True North – Where is your compass pointing?

August 25, 2010

By: Guy Henninger

In Steven R. Covey’s Book, the Seven Habits of Highly Successful people, the author writes that aligning one’s self with True North principles, meaning identifying with our own moral compass, are essential for all of the other habits in his book to work and have meaning.  Written in an era where many companies lost their core values in a time of rapid economic growth, it was not surprising that the world of corporate strategy began to wrestle with the concept of a company’s mission and values in light of True North principles.

Senior executives, looking to regain the moral footing that made their companies great during the industrial revolution responded by defining their values and trying to tie the results of business operations back to these values.  As the 90’s brought new information technologies to measure EVERYTHING in a company and display it neatly on a balanced scorecard so executives can see their business through red-yellow and green traffic lights and speedometer dials, these same executives became enslaved to the data that took almost a full year to collate, cleanse, and report into the “annual corporate strategy document.”

Despite the technological advances made in the 10-15 years hence, many companies still deliberate annually as if anything more frequent or more flexible would threaten the core values of the company.  Kept in proper perspective, a company’s core values will remain constant, and will be the touchstone by which its strategy is measured.  With this perspective in place, why then, do many companies keep strategy so disconnected from the fluid reality of tactical operations?

For some, the answer is cultural. It’s the way we’ve done it for the past xx years.  For others, it’s structural.  The strategic planning committee meets yearly, and the business units “roll-up” their numbers every October so that the strategic plan can be rolled out next February, or later. Whatever the reason, this calendar-driven culture of strategic planning fails to take into account the dynamic inputs that come from the results of day to day tactical operations.

If properly connected, tactical business systems should provide inputs to strategy so that the strategy can be adjusted to take advantage of market opportunity, respond to competition, or seize critical capabilities when available.  This represents a paradigm shift from calendar-driven planning to event-driven planning, and requires systems and capabilities to make these connections strong and viable.  In this month’s newsletter, “Alignment: Where Leadership and Management meet“, we show how this event-driven planning can make our companies more competitive.

Please comment on this blog if you have some real-life stories of how companies have made this shift to more dynamic connections between strategy and operations.

Attend this month’s webinar on Tuesday, August 31st where we will explore how to connect strategy to our business development operation, to get more out of our licensing activity and contribute to our corporate goals.

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Winning at Dealmaking – Shots on Goal vs. Taking the Right Shot

July 13, 2010

By: Guy Henninger

Having just watched the 2010 World Cup soccer final end in a 1-0 victory, I was struck by a number of things.  First, how a country’s fortunes, political capital, and all-around national pride are impacted by a World Cup victory… or loss.  Second, how few points are scored in a 90-minute soccer game.  Third, how shotmaking did not determine the outcome of the game.

Since I’m not a soccer expert, I don’t claim to know the intricate details of the World Cup final but a quick look at the statistics tells me that both teams were fairly even in shotmaking.  The big differences were in penalties and time of possession.  Being an armchair sportsman, I entered the viewing public at about 60-minutes into the game, and from what I could see, the winning team was in control of the game most of the time, made well-planned attacks on the defense, and ultimately managed the game to take advantage of the opponent’s 1-man weakness due to the Red-Card ouster of the Netherlands’ Heitinga in the 109th minute.

So, in Soccer, it’s a well-managed game that wins matches.  In Business Development and Licensing, it is both a well-managed game and a well-informed team that wins value for the company.  In our recent newsletter, we looked into some statistics provided by Campbell Alliance that show how the dealmaking landscape is becoming more complicated while at the same time becoming more valuable and more critical to a company’s success.

Business Development teams are being asked to do more with the same number of dealmakers, yet must process more potential deal candidates in the hottest areas of interest.  All of this must be done in a landscape of increasing competition.  So, is it better to have more shots on goal? Or take the right shots.  While sports teams invest millions to produce the right mix of talent on their teams, the cost is much the same whether one takes many shots on goal in a game versus few.  However in the field of innovation, where every shot on goal expends costly and valuable resources, there is a considerable difference between quantity and quality.One of the most amplified examples of this difference is the Pharmaceutical industry.

In the drug development lifecycle, billions of dollars are spent bringing forward potential molecular candidates through the process to become an approved drug.  All along the way, failing candidates are winnowed away until a winning candidate is successful.  This failure based model is only successful if a company “fails fast, fails inexpensively”.   The costs of this model, among other things is one reason many companies turn to licensing deals to de-risk their portfolio.  By in-licensing potential candidates, we can leverage the investments of others and select the candidates with the best chance of winning.

Since one trend identified in the Campbell Alliance study is toward Phase II deals, the burden of scrutiny falls on the dealmakers’ due diligence process.  Further, it is important to have a very clear picture of what a successful candidate looks like, with respect to your corporate strategy, cultural fit, and other holistic factors in addition to the raw scientific criteria, and to impose this picture on the earliest stages of the dealmaking process.  By having this clear picture, we can narrow the funnel of potential candidates and make fewer, but better, shots on goal, yielding more value from the goals we achieve.  If we don’t do this, we run the risk of failing later, and failing more expensively on many deals, robbing us of valuable resources to expend on the winners in our portfolio.

We invite your thoughts and comments by clicking below.

To preview how a comprehensive dealmaking system which gives you a holistic view of your dealmaking activity results in better shots on goal, we invite you to attend our webinar on July 27th

Please register by clicking here: JULY 27th WEBINAR

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Do Mergers and Acquistions Bring Lasting Value?

