Entrepreneurship in Pharmacy Lecture Notes (PDF)

Entrepreneurship in Pharmacy (Lecture 4 & 5) 1 Associate Prof. Dr. Of Pharmaceutical Management and Economics 3/4/2024 Dr. Mohamed Bahlol  Part 3 2 Intellectual Capital  there are two wa...

Entrepreneurship in Pharmacy (Lecture 4 & 5) 1 Associate Prof. Dr. Of Pharmaceutical Management and Economics 3/4/2024 Dr. Mohamed Bahlol  Part 3 2 Intellectual Capital  there are two ways for a company to make progress: one is the efficient exploitation of existing ideas and processes (e.g. soap manufacturers make the same product cheaper), the other is innovation, for example, to branch out into making soap-on-a-rope. Clearly, one can try to do both (those interested in this topic should Google the terms ‘backward vertical integration’, ‘forward vertical integration’ and ‘horizontal integration’) and this is simply a matter of corporate strategy, and many companies have tried to introduce semi-formal programmes for inducing innovation – ideas copied abroad are called ‘creative imitation’. All these approaches have one thing in common; they depend upon turning human thought into value. This is intellectual capital. 1. The three types of intellectual capital. 2. Patents and other formal IPR. 3. Innovation in organizations 4. Human capital, the life-blood of small companies 5. Who is especially innovative? 6. Mixing skills promotes innovation 7. Trickle-down rebound 8. Harvesting human capital 9. Intrapreneurship, or corporate entrepreneurship 10. Technology transfer 11. The ins and outs of strategic alliances 12. Mergers and acquisitions 3/4/2024 3 The three types of intellectual capital 1 Organizational capital: patents, processes, databases, etc. owned by the company. 2 Human capital: the skills, capabilities and the sum of knowledge and knowledge potential in the employees. 3 Social capital: the quality of relationships with partners, customers and suppliers (this overlaps with ‘goodwill’). 3/4/2024  Patents and 4 other formal IPR (Intellectual Property Rights)  the proportion of patents making money is 5 per cent  Larger companies, furthermore, will often submit a series of complementary patents in the hope of deterring attackers, a strategy seldom open for small companies. For this reason, smaller companies try to encourage the ‘smaller’ forms of innovation, e.g. diversity innovation (see Part 2).  Micro-organizations 1–9 employees  Small organizations 10–99 employees  Medium-sized organizations 100–249 employees  Large organizations 250+ employees  Large organizations typically will have significant amounts of invention innovation (patents, etc.) and try to achieve economies of scale in this area. The scale of this can be so large that multinational companies have had to set up ‘regional innovation relays’ to bring knowledge out from the centre (home country operations are usually the principal contributor of innovation for global transfer) to national subsidiaries.. Clearly this can also be a two-way process, as national subsidiaries often possess better knowledge of local conditions. At this level there is a transition from organizational capital to human capital, which leads us on to discussing knowledge and knowledge potential in the employees in the context of innovation. 3/4/2024 5 Innovation in organizations  Innovation can be divided into three categories: invention innovation, creation innovation and diversity innovation. Innovation, in all these categories, contributes towards a company’s intellectual capital (sometimes called ‘human capital’ or ‘social capital’).  Interestingly, it has been found that the most powerful influence on knowledge sharing is social, and that IT systems made little significant impact.  Simple size and structure considerations mean that SMEs are much better positioned to use diversity innovation, conversely, they rarely use formal invention innovation. ‘Mice/small firms that tend to stay small’ SMEs rarely possess a patent, and ‘gazelle/firms that both grow rapidly and account for a large share of employment or revenue growth’ SMEs have often spent so much on their one or few patents, that it is doubtful as to whether they have sufficient financial muscle left to be able to successfully defend them against serious attack. 3/4/2024  Human capital, the life-blood of small 6 companies  Trickle-down mechanisms has been found among employees in companies in mature market situations, but much less in companies in immature (sometimes called ‘emerging’) market situations.  In the example in Table 3.1, in companies in mature markets, natives, who are more likely to be admitted into the consensus group than foreigners are, are those leading major projects, while foreigners – often seen as socially lower – have less project responsibility. Note that major projects have a high failure rate. Therefore the high failure rate of natives in mature market situations should not immediately be taken as a sign of incompetence (although that is always possible), but first that larger projects mostly inherently contain a disproportional higher risk. 3/4/2024 7  Adaptation-Innovation (A-I) Theory, characterizes mature markets and companies in them as ‘adaptive’ and immature markets (and companies in them) as ‘innovative’; A-I Theory says that humans, being social creatures, form groups (Figure 3.1, overleaf). These groups are usually formed on the basis of common interests and common perceptions, i.e. a common cognitive style.  