Think at London Business School
The most innovative companies embed experimentation in their strategy and extract maximum learning from their mistakes.
By Julian Birkinshaw, Kathy Brewis
Can a large, healthy, listed company reinvent itself? Consultants suggest that the ability to transform is necessary in an age of strategic disruption, but the reality on the ground is that very few listed titans even attempt, let alone succeed at charting a radically new direction.
Faced with constraints on all sides – impatient shareholders, conservative boards, frozen hierarchies – even the most daring executive teams usually settle for incremental adaptation, unless imminent financial crisis makes a full turnaround unavoidable.
Paradoxically, one of the very few recent examples of corporate reinvention comes to us from Japan, a business environment that today is almost synonymous with standstill. At Takeda, Japan’s leading pharmaceutical company, a generation’s worth of strategic transformation has been compressed into three years.
The findings presented here are based on in-depth interviews conducted over several months with people across multiple levels of the Takeda organisation, both in Japan and the United States, and benefit from the executive perspective of Andy Plump, who serves as Chief Medical and Scientific Officer and sits on the company’s board of directors.
Recognising the need for governance
Since 2015, the 237-year-old industry doyen has narrowed its strategic focus from six to three therapeutic areas, reorganised its global R&D footprint around one Japanese and two US sites, and engaged in over 180 new partnerships across multiple modalities of drug discovery and around the world.
The pipeline of new drugs, a key gauge of future growth, has shifted from 7% partner-based pre-transformation to approximately 45% partner-based today. The ambitious aim is to build a global pharmaceutical powerhouse that is fit for the healthcare and business challenges of the next 20 years.
The swiftness and thoroughness with which Takeda has implemented strategic focus, R&D globalisation and open innovation are remarkable. The story behind the story is the leadership’s emphasis on the governance of transformation – making sure that long-term stakeholders, board members, and executives were aligned and that appropriate organisational controls were put in place as change happened.
If the company’s leaders had not proactively addressed questions of governance, transformation would probably have stalled, opposed by anxious stakeholders, whittled down to insignificance by recalcitrant board members and old school executives, and ultimately undone by sheer complexity.
Over the last 20 years, the pharmaceutical industry has seen the rise of multiple threats to its traditional business model: regulatory, competitive and technological. These forces also concerned Takeda but, relatively insulated in Japan as the leader in a large, if declining, home market, the company was less affected and slower to respond than many of its global counterparts. By 2014, however, CEO Yasu Hasegawa recognised that strategic transformation was necessary, if Takeda was to remain a force in the industry. Despite the measures he had taken over the previous ten years – the acquisitions, the renewal plans and the various drives for organizational change – the company was still too inward looking, and research and development was not productive enough.
Yasu understood that no internal Japanese candidate would have been in a position to lead the transformation and hired Christophe Weber from GSK for the task, promoting him to CEO in 2015. In adopting a strategy to narrow the therapeutic area focus, deepen capabilities and rebuild the pipeline with partners who excelled in new technologies, the new management knew that they were not inventing a radically different line of attack: partnering and entrepreneurship had become the practices of choice for many of Takeda’s competitors. The challenge was to implement the strategic transformation in a short time and “do it better”.
Yasu and Christophe made a point of collaborating with the existing board of directors to gain understanding and acceptance of the new strategy. This process worked itself out in a variety of contexts and over many months, including formal presentations to the board with evidence on the productivity of different paradigms of research and one-on-one meetings with influential board members that focused on explaining the implications for major stakeholders in Japan. Finally, in the spring of 2016, the board of directors voted to approve Takeda’s strategic transformation and, in line with the change of executive leadership from Yasu to Christophe, was subsequently reconstituted.
Takeda needed a new board, the composition of which better reflected the direction of the company and could provide a broader base in the Japanese and international business community. Like the old board, the new one also had to be convinced of the plan and it had to approve the strategic transformation before it could be presented to the public. At the very first meeting, the board outlined a new process for conducting meetings. Whereas in the past the board’s time had been largely taken up by routine decisions and questions of control, now it would focus on building strategic dialogue and overseeing metrics for transformation implementation.
Comprising pharmaceutical industry veterans from diverse backgrounds, individuals with start-up pedigrees and longstanding Takeda hands, the group put together to transform R&D shared a vision of creating a dynamic and open research organisation. A critical part of the implementation was the shift from dispersed responsibility to co-located global program teams with full responsibility for advanced development. To put this model into practice effectively, the management team hired and developed leaders who could act as entrepreneurs and who had the capabilities to build their own businesses.
Restructuring moves in Japan were inevitable and were taken into account from the very beginning. In keeping with the new emphasis on partnering, a strong effort was made to set up departing researchers and their projects with an opportunity to apply for resources to develop assets and start their own ventures.
Later that year, Takeda transferred a part of its research and drug discovery activities to a new company, AXCELEAD, with the aim of providing services both to Takeda and the industry as a whole. Finally, April 2018 saw the inauguration of Shonan iPark’, an open-innovation research ecosystem focused on translating cutting-edge science into impactful health solutions.
The efforts to create a soft landing for employees did not obviate the need for layoffs in Japan. Given the history of the company and the practice of lifetime employment, this was far from easy. Throughout, management emphasised logical explanation. Negotiations with the union took 10 months – considerably less than anticipated, thanks to management’s efforts to elucidate the urgency of the situation and the union’s recognition that delay would ultimately weaken Takeda’s competitive position.
To address the challenge of managing a fast growing and global partnership network, the Head of the R&D Transformation Office, Dominika Kovacs, kicked off an extensive review of the partnering program in March 2017. One of the principal conclusions was to set up a Partnership Office. The new Partnership Office’s number one priority was to refine and automate partnership portfolio analytics and integrate it with the overall Takeda portfolio; this would enable categorising agreements by type and complexity, cross-checking of development and financial milestones and carrying out scenario planning with live data. As partnerships started to mature, it was becoming more important to be able to provide this information for the new relationship managers and, just as importantly, for senior management and the board of directors.
It might be argued that it was the unique business context of Japan that forced Takeda’s leaders to go beyond conventional change management techniques and revamp corporate governance. After all, where else but in collectively minded Japan would executive management go to such lengths to keep shareholders, employees, and board members involved; where else but in cautious Japan would executive management make the effort to refine organizational controls in mid-flight? Indeed, Nissan’s recent legal trouble with its powerful Chairman can be understood as an example of how strongarm efforts to overcome inadequate governance may subvert corporate transformation in Japan.
And yet, the fact that the Takeda’s board of directors and executive team are truly multicultural, comprised of European and American industry standouts working alongside leading Japanese business people and company veterans, suggests that the lessons of the case are more general.
Given the unique opportunity to implement what its members collectively understood to be the most effective way of doing pharmaceutical R&D in the 21st century, Takeda’s leadership team had to break new ground. Takeda today is both boldly forward looking and firmly attached to its historical priorities of putting the patient at the center and building trust with society; it is global in its approach to taking business risks and Japanese in its practice of emphasizing the long-term.
Only by committing to achieving the best of both worlds and recognising that strategic transformation goes hand in hand with governance transformation could Takeda’s leaders accomplish so much in such a short time. It is too early to tell whether the R&D transformation will bear the expected fruit in terms of new drugs to market – given the nature of the industry, that day of reckoning is still several years off – but one can say with certainty that fundamental change has been achieved.
*Harry Korine (PhD) teaches corporate governance at London Business School. Kazuhiro Asakawa is Mitsubishi Chaired Professor of Management at Keio Business School. Andy Plump is Chief Medical and Scientific Officer of Takeda Pharmaceutical and serves on the company’s board of directors.
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