Bioscience Strategy ALS 354

Dr. Jay Chok Professor of Entrepreneurship and Strategy

Introduction

Jay and his family

What is strategy?
Strategy is a logic for achieving superior performance in a target market through the deployment of assets and activities.
External Target Market
Competitive Advantage Superior Performance

Internal
Deployment of assets and activities

Unique Value Creation

Examples of internal and external factors

External
Choice of industry Geographic location (nation / region) Period in history

Internal
Firms capabilities Firms reputation / brand Firms leadership / culture

How to know that you have a functioning strategy?

Why have a strategy?

Who cares about superior performance? Motivation: Superior performance brings reward. Societal rewards based on relative performance. Economic & status rewards. Cant I just be naturally superior? Foolish to underestimate others. Human frailties and the need for focus. Alternatives to having a strategy: The only alternative is to rely upon chance!

Having a formula for being above average consistently is really hard!

Having a formula for being above average consistently is really hard!

Change in Forbes 100 List Over 70 Years

120 80 40 0 -40
Original 100 Firms
New Firms

18 Survivors 49 Failures

1917
-80

1987

Why are successful, enduring strategies rare?

Problem
Other people are just as smart as you are. The world changes, so no one formula lasts forever.

Implications
Formula is simple: Others will eventually follow. Formula is complex: You may have just gotten lucky. Luck wont save you when the world changes.

Why have a strategy course?

Why have a strategy course?

You do not want to be at a competitive disadvantage!
What do the smart people know already???

Develop capabilities to see market opportunities & pitfalls that the average smart person does not see.
Draw comparisons across cases. Use strategy frameworks as our language.

Discernment to distinguish between real opportunities and fools gold.

Learn strategy to deal with challenges presented by Life-science Industries High degree of uncertainty in product development Requires integration of various types of knowledge

Knowledge is tacit (i.e. hard to share)

Public policy environment

Regulatory environment
Is healthcare a product or a right?

Course Goals

Develop the perspective of a general manager and identify strategic issues commensurate with this perspective.
Strengthen your ability to present your strategic arguments in a persuasive manner. Develop diagnostic reasoning skills that will help you determine appropriate courses of strategic action. Foster teamwork & professionalism

General Management Perspective

1. Pay attention to institutional changes in the markets that matter to you
Rules of the game: formal rules, norms, best or custom practices, and beliefs E.g. Managed care & Waxman-Hatch change how Big Pharma compete E.g. AHS took advantage of off-shoring trends in USA healthcare markets & EHR mandate E.g. Teva took advantage of Waxman-Hatch to compete in USA

General Management Perspective

2.Balance between short-term & long-term perspective 3.Often intertwined with balance between old and new products or markets E.g. Due to limited resources, AHS had to decide how to balance betn
new service offerings in USA adapting existing service offerings to sell in other geographic markets

General Management Perspective

How should Teva balance old & new?
Corporate culture for blockbuster (new) differs from that of generics (old) If units are kept separate, why not spin off generic or innovative?

With limited resources, how can Teva structure innovative projects to take advantage of strategic relationships?
Israel academic scientists & marketing partner

General Management Perspective

Should Teva focus mainly on generics or move up the value chain?
Generics have reliable returns now but subject to imitation in future Blockbuster & biosimilars are more risky now but may have bigger payoffs in future Risk profits for multiple quarters or years but dont bet the farm

Diagnostic Reasoning Skills and the Case Method Diagnostic reasoning is the ability to quickly see relationships between apparently unrelated pieces of data, leaping to appropriate conclusions without a linear approach. The general manager needs business judgment, i.e. wisdom Too much data, not enough information. Too little time. This course is designed to help you past the beginner stage of experiential learning through cases.

How to prepare a case

Skim contents quickly Quick reading (30 minutes) Reflection (10 minutes) What issues do you think may be relevant for discussion? What information would you like to have to confirm your hunches? Review preparation questions (10 minutes) Update your list of issues to investigate and information that you like to have. [Sometimes relevant] Review any co-assigned or past text excerpts, articles or lectures that you think might be relevant. (20 minutes)

How to prepare a case

Analysis (1 hour) Review case to uncover the answers to your questions and to validate / invalidate your hunches / hypotheses. Includes qualitative and quantitative analysis. Prepare your findings for presentation (20 minutes) Summarize your conclusions. For each conclusion, document supporting information that could be shared in a concise manner. Talk over your findings with a peer or a group before class. (10 15 minutes) Total Time: 2.5 3 hours

How to succeed in this course

Pursue right thinking more than right answers. Come fully prepared for each class. But dont stop there! Let your thinking evolve during each class! Make connections across cases and sessions whenever possible. Be able to explain strategic frameworks & concepts in your own words. Seek help early when you dont understand the material.

Other
Review key items from syllabus (esp. code of conduct) Examples of unacceptable behavior:
Arriving late for class meetings or leaving early. Inattention during class meetings. Disrespectful comments or unprofessional language.

Sakai Minapsys

10-minute break

Industry Analyses

IO View

Industrial-Organizational View Structure-Conduct-Performance Paradigm

Industry Structure dictates firm Conduct which determines firm Performance

Focuses on the industry as the primary driver of strategy Assumption: resources to implement strategies are perfectly replicable GOAL: Locate in most attractive industry

But rivals response could render industry unattractive for entry (Insights from Game Theory lecture & cases)

Above Average Returns

(in Excess of the Competitive Level)

Avoid Competition
Attractive Industry

Entry Barriers

Low Rivalry

Power over customers & suppliers

Components of Industry Profitability and Our Toolkit for Analysis

Industry Profitability

= Value Creation

Value Capture

Concept Defined

Demand created Cost of Inputs

Ability to appropriate rewards

Corresponding Tool

PIE Chart (Potential Industry Earnings)

Porter Five-Forces

Value Capture Factors

Price
Factors
Buyer Power Supplier Power Threat of entry Rivalry amongst incumbents

Industry Price Level

Buyers
Incumbents

Supplier Mark-up

Suppliers

Industry output

Quantity

Porter 5-Forces Analysis

Threat of Entrants

Supplier Power

Rivalry among Incumbents

Buyer Power
$

Substitutes

Pharmaceutical Industry Exercise

Pick 3 out of 7 options for Big Pharma. Compare and contrast the 3 options, evaluating the potential pros and cons.
Form small groups outside the classroom. Discuss your arguments. Try to reach a consensus agreement on the answer and the logic behind it.

Be prepared to explain/defend your logic in the next class

Yes, you are super-busy like Superman but remember to

Be iClickers ready Prepare Thursday cases on Tuesday evening or by Wednesday noon Finish Minapsys questions by 5pm on Wednesdays Form self-study groups (Encouraged)

See you on Thursday