Monday, January 16, 2012

New path to innovation
In an article titled “The Pharmaceutical Industry Faces a Horror Year,“ a Zurich newspaper ( writes, that leading pharmaceutical firms like Pfizer, Sanofi as well as Novartis are facing the loss of patent protection for important top products this year, and are therefore facing major revenue losses. Interestingly, these firms are confronting the situation with drastic personnel cuts in different areas, which includes such as how to respond to clinical developments. Cost saving has to begin immediately. However, proceeding this way raises questions.

First, investigations show
[i] that personnel cuts, particularly in the long run, do not bring about the desired success, unless a strategic reorientation occurs at the same time. In an extensive empirical study the authors were able to show that the size of the employee cuts is not a factor in explaining the post-downsized performance.

A further point concerns “survivor sickness” studies
[ii]. They show that personnel cuts have an array of negative consequences, also for those who remain at the firm: “Research indicates that survivors exhibit a plethora of problems, such as demotivation, cynicism, insecurity, demoralization, and a significant decline in organizational commitment”[iii]. One also speaks of the difficulty in diagnosing dysfunctional side effects of personnel cuts. They often lead to slumps in productivity.

In addition, if one considers that in the knowledge oriented society of today, knowledge is often a more important success factor than capital. There is then the danger that for every cut in personnel, the know-how networks will be destroyed and important knowledge bearers will be discarded. Indispensible resources for future core competences may be lost.

It is also striking that the only reasons given for the personnel cuts are the costs, but never the revenue side of the coin. By strengthening R&D capacity, setbacks could be absorbed. Is it therefore sensible to dismiss people in the area of research and development? Wouldn’t it make more sense to encourage targeted cooperation with stakeholders that possess special knowledge, in order to stimulate the innovative productivity of the firm’s own R&D?

Also in our own empirical investigations, we have always found impressive examples of cases, where firms that work together with their stakeholders have been able to substantially increase their license to innovate (see Sachs, Rühli 2011, page 114 ff). In this regard an interview partner (page 118) mentions, “The suppliers are creative and often involved as they try to find new solutions for the market….They act as accelerators who give us new ideas….And very often the supplier is also a strategic thought leader….”

Especially in the area of innovation, firms should not only engage in professional stakeholder management when the turnover drops. Our examples show in fact that not only the firms improve their license to innovate but also the involved stakeholders, which motivates them to further cooperation.

Based on the above, we can conclude that managers, practicing personnel cuts with the argument of saving costs, have an obligation to demonstrate that they also have the above mentioned consequences under control, e.g. the benefits. It should be carefully examined if the multifaceted disadvantages and damage of personnel cuts are not, in fact much higher than the advantage of short-term cost savings.
Sybille Sachs

[i] Garry D. Bruton, Kay Keels,  Christopher L: Shook, Downsizing the Firm: Answering the Strategic Question, Academy of Management Executive 1996, Vol. 10, No2, pp- 38-45
[ii] E.g. Firns, I., Travaglione, A. and O'Neill, G. (2006), Absenteeism in times of rapid organizational change. Strategic Change, 15: 113–128. doi: 10.1002/jsc.757
[iii] Ibid, p. 2
[iv] E.g. with lead-users, see Christopher Lettl, Cornelius Herstatt, Hans Georg Gemuenden,, Learning from users for radical innovation, International Journal of Technology Management, 2006, 33 (1), 25-45

No comments:

Post a Comment