Employees in companies in mature markets are likely to solve problems in a certain way, and this way is agreed upon by consensus within the ruling group. Such a ruling group obviously includes the leaders (‘opinion leaders’, in DoI parlance). In such environments, innovators, being outside the group, may be viewed warily, their ideas appearing risky, peripheral or even silly.  Conversely, ‘adaptive’ employees, e.g. from the major consensus group in a mature market situation – if magically transferred to an immature market situation – may be ignored and treated as having ideas that are merely fine-tuning and hardly creative. 3/4/2024 8 3/4/2024 9 Who is especially innovative?  ‘Research studies … indicate that the broader the range of skills and abilities … the more likely it is that that person will … become a more effective and successful contributing member of the organisation’, and there is increasing evidence connecting multiskilling and increased innovation.  It is believed that multi-specialists, e.g. a pharmacists with an management degree, or a chemist with a degree in IT, are responsible for around 40 times more innovations (mostly incremental innovations), than people with a single specialization.  However, they often encounter resistance in the workplace because ‘adaptive’ administrators in companies operating in mature markets are wary of them. 3/4/2024 10  Clearly workplace innovation (diversity innovation) is promoted by variety among work disciplines. This could be, e.g. the meeting between different people where they are specialists in different fields. The problem with such meetings is that the two (or more) types of expert have difficulty understanding each other. Therefore workplace innovation is at its most simple (and powerful) when communication problems do not exist, where the two or more specialists are literally embodied within the same person.  Thus one person is able to look at a problem with the eyes of a, say, geologist and with ‘MBA-eyes’ simultaneously.  Pharmaceutical Management Specialty, What do you think about it? 3/4/2024 11 Mixing skills promotes innovation  The above effect is especially pronounced where the multi-specialist possesses ‘hard’ skills and also qualifications in ‘soft’ subjects. The interface between R&D and marketing is a typical problem area where participants cannot understand each other (or, in terms of A-I theory, do not want to understand each other).  Clearly a multi-skilled person straddling this gap is especially innovative and useful. Highly qualified multi-skilled trans-migrants are an especially notable group.  Indeed the role of trans-migrants and refugees has long been recognized in the development of European capitalism.  Studies showing not only that persons who have a multi-skilled background are often innovation nuclei, but also that prominent among this group are highly qualified transmigrants. Highly skilled trans-migrants have also previously been reported as exceptionally innovative and research indicates that highly educated trans-migrants can, in the correct environment, be responsible for between 60 and 80 times more innovations (mostly incremental innovations) than native people with a single specialization, or around twice that of a multi-skilled native. Transmigrants with are indeed expert and creative problem solvers. How, then, do highly qualified trans- migrants manage to get a multi-specialized educational profile? 3/4/2024  Trickle-down rebound 12  As stated above, under ‘adaptive’ conditions (in companies operating under mature market situations), highly qualified foreigners/trans-migrants are very unlikely to have their ideas adopted. However, some highly persistent individuals can get small innovations accepted by going straight to the top leaders. In more extreme mature markets, even this direct approach no longer works or is even expressly forbidden (see e.g. Rose and Lawton, 1999: 292). In either case this is often a once-only option, as going directly to the company leaders will provoke negative reactions in middle management and flip change agents into resistance agents. This effect, known as ‘trickledown rebound’ is suspected to occur in companies as small as 50 employees and is well documented at size 120+ employees (in companies in mature markets).  Once ‘trickle-down rebound’ has happened, then especially non-natives will often fall prey to ‘fundamental attribution error’, a common example being that speaking with an accent and using less sophisticated terms will bias the hearer to group the person, despite their high education, with lower class, poorly educated natives. 3/4/2024   This often overlaps with the ‘halo effect’, inasmuch as once a 13 negative impression is formed, then others tend to view what that person does, even things about which they have no knowledge, in unfavourable terms. Clearly this is a descending spiral, de- motivating potential innovators, perhaps driving them out of the company, which therefore is unable to use their innovative talents and thus achieve more optimal growth.  However, heterogeneous groups (those with wide diversity, e.g. having an ex-pat as boss and a high proportion of trans-migrants) are more difficult to recruit because it is not always apparent what selection criteria are. Furthermore, they are more difficult to manage, a factor that may take resources away from the groups’ task – the actual problem solving. But trans-migrants are more comfortable with crossing boundaries, so in the right environment, they are more efficient over a wide range of problems. However, accommodating diversity costs extra effort and it is reasonable to examine cost against benefit. 