June 14, 2010

By: Fritz Eisenhart

Over 300 billion dollars of value evaporated between the moment the AOL Time Warner merger was announced in January 2000 and December 2009, when AOL spun off and started to trade as its own public company again. While this transaction is certainly an extreme case when measured in terms of value destroyed, a significant number of studies find that over 50% of the merger and acquisitions failed against whatever criteria of success was used by the acquiring company, when the transaction was made.  Yet, at the same time, the number of deals averages over 23,000 transactions per year between 1995 and 2009.  This is 3.5 times more deals than the yearly average between 1980 and 1994 and 7 times more deals than the fifteen years span between 1965 and 1979.

In terms of value, the average transaction value reached $110 million in 2006, equating to a 15% compound annual growth rate for the period 1981 to 2006.  By all means a remarkable increase. Many well known and well run global giants would not be where they are today, without M&A as an important engine for growth.  This may seem a paradox. Why would more and more organizations want to go a difficult, high risk path that, on average, produces less than 50% of chances of winning?

Well there may be very good reasons.  First, as pointed out in a BCG study (1), “headline averages are both specious and misleading.  M&A can destroy value, but it can also create very substantial value”.  Second and more importantly, aggressive deal making just reflects the increasingly shared belief that corporate partnering programs are clearly superior over organic growth strategies.  Indeed, the competition for market share and the resulting shrinking of profit margins reduce the number of opportunities for high rates of return with organic business growth. Furthermore, organizations that sit on the sidelines and don’t participate in the M&A market often see their rivals acquire key targets for faster growth, better competitive positioning and higher returns. And they only sit so long until they become the target.

Therefore, the main challenge for management is to understand how to increase the odds and become successful in executing their M&A strategy.  And some really seem to have figured it out since, as another BCG study (2) highlighted “highly acquisitive companies generate 29 percent higher returns over ten years”.

M&A execution, from target sourcing to target integration is a corporate skill that has to be acquired, improved through practice, and ultimately, institutionalized. It comes with costs, but one should rather look at those as an investment that will provide an organization with the ability to consistently beat the odds and deliver value through well executed M&A and, over the long term, achieve significantly higher shareholder returns than less prepared competitors.

We invite your comments and observations on this topic.

Our upcoming webinar on June 29 will present a comprehensive business support system that manages M&A Opportunities, as well as the broader context of all types of partnerships and alliances.

(1) The Brave New World of M&A: How to Create Value from Mergers and Acquisitions, The Boston Consulting Group, July 2007
(2)  “Successful M&A: The Method in the Madness” Opportunities for Action in Corporate Development, The Boston Consulting Group, December 2005

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Internal R&D Projects vs Inlicensed Projects

June 10, 2009

Does your organization view its own internal R&D projects separately from in-licensed projects? Many companies treat their in-house projects separately from their partnered projects.  This sometimes leads to emotional attachments on the in-house projects because people have lived with these projects for a long time.  Partnered projects are scrutinized by a rigorous due diligence process before licensing, and therefore have less emotional connection. For those who have successfully looked at both with the same lens, how have you taken the emotional component out of the equation?

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Connected Innovation and business models

May 31, 2009

I recently attended the World Innovation Forum ’09 at the Nokia Theater in New York (May 2009) and three speakers from that conference spoke about three themes that converged to provide a backdrop for a discussion on the essential capabilities a company needs to have in order to emerge from the current economy ahead of its peers.

First, Paul Saffo http://www.saffo.com/ advises “never mistake a clear view for a short distance”. He explains that the classic S-Curve of adoption intersects with the straight line of expectation.

scurve

He explains that companies overestimate the level of technology adoption by the market, and therefore don’t plan for the distance, time and investment it takes for new innovations to take hold. He states that it takes on average 20 years from the initial idea for technological innovations to take hold, and many game changing innovations had their unsuccessful predecessors.  He advises innovators to look back over those years and find great ideas that havent taken off — yet.

Clayton Christensen http://www.claytonchristensen.com/ showed how tradional B-School training teaches corporate leaders to streamline costs, maximize profit, and this teaching actually biases them against innovation.  He shows through the example of the steel industry and others how the incumbents over time “liquidated” their business models to the new entrants and in some cases went out of business, by doing all the right things they were taught by traditional finance.  He offers advice for the entrenched incumbents to enable them to bring about disruptive innovation without cannibalizing the sustaining innovation that pays the bills in the short term.

clay

Finally CK Prahalad http://www.newageofinnovation.com/ shared examples of how technologies that havent changed much over the years, like tires and pacemakers, can actually be part of a unique, personalized, customer co-created experience (N=1) by leveraging a global pool of resources (R=G).  The space between the push of technology and the pull of the customer is where the business model lies.

After listening to these three presentations, I boiled down some basic observations:

People have been trying to solve some of the same problems unsuccessfully for over 20 years, and many great ideas and technological innovations failed by underestimating the runway of and overestimating the speed of adoption.  Traditional finance training pre-disposes companies against innovation and to quit trying.  It is often not the technology that needs to be transformed, but it is the business model.

In the recent Vertical*i white paper “Best Practices for Networked Innovation“  http://tinyurl.com/lt87lu we outline the 4 critical capabilities that companies need to have to become good Networked Innovators.  In order for companies to leverage a global pool of resources, from suppliers, experts, researchers, marketers, communities of practice, etc, to deliver a unique, customer co-created experience, they need to build an innovation ecosystem that is built on a strong alignment with strategy, fluid and dynamic connections to networks of innovators, consistent execution that supports core values, and effective partnering skills that keeps the ecosystem grounded in trust.

Rather than expound upon the principles in our white paper, I’d rather open it up for comment. Feel free to contribute your thoughs on either the works of Saffo, Christensen, & Prahalad, or the 4 capabilities in the white paper.  Where do you see the “next frontier” of innovation for your business?

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