The missing ingredient is courage. (And no, it’s not because the FDA won’t let companies be courageous. Being a regulated industry selling serious products means you can’t make funny ads, but you can still do great marketing.)
Ultimately, lack of courage is a cultural constraint, and, thus, the responsibility of senior management, and particularly of the CEO. An organization cannot possibly be innovative if it does not encourage nor reward risk-taking…
The article itself was very interesting. And so were the reactions I witnessed via social media. One reaction, in particular, got me thinking. That reaction was basically this:
This commenter thought the article was just another cheap shot at pharma without anything constructive to offer. I don’t agree with that assessment. However, I think I understand this commenter’s frustration.
Finding Solutions to Pharma’s Innovation Problem
Many within pharma recognize the industry’s innovation problem. This topic has been discussed quite a bit. If knowing is half the battle, it would appear that we are halfway there (though it sure doesn’t feel like it). But recognition alone will not solve the problem.
Solutions are what will ultimately move the industry forward. Unfortunately, few discussions about pharma’s innovation problem include actionable solutions. Why? Simple solutions do not exist. The unpleasant reality is that changing the culture of an entire industry is extremely difficult.
Despite the difficulty, discussion of solutions is necessary. I recently came across a perspective that is an interesting contribution to that discussion.
In my last blog post, I talked about Charles Duhigg’s book The Power of Habit, which explores how changes in habit occur in individuals, organizations, and societies. That post focused on individual habits, and specifically, how they can be used to improve patient compliance.
Now I want to discuss habits from the organizational perspective. More specifically, I’ll explain how a concept presented in the book could be used to create pharma innovation.
Alcoa’s Surprising Innovation Story
Duhigg tells the fascinating story of Alcoa, an aluminum manufacturing company. Alcoa had produced enviable investor return over the years, but by the late 80s, a series of missteps threatened this once great company. Sensing that Alcoa needed new leadership, the board announced the appointment of a new CEO.
Investors were relieved. That is, until the choice of CEO was announced.
Paul O’Neill, a government bureaucrat who was virtually unknown on Wall Street, took the stage. “I want to talk to you about worker safety,” he said.” And he continued talking about worker safety. And continued.
The new CEO’s speech deviated uncomfortably from the predictable script investors were accustomed to hearing. During no part of his speech was there mention of “synergy” or “co-opetition.” Nor was there mention of profits. Anytime an audience member asked a question about one of these topics, O’Neill brushed the question aside and continued with his safety message.
The investors in the room almost stampeded out the doors when the presentation ended. One jogged to the lobby, found a payphone and called his twenty largest clients.
“I said, ‘The board put a crazy hippie in charge and he’s going to kill the company,'” that investor told me. “I ordered them to sell their stock immediately, before everyone else in the room started calling their clients and telling them the same thing.”
“It was literally the worst piece of advice I gave my entire career.”
Alcoa’s profits hit a record high within a year of O’Neill’s speech. By 2000 Alcoa’s market cap had risen by $27 billion, and its net income was 5x larger. Meanwhile, Alcoa had become one of the safest companies in the world.
So how did O’Neill create a culture of safety while ensuring profits soared? He used a strategy that few understand.
O’Neill’s Secret Transformation Strategy
O’Neill leveraged the power of “keystone habits.” He believed that some habits hold special power in creating transformational change. When you identify these keystone habits and disrupt them, the impact ripples to other organizational habits, eventually remaking an organization.
In an interview with Duhigg, O’Neill described his experience at Alcoa:
“I knew I had to transform Alcoa. But you can’t order people to change. That’s not how the brain works. So I decided I was going to start by focusing on one thing. If I could start disrupting the habits around one thing, it would spread throughout the entire company.”
O’Neill realized that to prevent worker injuries, you had to understand why those injuries occurred. To understand why injuries occurred, you had to identify and fix problems with the manufacturing process. And to identify and fix these problems, workers need to be educated on quality control and efficient work processes. After all, correct work is safer work.
O’Neill improved worker safety through efficient processes, and by extension, he also improved profit. Had O’Neill simply suggested that workers learn to be more efficient, the reaction would have certainly been different. But who can argue with safety?
To create a safe culture, O’Neill had to institute changes that permeated the entire company. New communication systems were created. Worker productivity was measured to identify problems with the manufacturing process, which might pose a safety risk. Workers were given authority to shut down a production line.
These changes rippled throughout the company, reshaping other cultural patterns as well. As these new habits became part of the company culture, cost went down and quality went up. Profits soared. And Alcoa became one of the safest companies in the world.
Keystone Habits as Change Levers
Researchers have identified the keystone habit phenomenon in many other settings, including the lives of individuals. When people start exercising, they often unknowingly change other habits in their lives. In a 2009 study funded by NIH, researchers found that one keystone habit, food journaling, created other healthy habits.
And keystone habits are changing hospitals too, sometimes even with the help of Paul O’Neill himself. O’Neill now spends his time teaching hospital staff how keystone habits can decrease medical error.
By focusing on company keystone habits, you create “small wins,” which reshape other cultural patterns. And reshaping these cultural patterns ultimately transforms the organization.
One thing is clear. People cannot simply be ordered to be more innovative, even when that order comes from the very top of a company. Nor are incentives enough to spur innovation. Real change does not occur in this manner. However, by focusing on keystone habits, you can create new organizational patterns that will ultimately transform a company.
The problem with keystone habits is that they are a challenge to identify. So I’m hoping for some input. If you had to transform habits around one common pharma practice, what would it be? What changes in habit do you think would remake pharma’s culture, ultimately spurring innovation? Please put your thoughts below.