By Ken Banta and Jeff Karp
Photo credit: Jeffrey Coolidge/Getty Images
Ken Banta is founder and principal of The Vanguard Group for Leadership, which convenes C-Suite discussions around high-performance leadership, and advises top executives on leadership.
Jeff Karp is a professor of medicine at Harvard Medical School and Brigham and Women’s Hospital.
All too often, R&D units in big life sciences companies become hamstrung by management layers, bureaucracy, and HR processes that kill the innovation these units are expected to create.
This is because innovation thrives in small groups of creative scientists and technologists who are kept largely free of structure, rules, and too much management. It’s what makes smaller companies such powerful innovation engines. (For example, biotechs accounted for 38 of the 59 new therapies approved in 2018 compared with 21 for Big Pharma, according to the Biotechnology Innovation Organization.)
So how can leaders of large companies transform their R&D units to rival the productivity of those firms? By running R&D like a small company, inside the big one.
With more than 40 years of collective experience in life sciences, we have seen this strategy work first-hand. Jeff leads a biomedical research laboratory where he has spun out seven highly innovative companies with multiple products on the market and under clinical development, raising more than $400 million in the process. Ken has served as a senior executive in several large global biopharma companies where he helped to create innovation cultures and now runs a C-suite leadership consultancy.
Here are three steps science-based organizations can take to make their R&D groups more effective.
Streamline the org chart in innovation areas.
R&D organizations often have four or more layers of management between the head of the department and the people doing the work. These include deputy heads of R&D, therapeutic area SVPs, lab VPs, and other management. Often, these layers aren’t needed.
This is because front-line scientists and technologists will generally cohere into small working groups and attack challenges entrepreneurially on their own if given the opportunity. Team leaders of these small working groups don’t need to be lab managers or micro-managers; they can be admired, hands-on innovators who become role models for their people. Heads of R&D can then focus on looking for ways to empower employees, creating a culture in which teams are mainly accountable for working together across groups to create breakthrough products, not following corporate protocols and managing up.
Where layers are necessary, R&D chiefs should build a more constructive mindset among managers.
Explain that they’re not there to exert control, but to be the champions of the teams they supervise.
In Jeff’s lab, team leaders are largely responsible for how their groups are organized. Further, there are no managers between these leaders and Jeff. He sees his role as being both a team member and a trusted mentor who knows people’s strengths. He then empowers them to take on specific responsibilities, spread their wings, and own what they are doing in pursuit of rigor and impact.
Here’s an example: Jeff’s lab team has been researching ways to improve delivery of drugs directly to the lungs — now an urgent need owing to the Covid-19 pandemic. Early on, he jumped in to provide some quick guidance on looking beyond obvious measures to gain what he calls proprietary insight. (In this case, he suggested that the group consider the spatiotemporal drug levels throughout the lung and asked whether specific cell types might require higher drug levels or different kinetics.) And while he reminded his group to assume that problems are not necessarily properly defined, and encouraged them to put on their detective hats and dig deep, he also took a step back and let them do their work. He didn’t micromanage.
It’s not easy to eliminate layers. But it gets done routinely in mergers and integrations, where big cost savings are a must. A similar sense should drive productive R&D, and in many cases this needs the support of the CEO and the board. One way to get it is by presenting case studies of other companies.
Ken uses the example of Roivant Sciences. Under CEO Vivek Ramaswamy, Roivant is the parent company of over a dozen smaller subcompanies, or “vants,” each one focused on a distinct area of innovation. Frontline R&D workers are generally no more than a layer away from each vant’s R&D head, a conscious strategy to liberate innovators from bureaucracy. This and other strategies are paying off. Roivant currently has 15 investigational drugs in phase 2 or 3, an impressive success record for a company of its size. And this past December, Japan’s Sumitomo Dainpippon Pharma paid Roivant $3 billion to acquire five of Roivant’s business units.
Liberate innovation groups from routine corporate practices.
These include mandated spans of control, annual performance reviews, and set budgets. Instead, allow them to define their own structures and processes. For example, in one large company that Ken advices, they use annual performance reviews for most groups, but the technology teams have instead adopted continuous, informal 360-degree evaluations. This approach focuses attention on improving day-to-day behaviors that drive innovation, such as collaboration, which often get lost in annual reviews.
When it comes to budgets, Jeff avoids annual funding for teams in his lab and instead assesses what’s needed on an ongoing basis. He also encourages all his people to play a role in winning grants and other funding to get their work done. This helps to ensure that there is a steady flow of funding for new projects and teaches colleagues effective grant writing and other fundraising skills.
By contrast, in most of the very big, conventional pharmaceutical companies, everything from team size to vacation time to annual budgets are standardized across labs and monitored from the top. We see more flexibility in these areas as easy wins for large organizations seeking to boost creativity and initiative. (One exception to a more freewheeling approach: business integrity and compliance rules must be the same for everyone.)
Increase R&D pay and performance bonuses.
In our work with sales and marketing executives, life sciences leaders, search consultants, and through research on Glassdoor, we’ve found that tech and healthcare salespeople can earn twice the base salary of lab scientists, plus incentives of 25% of base or more. Why do the people who sell innovations earn more than those who create them? CEOs and boards rationalize this disparity by claiming that salespeople bring in the revenue to pay for R&D, which is seen as a cost.
But this is false reasoning. In effective companies, R&D creates the new products that fuel sales and grow the bottom line. That’s why we’ve seen firms like Cambridge MA’s NuoDB (banking technology) and New Jersey’s Tamir Biotechnology set up compensation systems that allow R&D employees to earn more than sales representatives, win bonuses of up to 100% of base salary, and get annual stock option grants.
We believe all three of these catalysts for innovation can be applied in big company environments, with dramatic results. Why aren’t they? One of the biggest reasons: lack of awareness about how to liberate innovation.
There are some signs that things may be changing. In 2019, Eli Lilly acquired Loxo Oncology to bolster Lilly’s pipeline. But as Lilly’s top management came to understand Loxo’s small company innovation culture, they realized that it might be the most valuable part of the acquisition. So Lilly’s leaders moved to put Loxo’s team in charge of all of Lilly’s early-stage cancer efforts.
Because drug development takes time, we don’t yet know how this move will play out. But we do believe that more life sciences companies — and any other organization interested in unleashing its R&D department — should follow this lead. It is up to CEOs, especially, to move beyond platitudes about innovation and take practical steps to make it happen.