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DONOTCOPYHarvardBusinessSchoolIMDInternational9-399-174Rev.October20,1999ProfessorThomasW.MalnightofIMDInternational,Switzerland,andProfessorMichaelY.YoshinooftheHarvardBusinessSchoolpreparedthiscaseasthebasisforclassdiscussionratherthantoillustrateeithereffectiveorineffectivehandlingofanadministrativesituation.Copyright©1999bythePresidentandFellowsofHarvardCollege.Toordercopiesorrequestpermissiontoreproducematerials,call1-800-545-7685,writeHarvardBusinessSchoolPublishing,Boston,MA02163,orgoto—electronic,mechanical,photocopying,recording,orotherwise—withoutthepermissionofHarvardBusinessSchool.1EliLilly,1998(B):EmergingGlobalOrganizationInachievingitsdramaticsuccessduringthe1990s,EliLillyandCompanyintroducedfundamentalchangesnotonlytoitsstrategyforoperatinggloballybutalsotoitsorganization.Priortothe1990s,mostofthecompany’soperations,resources,andpowerhadbeenlocatedwithinitsdomesticunits,whichwereorganizedwithinaclassic“functional-silo”structure.InternationaloperationswereorganizedunderEliLillyInternationalCorporation,asoutlinedinExhibit1.Throughoutthe1990sLillygraduallyalteredthisstructurebyintroducingafocusedmatrixorganization,withextensiveuseofcross-functionalteams.Lilly’sorganizationreflectedthecomplexityofthestrategicchallengesitfacedwithinitsdualfocusoncontinualinnovationanddemandrealization(see“EliLillyandCompany1998(A):StrategicChallenges,”HBScaseNo.399-173).Ononeside,aneffectiveinnovationorganizationrequiredtheinvolvementofscientificunitsfocusedontherapeuticareas,researchlaboratoriesdistributedglobally,technicalunitsprovidingsupportandservices,functionalunitsdevelopingandmaintainingleading-edgeresourcesandstandardsandprocedures,andnationalaffiliatesprovidingaccesstoclinicalresearchersandmedicalopinionleadersthroughouttheworld.Onthedemandrealizationside,Lillyrequiredthecoordinationandintegrationofproductunitsdevotedtoindividualproducts,nationalaffiliatesfocusedonmarkets,andfunctionalunitsdevelopingandmaintainingleading-edgeresourcesandexpertise.Traditionalorganizationalstructureswerelimitedintheirabilitytointegratetheserequiredcomplementaryroles.AnimportantchallengefacingseniorLillymanagementthroughoutthe1990shadbeendesigningandbuildinganeffectiveorganizationrespondingtothesestrategicrequirements.Thecompanyhadmadedramaticprogressinthiseffort.Lillyhadredesigneditsdiscoveryanddevelopmentorganizationaroundtheinnovationprocess.Theneworganizationhaddemonstratedmajorimprovementsinnewlyintroducedproducts,bybothlaunchingthemintheglobalmarketsignificantlyfasterthaninthepastanddevelopingpost-launchproductstrategies.Inlate1998,seniormanagementwasconcentratingonhowtomanageitsdemand-realizationprocess.Organizationally,thischallengeinvolvedhowtopursuetwopotentiallyconflictingobjectivessimultaneously.First,asthecostandtimerequiredtodevelopnewproductsincreased,Lillyneededtoensuremaximizationofglobalreturnsoneachnewproductandthereforerequiredastrongproductfocusandorientation.Second,becauseLillyoperatedacrossdiverseworldmarkets,itneededtoensuremaximizationofglobalreturnsonitsportfolioofproductsacrossthesemarkets.TheissueofhowtobalancetheseconflictingrequirementswasamajorchallengefacingSidneyTaurelandhisseniormanagementteam.Taureldescribedthischallengeasfollows:DONOTCOPY399-174EliLilly,1998(B):EmergingGlobalOrganization2Thenewbattlegroundforstrategicadvantagewithintheindustrywilllikelymovebeyondthelaboratory,topointsfartheralongthechainofinnovation,tofocusontheissueofdemandrealization.Wehavecometounderstandthatalargepartofthepotentialdemandformedicinegoesunrealizedduetoavarietyoffaultyconnectionsalongthechain.Patientsmaysuffersymptomsforyearswithouteverseekingtreatment.Othersmayreceivethewrongdiagnosisorthewrongprescriptionormayfailtocomplywiththetreatmenttheirdoctorprescribes.Allthisrepresentsunfilledpotentialthatwecannolongeraffordtoignore.OrganizingandManagingtheInnovationProcessLillyResearchLaboratories(LRL)hadoverallresponsibilityforthediscoveryanddevelopmentofdrugswithintheLillyorganization.LRLoperatedresearchanddevelopmentfacilitiesinAustralia,Belgium,Canada,England,Germany,Japan,Singapore,Spain,andtheUnitedStates,withclinicalstudiesconductedinmorethan30countriesworldwide.However,U.S.facilitiesaccountedforabout80%oftotaldiscoveryresearchexpendituresand65%ofallclinicaltrialsperformedinthedevelopmentprocess.OneseniorLRLexecutivecommentedonhowthecompanyperceivedthechallengesassociatedwithproductinnovation.Anycompanyaspiringtoleadinthisindustrymustdeliveraconstantstreamofinnovation,withavolumeandflowratesuchasnocompanyinthisindustryhaseverachievedbefore.Ironically,thebiggesthurdleisnotashortageofgoodscientificideasbutanoverabundanceofthem.Revolutionarytechnologiesinbiomedicinearechurningoutmoreintriguinghypothesesthantheindustrycanpursue.Thelimitingfactorisresourceallocationandmanagement,decidinghowmanyresearchersandhowmuchofafiniteR&Dbudgettoallocatetowhichnewcompounds,choo