Can Bayer CEO Liberate Pharma From Stultifying Bureaucracy?

Pharma colleagues: does this complaint sound familiar?

This company is too bloated. It’s too slow. We have all these layers and layers of bosses where leaders at the top would decide on the strategy, and then it would just trickle down to the people who actually did a lot of the day-to-day work…. I am 10 layers below the CEO and I have ideas for how this company could be better, but they’ll never be heard because there are just so many people above me who are making those decisions.

According to Wall Street Journal reporter Chip Cutter, it’s exactly what newly installed Bayer CEO Bill Anderson heard when he joined the company last June and embarked on a listening tour.

A seasoned pharma veteran who was previously CEO of Genentech and then CEO of Roche Pharmaceuticals, Anderson had become “disillusioned over the years by the many approvals and endless rounds of meetings required to get anything done at large companies,” Cutter reports.

Anderson heard the same gripes at Bayer.  He was told that “launching a new product takes years instead of months,” Cutter writes.  “Disputes between departments take too long to resolve. He learned that company rules and procedures fill 1,362 pages, he said, ‘longer than War and Peace, and a lot less exciting.’”

At the same time, Cutter also points out that “Modern corporate hierarchies have persevered because they largely work and attempts to subvert them haven’t.”

Nevertheless, Anderson is trying to “rewire” the company culture, focusing on “fewer bosses, fewer rules.”  The plan – built around a principle Anderson calls “dynamic shared ownership” — involves self-assembling groups of employees deciding on priorities, and working together to accomplish projects for 90 days, and then repeating the self-assortment process. 

The idea, as “The Journal” podcast co-host Ryan Knutson explains, is “to empower employees to make big decisions without having to get the approval of layers and layers of management.”

To guide the process along are leaders/advisors, in roles called “’visionaries,’ ‘architects,’ ‘catalysts’ and ‘coaches,’ positions focused on longer-term strategy and guidance-giving,” according to Cutter.

It’s a radical departure from the usual way of conducting business in large companies, Anderson recognizes.  “The first go round, it’ll be a little messy,” Anderson says, “but that’s okay because the thing is, the thing we’re comparing to is a system that doesn’t work very well. So this is the thing. We don’t actually have to be that good to beat the current system.”

Cutter describes an example of the new way of working, focusing on a self-assembled team focused on expediting the launch of a new line of vitamins.

The team didn’t spend time creating a polished PowerPoint presentation to show company higher-ups. Executives were instead periodically invited to the Garage [a dedicated innovation area] to look at designs and ideas on the walls and offer any suggestions.

Typically, the timeline for a product launch takes into account the multiple layers of approval needed for each stage of the rollout. If eight people gather from different departments, each of them would spend much of their time getting their individual bosses to sign off on an idea.

“They’ve got to convince eight people,” Anderson said. “And when one or two of them says, ‘No, no, actually, I like this better,’ then the other six have to go back and convince their managers about the new plans.”

Not any more, Anderson said, gesturing with cupped hands and making the sound of an explosion. 

The team “hit its mark,” Cutter writes.  “Bayer’s new line of One a Day vitamins, packaged in a palette of pink and purples, went on sale in March, a year ahead of schedule.”

As Cutter observes, “Anybody who has gotten an early taste of this, a lot of former CEOs, management thinkers, and others, they are all captivated by what happens here because Bayer is touching on problems that are so familiar throughout corporate America and so if this works, it could be dramatic.”

The Challenges of Scale, The Drive For Control

Whether or not Anderson’s solution sticks, he is unquestionably getting at a real problem in large corporations: the tendency of entrenched bureaucracies to inhibit agility and dampen innovation (or, to put a somewhat finer point on it: to crush the souls and extinguish the spirit of often highly innovative employees drawn to industry by the desire to have an impact and make a difference).

This challenge also is highlighted in my favorite management book: former Pixar CEO Ed Catmull’s Creativity Inc., as I’ve discussed here.  (An expanded edition was recently released, as Catmull discussed with the WSJ here.)

As Catmull sees it, “full creative engagement” requires us to “uncouple fear and failure – to create an environment in which making mistakes doesn’t strike terror into your employees’ hearts.” 

This sounds great as a mantra, Catmull acknowledges, but in practice, managers also are typically told “the success of our enterprise depends on your group doing its job on time and on budget.”

Consequently, he says, if managers “have to choose between meeting a deadline and some less well-defined mandate to ‘nurture’ their people, they will pick the deadline every time.”

Managers, Catmull explains, “typically want two things: (1) for everything to be tightly controlled, and (2) to appear to be in control.”