3/4/2024 14 Harvesting human capital  The situation of e.g. a multi-skilled trans-migrant outside the consensus group is that the innovation is bottom-up diversity innovation, but that the innovator is outside the consensus group and thus does not have access to sympathetic change agents, i.e. an innovation acceptance mechanism does not exist in most companies.  This is important because it can lead to ‘guileful behaviour’ (Williamson, 1995), which in turn may lead to the negation of the basic assumptions of transaction cost theory, and can finally end up working diametrically against the organization’s best interests – obviously one factor that must be taken into account when SMEs are deciding whether they should pursue a growth strategy or not, or when larger companies decide to pursue a rejuvenation strategy.  Therefore, some established companies in mature markets consciously try to remain entrepreneurial by harvesting and using innovations and ideas from employees: intrapreneurship. 3/4/2024 15 Intrapreneurship, or corporate entrepreneurship  This process is called either intrapreneurship or corporate entrepreneurship and a corporate entrepreneur is therefore a person who initiates innovative changes in mature companies. Increased openness to change after opening the consensus group has been known for over a decade.  Change agents (as defined by DoI Theory) are extremely important. Even where the intended change has its origins in the dominant group, a supporting executive must believe in the intrapreneurial idea and provide the resources needed.  Mature companies actively supporting intrapreneurship may have an advantage in times of rapid market change, and thus the type of innovation involved may well be diversity innovation  in order for intrapreneurship to function, a strategic ‘champion’ (sometimes called an ‘enabler’) is needed to protect the new innovation, and that this protector must have well-schooled change agents in place if the innovation is to successfully be realized.  Change agents are explicitly activated as a result of a top-down change and this could be seen as an extension of the behavioural focus ‘person-to-person, group-to-group interactions based on co-operation, communication and trust’. 3/4/2024 16 Technology transfer  After considering how innovation can spread within a company, the question can be raised about how innovation spreads between companies.  Typically SMEs do not have resources to constantly monitor their competitors, so innovations spread by the rotation or replacement of staff within a branch or sector of industry, but are hindered by the general difficulty in imitating knowledge assets. Thus there is a period of temporary excess returns when the innovating SME may develop products and or business routines (knowledge assets) but competitors eventually imitate these.  Although low-level knowledge may well be spread by word-of-mouth, the rotation of personnel, etc., knowledge spread between companies may also be formalized. 3/4/2024   There are two normal routes: technology transfer and 17 strategic alliances.  If invention innovation is protected by IPR, then it can be spread between originator and other companies by licensing agreements, ‘technology transfer’, which in turn may be exclusive or non-exclusive. This is obviously a sensitive area, with a good deal of input from the legal profession.  The major pitfall is that the licensee may well buy rights to an invention, but will lack the know-how about how to build or operate it. It is therefore becoming more common to include knowledge transfer in the deal. This could take the form of ‘secondment’ of key personnel to the licensee for an appropriate period, or include a ‘help desk’ type arrangement based at the patentee’s premises. This is becoming a more common ingredient of arrangements between universities and companies licensing newly developed technologies. 3/4/2024 18 The ins and outs of strategic alliances  Strategic alliances are another example of useful mechanisms between like companies, or unlike companies.  An alliance is simply a business-to-business (B2B) collaboration. Another term that is frequently used is establishing a business network. Note that simply contracting out work is not normally regarded as an alliance or co- operation, even if B2B relationships tend to be long term and familiar, and where the services provided are highly customized, i.e. tailored to the contractor.  Relationships can be vertical between a vendor and a customer, or horizontal between vendors, local, or global. Learning alliances develop new technologies through collaborative research or transfer skills between partners. Many alliances exhibit combinations of these goals. 3/4/2024 19  An alliance is a way of sharing control over future decisions and governing future negotiations between the firms. It is a recognition that the initial agreement is in some sense incomplete. That is why success in alliances depends so much on their governance structures and on the ongoing relationship between the firms, including the personal relationships between managers. 3/4/2024 20 Mergers and acquisitions  An escalation of strategic alignment is mergers and acquisitions (M&A). M&A are often associated with market shakeouts, i.e. a defensive mechanism in a shrinking market.  However, M&A can also be used aggressively in an expanding market, for example, some observers believe that the software market, in terms of applications, is expanding so rapidly that Microsoft will no longer be able to keep up if it depends purely on its own in-house development. Therefore, technology scouts are sent out in defined market areas to locate the best technology and buy the company (e.g., in Technical Innovation). 3/4/2024