How Smithkline Beecham Makes Better Resource
How SmithKline Beecham Makes Better Resource-Allocation Decisions
In 1993, SmithKline Beecham was spending more than half a billion dollars per year on R&D, the lifeblood of any pharmaceuticals company. Ever since the 1989 merger that created the company, however, SB believed that it had been spending too much time arguing about how to value its R&D projects—and not enough time figuring out how to make them more valuable.
With more projects successfully reaching late-stage development, where the resource requirements are greatest, the demands for funding were growing. SB’s executives felt an acute need to rationalize their portfolio of development projects. The patent on its blockbuster drug Tagamet was about to expire, and the company was preparing for the impending squeeze: it had to meet current earnings targets and at the same time support the R&D that would create the company’s future revenue streams. The result was a “constrained-budget mentality” and a widely shared belief that SB’s problem was one of prioritizing development projects.
Major resource-allocation decisions are never easy. For a company like SB, the problem is this: How do you make good decisions in a high-risk, technically complex business when the information you need to make those decisions comes largely from the project champions who are competing against one another for resources? A critical company process can become politicized when strong-willed, charismatic project leaders beat out their less competitive colleagues for resources. That in turn leads to the cynical view that your project is as good as the performance you can put on at funding time.
What was the solution? Some within the company thought that SB needed a directive, top-down approach. But our experience told us that no single executive could possibly know enough about the dozens of highly complex projects being developed on three continents to call the shots effectively. In the past, SB had tried a variety
In 1993, SmithKline Beecham was spending more than half a billion dollars per year on R&D, the lifeblood of any pharmaceuticals company. Ever since the 1989 merger that created the company, however, SB believed that it had been spending too much time arguing about how to value its R&D projects—and not enough time figuring out how to make them more valuable.
With more projects successfully reaching late-stage development, where the resource requirements are greatest, the demands for funding were growing. SB’s executives felt an acute need to rationalize their portfolio of development projects. The patent on its blockbuster drug Tagamet was about to expire, and the company was preparing for the impending squeeze: it had to meet current earnings targets and at the same time support the R&D that would create the company’s future revenue streams. The result was a “constrained-budget mentality” and a widely shared belief that SB’s problem was one of prioritizing development projects.
Major resource-allocation decisions are never easy. For a company like SB, the problem is this: How do you make good decisions in a high-risk, technically complex business when the information you need to make those decisions comes largely from the project champions who are competing against one another for resources? A critical company process can become politicized when strong-willed, charismatic project leaders beat out their less competitive colleagues for resources. That in turn leads to the cynical view that your project is as good as the performance you can put on at funding time.
What was the solution? Some within the company thought that SB needed a directive, top-down approach. But our experience told us that no single executive could possibly know enough about the dozens of highly complex projects being developed on three continents to call the shots effectively. In the past, SB had tried a variety