Techno Finance and Executive Diary...

Thursday, August 30, 2007

Changing Culture Can Save Company?

In 2005, Merck was in crisis when Richard Clark was tapped as the man to save it and promoted to CEO. In addition to monster lawsuits and the upcoming loss of patent protection on two major products, “Merck’s labs, which other companies once hailed as a bastion of scientific innovation, were crippled by a culture that buried good ideas under layers of bureaucracy. But in the morass, Clark saw opportunity. “A crisis is a terrible thing to waste,” says the CEO.” Rather than doing typical short-term maneuvers, such as large layoffs, Clark chose instead to tackle the root of the problem—Merck’s culture.

Merck’s Board was smart in promoting the insider; during his 35 years, Clark had watched the company degenerate into a collection of fiefdoms more focused on advancing their own agendas than on getting the right drugs to patients. To revitalize drug development he’d need to get Merck’s 60,000 employees–scientists, regulatory staff, and salespeople–to work together.

Clark set out to blast open deeply blocked channels of communication. Over the years, Merck had fallen out of touch with customers. Clark wanted to get employees to stop thinking about their specific job functions and to instead focus on the diseases they were trying to conquer. So he began placing people in teams defined by therapeutic fields such as cancer and diabetes. He encouraged the teams to huddle with doctors who prescribe Merck’s products, patients who take them, and even insurers that decide whether or not to pay for them. “It’s a different way of doing business,” says Clark…Bringing disparate voices together from Day One “is the way work should get done in companies.”

Clark also recognized, and R&D chief Peter S. Kim concurred, that they needed to overturn some of the most deeply ingrained behavior of the scientific world, not just at Merck.

“One of the hardest decisions any scientist has to make is when to abandon an experimental drug that’s not working. An inability to admit failure leads to inefficiencies. A scientist may spend months and tens of thousands of dollars studying a compound, hoping for a result he or she knows likely won’t come, rather than pitching in on a project with a better chance of turning into a viable drug. So Kim is promising stock options to scientists who bail out on losing projects. It’s not the loss per se that’s being rewarded but the decision to accept failure and move on. “You can’t change the truth. You can only delay how long it takes to find it out,” Kim says. “If you’re a good scientist, you want to spend your time and the company’s money on something that’s going to lead to success.”"

Cultures don’t change overnight or in two years or even in ten, it’s an ongoing battle. Clark is “still haunted by the culture of complacency that left companies like his stuck in an innovation rut.” If you ever feel comfortable that your model is the right model, you end up where the industry is today,” he says. “It’s always going to be continuous improvement. We will never declare victory.”

There are good lessons for young companies in the fall and subsequent rising of 114 year-old Merck and a CEO who was a “low-key executive…from a very unglamorous post…head of manufacturing.”

Clark sums it up nicely when he says that finding a comfort zone, whether in your business model or your culture is one of the worst things that can happen to you.

Labels: human resource

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