may cut across R&D units.

3.4.2 Frequency of Change

How often should firms change course in their portfolio strategy and execution? In
today's turbulent economic conditions, personnel reshuffling from top to middle
management is the norm and can give rise to frequent modifications to projects
within a portfolio, and the organizational design itself (consolidation, centraliza-
tion, decentralization, etc). Amburgey et al. ( 1993 ) use dynamic models of organi-
zational failure and change estimated using a population of 1,011 Finnish newspaper
firms to determine that organizational change increases the hazard of organizational
failure and that there is an increased likelihood of additional changes of the same