Co-selection and project dominant design

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New project refers to the initiation of a new project to increase variation in the portfolio. New project entry is decided by top managers.

Project termination refers to the exit of any project. Exit is decided by top managers.

Termination is one type of selection mechanism

Project completion refers to a successful ending of a project. Project delivers an innovative product as an outcome.

3.2.3 Co-selection and project dominant design

The conceptualization of co-selection utilizes a fruitful analogy from biology. The concept of dominant design also has its roots in biology. Biological organisms are not decomposable to unrestricted combinations of traits for malleable adaptation (Gould &

Lewontin, 1979). White blue-eyed cats are deaf (Darwin, 1859). Forcing effects of internal constraints bind different traits together. These constraints like Darwin’s correlation of growth can be used to understand the origin of co-selection. Ex-aptation (Gould & Vrba, 1982) and pleiotropy (Gould & Lewontin, 1979; Hodgkin, 1998) are well-known constraints to adaptation. Pleiotropy means that one biological entity, such as a gene, an enzyme or an organ, executes a number of different functions. High pleiotropy describes a system where many things change when one trait or component is changed due to a physical connection or dynamic interrelatedness. The notion of pleiotropy has been used to conceptualize dominant designs in innovations (Murmann

& Frenken, 2006) or more generally in technologies (Mokyr, 2000).

Pharmaceutical R&D product development projects display a typical stepwise dominant organizational and technological design (Ethiraj & Levinthal, 2004;

Murmann & Frenken, 2006; Foulkes & Morris, 2004; Langlois, 2002; Sanchez &

Mahoney, 1996). The contents of different stages of the dominant design are described in more detail in chapter 4. Figure 2 presents an overview of the dominant design of R&D projects in the pharmaceutical field.

45 Figure 2 Dominant design of pharmaceutical R&D product development project

Regulatory phases for pharmaceutical products by FDA (USA), EMEA (European Union), and PMDEC (Japan)

Development stages in R&D project dominant design in case firm

Phase 1 Phase 2 Phase 3 Phase 4

Stage 2 Stage 3 Stage 4 Stage 5 Stage 6

The dominant design of a pharmaceutical R&D development project consists of different development stages. They are unique and must be conducted in sequence rather than in parallel. This design has evolved due to extensive medical regulatory requirements for product safety and attempts to reduce technology and market risk in product development. Development stages are regarded as project attributes. The sequential development in stages of a pharmaceutical product is a dominant design in the sense that it is an industry standard enforced by regulatory authorities (Suárez &

Utterback, 1995). Regulatory authorities categorize these steps as phases. The correspondence of development stages and regulatory phases is illustrated in Appendix 6. Development stages or phases are also cognitive categorizing models for defining project milestones in the industry (Porac, Thomas, Wilson, Paton, & Kanfer, 1995).

Modularity in innovation project design and design of organizational structure reflect some similarity (Langlois, 2002, Sanchez & Mahoney, 1996). McGrath, MacMillan &

Tushman (1992) suggest that managers can or should pursue activities that shape the dominant designs of new products.

Project dominant design accounts for co-selection. Managers prioritize projects whose attributes are connected; connections that are retained after prioritization. A new

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product development process is hard to change once goals have been set (Milosevic, 2004.) Revisions can arise either from “external” factors, such as the lack of scientific evidence to support project goal, or “internal” factors, which depend on the firm’s ability to innovate. In quite a number of cases in pharmaceutical R&D, new product development projects just fail to meet specification criteria. The candidate product either is not effective enough to treat the condition for which it is being developed, or some serious adverse event may become evident that makes the product unsuitable for use by humans. If the project does not quite achieve its goals, the product may occasionally be approved for a restricted therapeutic application only. For the project, this is a change in goal and specification and radically affects the commercial outlook for the product. Sometimes, in early development, an improvement in pharmacological properties or a synthetic production route may be needed, which cause delay and additional investment, but do not necessarily damage the project. However, if revisions arise, most of these projects are terminated.

Some of the development stages can be accelerated, others cannot. For example, firms must know and provide data to authorities on the stability of intermediate chemical compounds used in the manufacturing process and in the end product for many years.

These processes can be accelerated. Increasing temperature to decrease observation time is a scientifically valid method to check stability. However, it is not medically valid to run a clinical study where patients receiving long term treatment require an observation time for two years in less than two years by just increasing the number of patients in order to obtain the same number of days of exposure with shorter duration of treatment. Sometimes parallel development is possible but there are also limits here. To conduct clinical trials on patients, one must use the final form of the drug product intended for commercial use. This means that it is necessary to complete all stability trials relating to manufacturing before one can proceed to treat humans. Toxicology studies must also be completed before human clinical trials commence.

Every managerial decision concerning a project changes at least one of its attributes.

Project attributes add up to portfolio level attributes. However, the literature is not clear about what are the most relevant categories and attributes and how they are derived (Crawford, Hobbs & Turner, 2005). Based on a large survey, the results of Crawford et al (2005) indicate that the categorizing of products varies a lot across firms and

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between industries. The average number of attributes used to categorize projects in general is between five (mode) and eight (median). This is not a large number, but categories vary a lot from firm to firm. For strategic alignment, the themes that are important include commitment to capability, prioritizing, managing risks, allocating budget, balancing the portfolio, and identifying an approval process.

Categorizing products by size and development stage is extremely common.

Geographic scope and market potential are explicit or implicit in prioritization. Project attributes and organizational purposes are interconnected and inseparable. They also serve multiple purposes and are not exclusive. The dominant attributes of innovation projects for normative portfolio management include size and risk, and project stage (Cooper et al, 2001b). All portfolio selection activities rely on this kind of listing of industry-specific categories (Suárez & Utterback, 1995; Porac et al, 1995). However, due to industry and firm level idiosyncrasies, it is by no means certain that these categories relating to project selection accurately reflect the dominant modular design of project. Since modularity, dominant design, and pleiotropy are connected, any

“optimizing” level of modularity in dominant designs is based on a process of trial and error (Ethiraj & Levinthal, 2004).