We are currently in Switzerland, with a group of some 32 TIM managers, coaches and staff, conducting our 29th international best-practices benchmarking visit to leading Swiss companies and political figures. In our visit, we have met with the President of Switzerland, Pascal Couchepin, his Economics Minister Jean-Daniel Gerber, and with the Chair and CEO of Nestle, and the head of R&D of Novartis. We again learned: There is no substitute for learning ‘through the soles of your feet’ and through your own eyeballs. We saw global leaders first hand, saw great global companies, and the impact is hard to overstate or even describe.

At Novartis, Romeo Paioni, who heads R&D for this global pharma giant, explained the remarkable system he has built. He himself has been personally involved in developing many of Novartis’ blockbuster drugs, including Glivek, the drug that cures a virulent form of leukemia caused by a gene defect. He spoke about Novartis’ “open innovation” system. Procter and Gamble recently pioneered a different form of open innovation, based on replacing “not invented here” with “proudly found elsewhere.” At Novartis, a hybrid has been created. Some 70% of R&D is done internally, at Novartis’ R&D centers sited around the world – wherever the science is strongest.  

(Recently senior biomedical R&D staff at Novartis voted to move their operation from Switzerland, to Cambridge, MA, where Nestle bought the old NECCO candy wafer building and has placed a huge R&D center there, right next to the MIT campus, where biomedical and biotechnology research is at the leading edge in the world; and a second site was place at 250 Massachusetts Ave., housing hundreds of scientists). 

But another 30% of R&D investment is done through external sources – university laboratories and researchers, and independent researchers. Paioni weaves together a powerful innovation system, based on this internal/external system.

Big Pharma worldwide faces a major crisis. Wall Street financial analysts are discounting Pharma’s future growth, noting that the pipeline of new drugs is nearly empty, old drugs are coming off patent and are being shifted to generics,  and the number of new drugs is declining. Pharma companies are seeking a new innovation model, abandoning the old trial-and-error model, where some 10,000 to 100,000 compounds might be examined to find one winning molecule, to the new genetic engineering approach, where a target molecule is identified, causing illness, then ‘shut down’ by a ‘cure’ molecule. The old method was based on very small molecules; the new one, on sometimes huge molecules. This requires many new competencies in synthesis and discovery. Novartis, led by Paioni, is adapting and innovating its innovation process to meet the challenge.

Our participant, Yair Shamir, Chair of Israel Aerospace Industries, asked: Innovation is chaotic. Yet it requires discipline in Pharma, to bring drugs through clinical trials and to market. How does Novartis preserve the chaos and strengthen the discipline?

Paioni liked the question, approved the notion that innovation was ‘chaos’, and explained the transition from chaos to discipline. Later, at lunch, I asked Paioni about his own discoveries. One of them was remarkable. A long chain molecule was used, he said, to ‘capture’ target molecules, because at many places on the chain the capture could happen. Scientists all felt this was the best way. But Paioni thought ‘out of the box’. No, he said. This is wasteful. I am going to take this very long chain, which uses a lot of energy, and connect the ends, to make a single ring, and that ring will be much more efficient in capturing the target molecule. He was told he was utterly wrong… but he persevered, created the ring – and based on it, developed a powerful new drug. Chaos – in thinking otherwise. Discipline – in persisting in creating the ring, despite huge difficulties. 

One of our participants asked a senior Novartis manager, Michael Nohaile (who heads Corporate Strategy): What do you want your new employees to think and feel, when they first join your company?

One, he said: This is a powerful wealthy company, highly successful.

Two: This is a company that helps people a great deal.

Both of these elements are built on Novartis’ success at constant innovation, and lately, on its ‘open innovation’ system.