Abstract
In this chapter, we use a case study from the pharmaceutical industry to illustrate both the dynamic and structural complexity of the innovation system, as well as the complications arising from the fact that firms rarely work on single projects, but rather on portfolios of projects. Furthermore, firms require not just one, but rather a number of employee capabilities to deliver the portfolio to market. The multiple linkages between these capabilities, product portfolios, and the rest of the innovation system result in structural complexity that causes any “solution” to a local problem to often fail. Worse, if the local solution does work, the dynamic complexity of the innovation system means that the solution will generally create another set of problems somewhere else in the system. An illustration of this principle of exchange is illustrated with a description of river engineering solutions to cope with floods and other problems along the Mississippi. The partial dismantling of levees to prevent floods in urban areas is a good example of this. One area is saved from flooding, but other areas are then flooded.
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- 1.
Quote based on a conversation with the authors after Hurricane Katrina.
- 2.
It has been argued that New Orleans would not have flooded in 1927 even if a levee had not been dynamited at Caernarvon. The Caernarvon action was rendered moot because of many “natural” breaches created by the flood of 1927 upriver of New Orleans. Except where noted otherwise, all of the discussion in this chapter on the Mississippi has been drawn from Barry (1997).
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•Barry, J.M.: Rising Tide: The Great Mississippi Flood of 1927 and How It Changed America. Touchstone, New York (1997).
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- 3.
For a thorough coverage of the strategic dynamics in the pharmaceutical sector, see:
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•Peck, C., Paich, M., Valant J.: Pharmaceutical Product Strategy: Using Dynamic Modeling for Effective Brand Planning, 2nd edn. Informa Healthcare, New York, NY (2009).
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- 4.
Our discussion of Exubera draws upon the following sources:
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•E&N, (2008). EXUBERA AND NICE, Stanford Graduate School of Business Case OIT-80.
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•DOC: Weak Sales Lead to Exubera’s Market Withdrawal, DOC NEWS December 2007 vol. 4, no. 12 (2007).
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•WSJ: Insulin Flop Costs Pfizer $2.8 Billion, Wall Street J. http://online.wsj.com/article/SB119269071993163273.html (2007).
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•Hambrecht, W.R.: Supply, Not Demand Delayed Exubera, Analyst Report (2006).
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•Readers Digest: Meet Your Diabetes Support Team, available at http://www.rd.com/living-healthy/diabetes-management-and-support/article30340.html (2010).
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- 5.
From In-PharmaTechnologist.com: Lewcock, A.: “Novo drops inhaled insulin plans in post-Exubera fallout,” January 15, 2008.
- 6.
The importance of capabilities was first recognized by pioneering researchers studying the “resource-based view” of the firm, such as Rumelt (1984), Wernerfelt (1984), Dierckx and Cool (1989), Barney (1991), and Peteraf (1993). Lippman and Rumelt (2003) provide a good overview of this foundational work. Note that Prahalad and Hamel’s contemporaneous (1990) concept of “core competency” overlaps significantly with their concept of a resource. Later, Leonard (1995) was among the first scholars to offer arguments of how to build capabilities internally within the firm, while Eisenhardt and Martin (2000) moved toward discussing how capabilities could be realigned over time by processes such as product development. Some researchers have built on these ideas to argue for a more dynamic view of capabilities. Others have extended this work by looking at some of the mechanisms that successfully realign capabilities at the business unit level (Martin and Eisenhardt 2010).
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Rumelt, D.P.: Towards a Strategic Theory of the firm. Alternative theories of the firmin. In: Robert Lamb (ed.) Strategic Management, pp. 556–570. Prentice-Hall, Englewood Cliffs, NJ, (1984).
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Wernerfelt, B.: A resource-based view of the firm. Strategic Manage. J. 5, 171–180 (1984).
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Dierickx, I., Cool, K.: Asset stock accumulation and sustainability of competitive advantage. Manage. Sci. 35(12), 1504–1511 (1989).
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Prahalad, C.K., Hamel, G.: The core competence of the corporation, Harv. Bus. Rev. 68(3), 79–91 (1990).
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Barney, J.M.: Firm resources and sustained competitive advantage. JOM 1, 99–120 (1991).
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Peteraf, M.: The cornerstones of competitive advantage: a resource-based view. Strategic Manage. J. 14, 179–191 (1993).
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Eisenhardt, K.M., Martin, J.: Dynamic capabilities: what are they? Strategic Manage. J. 21(10), 1105-1121 (2000).
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Lippman, S.A., Rumelt R.P.: The payments perspective: micro-foundations of resource analysis. Strategic Manage. J. 24, 903–927 (2003).
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Sirmon, D.G., Hitt, M.A., Ireland, R.D.: Managing firm resources in dynamic environments to create value: looking inside the black box. Acad. Manage. Rev. 32(1), 273–292 (2007).
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Martin, J.A., Eisenhardt, K.M.: Rewiring: cross-business-unit collaborations in multi-business organizations. Acad. Manage. J. 53(2), 265–301 (2010).
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- 7.
See the above note regarding Martin and Eisenhardt (2010).
- 8.
For a discussion of distributed innovations, see:
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•Anderson, E., Davis-Blake, A., Erzurumlu, S., Joglekar, N., Parker, G.: Managing Distributed Product Development across Organizational Boundaries, Chapter 10. In: Loch, C, Kavadias, S. (eds.) The Handbook of New Product Development Management, Butterworth–Heineman, Oxford (2008).
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- 9.
Sanders, P., Sanders, F.: Spatial urban dynamics: a vision on the future of urban dynamics forrester revisited. Proceedings of International System Dynamics Conference (2004).
- 10.
Selections from the Code of Hammurabi (From King, L.W.: translation 1910; edition prepared by Gordon Patterson, PhD, Professor of Humanities, Florida Institute of Technology) www.wsu.edu/~dee/MESO/CODE.HTM. Retrieved 27 April 2010.
- 11.
Washington Post, Eilperin, J.: “Shrinking La. Coastline Contributes to Flooding,” 8/30/2005.
- 12.
St. Petersburg Times, Waite, M., Pittman, C.: “Katrina offers lesson on wetlands protection,” 9/5/2005.
- 13.
New York Times, Cornelia Dean, “Time to Move the Mississippi: Experts Say,” 9/19/2006.
- 14.
See end-notes in Chapter 2 concerning this issue.
- 15.
Braha, D., Bar-Yam, Y.: The statistical mechanics of complex product development: empirical and analytical results. Manage. Sci. 53(7), 1127–1145 (2007). Also see, Bar-Yam, Y.: Making Things Work: Solving Complex Problems in a Complex World. Knowledge Press, Cambridge, MA (2004).
- 16.
For instance, an analysis of policies for controlling the staffing and backlogs in a 2-stage service supply chain has been done. See:
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•Anderson, E.G., Morrice, D.J., Lundeen G.: Stochastic optimal control for staffing and backlog policies in a two-stage customized service supply chain. Prod. Oper. Manage. 15(2), 262–278 (2006).
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- 17.
Joglekar, N.R., Anderson E.G.: Global talent management: challenges of attrition, productivity and non-linear growth. In: Jain, K., Patil, A. (eds.) Proceedings of International Conference on Decision Sciences in Global Enterprise Management. McMillan Advanced Research Series, pp. 235–246 (2009).
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Anderson, E.G., Joglekar, N.R. (2012). Principle of Exchange. In: The Innovation Butterfly. Understanding Complex Systems. Springer, New York, NY. https://doi.org/10.1007/978-1-4614-3131-2_3
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