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The success trap (and some ideas how to get out of it)
peculiar way to qualify your top-selling product, I’d say, but not
a bad analogy. Microprocessors were so successful that no other
product could grow within Intel, because it would always look
bad in comparison to these darn processor things.
Of all the organizations that I have studied over the past decade
and a half, the one that has probably impressed me most in this
respect is the famous Sadler’s Wells theater in London. On the
one hand, it is phenomenally innovative, putting on the most
novel and creative modern dance shows on the planet. But, on
the other hand, it also stages a substantial number of shows that
are tried and tested, and from which it knows that it will reap a
healthy prot.
How does it maintain this balance so well? There are several
complementary explanations, but one of them is that the theater
works on it continuously, literally every day. It aims for about
15–30 percent of totally new innovative shows in the program
(often the result of a collaboration between artists who usually
wouldn’t work together, because they have very different styles,
background, or training) and discuss this issue all the time. They do
that in regular formal meetings, which invariably involve people
from various departments, but also on an ongoing informal basis
(that is, in the corridors, in the restaurant, and in the restroom).
They are always discussing which show should go where on the
theater’s calendar, for how long it should be scheduled, what
other show needs to be scheduled around the same time, etc.
Because they continuously discuss and work on it, they manage
to get the balance right. And, as their numbers show, the cool
thing is that often, those shows which at the time were explor-
atory and considered risky and innovative, are now the ones that
contribute most to their bank account.
A bitter pill
Consider, in contrast, the pharmaceutical industry. It was always
hard to think of a nicer business to be in than pharmaceuticals.
Think about it, how much more price-insensitive can customers
Business Exposed40
be? In many countries, due to medical insurance, the people
deciding on what product to purchase (i.e., doctors) are not
the ones paying for it, nor are the people who are actually
swallowing the pill! And what if these consumers were respon-
sible for payment, what are they going to say, “Are you kidding,
$30 for that pill is really overpriced; I’d rather die!” Well, that’s
the problem, you just might . . .
Moreover, there are not many substitutes available for chemical
drugs; acupuncture and an occasional mud-bath and that’s about
it. Furthermore, the suppliers of the pharma companies are
hardly able to squeeze prot out of them, as the raw materials
are usually bulk commodities. On top of that, the entry barriers
into the industry are huge, among others due to lengthy product
development times and enormous upfront nancial investments
required (about $800 million for an average new drug).
Best of all though, is that demand is virtually unlimited! It’s not
as if we will run out of diseases to cure. Many drugs have such
severe side-effects that we need other drugs to suppress them! A
cycle as virtuous as I have ever seen. Yep, pharmaceuticals was a
nice place to be in.
But lately, pharmaceutical companies have been showing signs
of distress. This distress is relative – because they’re still making
money by the bucket – but once you’re used to a Gucci life it is
not easy to downgrade to the Gap. One reason for this distress
is the fact that for many companies, product pipelines have all
but dried up; R&D departments are just not coming up with the
goodies.
There may be various reasons for this, but it is quite clear
from academic research that innovation becomes more difcult
when you’re old and rich. For example, Professor Henrich
Greve, currently at INSEAD Business School, examining Japanese
shipbuilders over a period of several decades, found that rms
with deep pockets invested quite a bit more in R&D but, concur-
rently, also launched fewer new products. Professors Jesper
Sørensen and Toby Stuart, at the time both at the University of
Chicago, examining rms in biotech and in semiconductors,
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