I had the good fortune to attend a series of seminars by Clayton Cristensen last Spring.  One conceptual framework that Clay described is the three basic types of businesses, and I think it has a lot of relevance for Pharma R&D organizations.

There are three fundamental types of businesses: production shops, solution shops, and facilitated networks*.  The first two are most relevant for R&D.  Production shops are value-adding process businesses; for example, manufacturing or food service.  Such businesses take inputs and transform them into higher value outputs using regular, well-defined, processes.  Standardization is key, and it’s important to run at high capacity utilization. Production shops have to be paid/evaluated per unit of output (given the right level of quality).  In Pharma R&D, production shops would be things like HTS groups, sequencing facilities, routine DMPK, or perhaps protein production.

In contrast, solution shops are like consulting or design firms, where flexibility, creativity, and a lot of redundant capacity and capabilities are all required.  In a solution shop you need a lot of different tools (because you never know what’s going to be thrown at you), and you need deep subject matter expertise.  Solution shops have to be paid on a fee for service or FTE basis, and evaluated on the quality of the overall deliverable.  In Pharma R&D, solution shop activities would be assay development work, developing novel animal models, working on new target identification.

Big problems result if you don’t understand what type of business you’re in or if you try to manage/compensate a solution shop as if it were a production shop, or vice versa.  Paying a fixed fee per widget doesn’t work for a solution shop, because the amount of work needed to complete each project can vary wildly.  The amount of time needed for each project is also variable.  If you try to skimp on tools, or technology, or training & learning in a solution shop, you’ll get in trouble.  Conversely, letting production shop staff buy one of every type of tool, or use any old process they feel like is not a successful strategy.  Production shops need to be efficient, and standardized.

A research and development organization needs the right mix of solution and production shops.  Parts of R&D can be managed in a production shop manner — with standardization, high capacity utilization, etc.  But solution shop management also needs to be embedded appropriately within the entire process. In fact, most production shops need associated solution shop expertise for troubleshooting or — even more importantly — for innovation.

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*facilitated network businesses are things like insurance, telecommunications, or Ebay.  Membership fees are the appropriate type of compensation.