And now we get to the crux of the issue:

But when control is the goal, it can negatively affect other parts of your culture.  I’ve known many managers who hate to be surprised in meetings, for example, by which I mean they make it clear they want to be briefed about any unexpected news in advance and in private.  In many workplaces, it is a sign of disrespect if someone surprises a manager with new information in front of other people.  But what does this mean in practice?  It means there are pre-meetings before meetings, and the meetings begin to take on a pro forma tone.  It means wasted time.  It means employees who work with these people walk on eggshells.  It means that fear runs rampant.

I suspect most pharma veterans will recognize these behaviors.  (See also Safi Bahcall’s Loonshots – my WSJ review here, and additional biopharma discussion here.)

The question is whether these patterns of behaviors are inextricably tied to the smooth functioning of massive sprawling corporations, with their need for alignment, their reliance on hierarchy, and their instinctive prioritization of tight control to drive consistency, efficiency, repeatability, and standardization? 

One alternative, presumably, might be a more trust-based cultivation of originality and creativity that Catmull champions. 

There are other challenges related to company size: in a smaller organization, the relationship between your individual contribution and the mission and success of the company is much easier to discern, and often immediately palpable.  But in massive, incredibly complex companies, most of the time, your sphere of control can feel far removed and often detached from the overall trajectory of the company as a whole.  Hence the tendency to keep your head down and focus exclusively on your specific deliverables, which you rely on to maintain your bearing.

Adding to the challenge, employees in large companies typically operate in the disorienting miasma of corporate buzzwords and platitudes, constantly repeated. 

Terms like “innovation” tend to be invoked so often, and applied to the most pedestrian activities, that they quickly lose all meaning in what can feel like a “Successories”-inspired world.   Minor accomplishments, particularly those in line with high profile management initiatives, receive outsized recognition, and highly burnished “success stories” are celebrated and socialized. 

One result of all this is a remarkably hermetic environment within large companies, sort of an alternative, self-consistent universe with its own rules and customs, sustained in large measure by the established structures and defined hierarchy.  Truth is what your manager, and his or her manager, says it is, and you challenge these orthodoxies at your peril.

Speculation

First, I’d argue that big companies lean into process and control because it feels more reliable and scalable than creativity.  Indeed, Catmull’s core thesis, as he tells WSJ reporter Emily Bobrow, is precisely that there is not a “formula” for success, and you need to reinvent yourself creatively each time. 

As I’ve frequently noted, this is the exact antithesis of what anyone in large pharma companies wants to hear or is prepared to hear.  Instead, pharmas characteristically overindex on perceived “success factors,” and may doom future projects by applying with excessive rigor the putative lessons learned from previous blockbusters.

Second, big pharmas will continue to search for tools (including potentially AI) that essentially enable them to leverage their size and process, and industrialize innovation. This basically means they seek to use brute force to produce superior medicines.  So far, based on the high fraction of pharma products born elsewhere, this hasn’t proved especially successful, but the hope is always there.

Third, since I don’t think the cultures of most big pharmas are likely to change meaningfully, I anticipate we will continue to see the pharma version of “the big sort,” the demographic self-assortment that leads to the geographical clustering of like-minded people (e.g. progressives moving to blue states and conservatives moving to red states).  Drug developers who find comfort in process, control, caution, and stability will migrate to and remain in large pharmas, while those who prefer living a bit out over their skis will choose smaller biotechs – provided market conditions enable early-stage companies adequate opportunity to find their footing.  

Most of the top creative physician and scientists I know in drug development are now working in small biotechs – often after previous roles in large pharmas. We have seen a long-term trend of talent migration from large pharma to startups – see Luke’s column from September 2017 on “How’s It Going for Big Pharma Vets at Startups?”

Fourth, remember that while smaller biotechs may be more innovative (or at least embrace more risk), most drug development efforts fail; even with the most creative people in the most supportive environment, science is incredibly, unfathomably, brutally unforgiving.  The single biggest advantage big pharmas have (see here) are the resources to remain in the game long enough to absorb the many inevitable failures – and then run with the very rare success, whenever it arrives.  

Even the most innovative small biotechs struggle to remain independent, and are generally acquired by big pharmas; Genentech, memorably, was fully acquired by Roche in 2009. 

Pixar, incidentally, was no different.  As Pixar Chair and majority shareholder Steve Jobs told Catmull when Jobs was contemplating a sale to Disney, “Pixar is a yacht.  But a merger will put us on a giant ocean liner, where big waves and poor weather won’t affect us as much.  We’ll be protected.” 

The challenge, of course – for Genentech, Pixar, Waze and others — is sustaining their distinct creative culture in the context of the larger corporation. 

Not surprisingly, as Bruce Booth of Atlas Ventures has described, a lot of top R&D talent tends to recycle into the startup ecosystem after an acquisition.  Given the challenges of maintaining (much less retroactively establishing) a culture within large pharmaceutical companies that truly supports creativity, let’s hope market conditions sustain and foster the virtuous cycle Booth describes, as this may most effectively enable the continued, essential cultivation of genuine innovation in the life sciences.