External Innovation Implementation Determinants and Performance Measurement: A Case Study from the Pharmaceutical Industry

Abstract:

With an increasing amount of externally sourced innovations, a major success factor for innovation-dependent industries such as the pharmaceutical industry is to successfully implement innovations from outside. Existing frameworks emphasize creating a strong climate for implementation by developing the learning capabilities of the organization, but there is still much to be learned about the process of implementing innovations that have been in-sourced by companies.

As a research setting that is particularly innovation-driven and not well-studied yet, this study examines the key determinants for innovation implementation based on a case study in the pharmaceutical industry. The results of 25 expert interviews and a survey with 67 respondents led to the resulting framework and a corresponding performance measurement system. The results reveal the importance of supporting systems and show differences in perception of early and late Research & Development functions.

The pharmaceutical industry is today facing some major challenges. The extensive research activity of the past few decades has significantly reduced the number of opportunities to discover new drugs to address the unmet medical needs. Coupled with the rising costs of Re-search and Development (R&D) activities and the increased competition from traditional industry competitors and generic manufacturers the difficulty these powerhouses face to develop robust and sustainable drug pipelines is increasing fast.

Despite spending more on R&D as a percentage of sales than any other high-tech industry, the internal innovation record of large pharmaceutical companies continues to decline. Following a significant increase in pharmaceutical R&D expenditure over the past decade, the number of new drug approvals has actually fallen during this period.
With an increasing amount of externally sourced innovations, a major success factor for the pharmaceutical companies will lie in how the innovations are adopted, i.e. integrated into existing R&D processes. This places a premium on management of R&D activities and re- quires that strong initiatives are developed to maximise the value of externally sourced innovations.

A large amount of research has focussed on the factors that need to be considered when sourcing innovations from external parties. This has allowed companies to develop effective processes to search for and strike deals with external companies to in-source the de- sired innovations. However, in order to capture and maximise value from in-sourced innovations, companies must understand how to manage their innovation implementation processes, truly leveraging the innovation within their own organization.

Otherwise the large in- vestments made when sourcing innovations will be put under extreme risk and companies may start to fall be- hind in their race to fill the innovation deficit.

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