“Customer Focus – A Prescription for Driving
Innovation”
Fred Hassan
Chairman and Chief Executive Officer
Schering-Plough Corporation
Remarks for Inaugural CEO Lecture Series
on Innovation
Fairleigh Dickinson University
Madison, New Jersey
Feb. 23, 2006
Thank you! Good morning, everyone!
It is great to be here. FDU is a very significant institution. Over
the years, it has given a remarkable education to generation after
generation of students. My company, Schering-Plough, has benefited
from people who were FDU students. I also know that benefit first
hand. Two members of my own family are studying here right now!
And, FDU’s faculty and staff are a very special strength.
A big part of this contribution is, of course, the fine education
that FDU provides -- and the graduates it sends out into the world.
Take, for example, entrepreneur and FDU alum Greg Olsen. Greg made
headlines last fall as only the third civilian ever to travel to
space. Greg is an outstanding example of the kind of trailblazers
FDU graduates every year. FDU is also a remarkable contributor through
the scholarly output of its faculty. So, I am very honored to be
the first speaker in this new series by FDU on innovation.
Thank you for coming this morning. After my remarks, I look forward
to our question-and-answer session together.
My subject today is, of course, innovation. Specifically, I’d
like to talk about customer focus as a prescription for innovation.
When we talk about innovation, we’ve got a rich and profound
subject on our hands, because innovation is so central to the strength,
growth and vitality of people, of organizations and of society itself.
Innovation is in our very genes, so I have a lot of humility about
addressing this subject! That is why this morning I will concentrate
on a few aspects of innovation where my own experiences come to
bear.
I’d like to look at three questions with you. First: What
IS innovation – and why is customer focus so important to
innovation? Second: What makes innovation happen? What are the engines
of innovation? And third, I will ask the question: What needs to
be done to sustain innovation?
What is Meant By Innovation and the Importance
of Customer Focus
So, what do I mean by innovation? And why is customer focus so important?
Thomas Edison put it very well when he asked, “Is there a
way to do it better?”, and responded, “Find it.”
Edison’s point is succinct but deep. He is telling us that
innovation is not just great thinking or great creativity in a vacuum.
It is creativity that is active, that delivers something new and
better. And also, it implies new and better for a purpose that adds
value.
What I would like to suggest is that we can think of innovation
as creativity in action – in other words, applied creativity.
Applied creativity creates something new or better, AND adds value
for individuals or for society.
We don’t know who invented it, but the wheel
did not change civilization simply because of the creative genius
that went into the discovery. The wheel was a profound innovation
because it was APPLIED. The application of the wheel for transportation
– and thousands of other needs – transformed human life
for the better.
I think we can see this formula in every real innovation. Some
of those innovations radically changed the world – innovations
such as the steam engine, the telephone, the automobile, the airplane
and the microchip. Other innovations add value in smaller ways.
Power steering. Synthetic clothing fabrics. The zipper. The iPod.
Here is another example of applied creativity that I just read
about. According to Nature magazine, researchers learned that U.S.
soldiers serving in Iraq and on other missions did not always have
access to toothbrushes and floss. It seems that some 15% of soldiers
reported they were suffering from toothaches and gum disease. In
response to this need, the researchers identified a protein fragment
called KSL. KSL eats holes in the cell membranes of the bacteria
that cause dental disease and kills them. Then, the researchers
figured out how to embed KSL in chewing gum. The chewing gum formulation
turns the creativity of the KSL discovery into a solution for soldiers
and others who can’t brush or floss. According to Patrik DeLuca,
one of the researchers who invented the new chewing gum, the innovation
is valuable “not only for the military, but also for the avid
outdoorsman and anyone else on the go.” Perhaps it will even
be a useful innovation for students on the go at FDU!
My own industry, the research-based pharmaceutical
industry, is a special example of innovation. At its essence, what
we do is transform great science into treatments that improve and
save people’s lives. This very complex work certainly does
begin in a science laboratory with basic research by talented scientists,
who discover new chemical compounds and new molecules.
However, to turn this scientific creativity into
an innovation, we then engage thousands of other people in highly
complex and costly actions. These actions transform a molecule into
a treatment – with continuous applications of further creativity.
This is applied creativity – creativity that creates something
new or better to improve health.
I’ll come back to some of the special dimensions of pharmaceutical
innovation in a moment! But now, let me turn to the importance of
customer focus, which I mentioned before.
When Edison said, “Is there a way to do it
better?”, he was implying a benefit and outcome to someone.
There are many ways that we could talk about who that “someone”
is.
I would like to suggest that one of the best ways to think about
the beneficiary of innovation is to think about the customer. I
am talking here about the “customer” in a broad way,
as someone to whom you deliver added value and as someone who EXPECTS
added value. In other words, the customer is a person – or
an organization, or a society – that has a need that will
be met by the innovation. Focusing on the customer thus becomes
a way of figuring out how to make innovation happen.
Consider just one recent innovation – Apple’s
iPod. The iPod is a spectacular innovation.
It responds to the desire of consumers for personal, portable, flexible
music. It takes the creative technology of storing music electronically
and it applies it with further creativity into a new consumer electronic
device. Now, the iPod is transforming how people listen to music,
how they share music and how they socialize.
The iPod is a great example of the power of customer focus. By
being in tune with its customers and by sensing an unmet need, Apple
could apply its creativity to add value. The moral here is that
innovation does not happen in a vacuum or inside a closed system.
Scientists and technicians could labor for decades over the same
electronics that are inside an iPod and never produce this spectacular
consumer breakthrough. It was customer focus that was the prescription
for the innovation!
The iPod example also shows us another very important
dimension of innovation. Back in the 17th century, the great Sir
Isaac Newton said, “If I have seen further, it is by standing
upon the shoulders of giants.” What he was saying is that
his work could only happen because of the foundations created by
others. Most innovation builds on many OTHER advances before them.
Even what appear to be big breakthrough innovations in fact are
- as Newton put it - building on the shoulders of giants. When you
look at the iPod, it is standing on the shoulders of old fashioned
tape players, on the shoulders of microchip advances, on the shoulders
of Sony Walkman and Discman, and many others.
Also, every medical breakthrough is built on the shoulders of other
giants. One example, is the treatment of cardiovascular disease,
especially high cholesterol. We all know this is one of the biggest
killer diseases in the world.
Now, we have created VERY effective treatments –
breakthrough treatments – for high cholesterol. They are responses
to a very serious need of the ultimate customer – the patient!
The incremental innovations that led up to these treatments, however,
go back decades. The first so-called “statin” molecule
was discovered back in the early 1970s. Then, scientists built on
that knowledge and created the first synthetic statin molecules.
In 1987, Merck brought out the first widely available statin, Mevacor.
Other statin treatments, such as Lipitor, followed Mevacor, and
the innovation continued.
My own company, Schering-Plough, discovered a completely
new molecule – ezetimibe – that attacks cholesterol
through a new mechanism of action. Now this new medicine is creating
a new paradigm for treating cholesterol.
Another dimension of customer focus that is of enormous importance
is customer service. In many ways, customer service is process innovation
in action. As we all know, it is usually not enough for a customer
to benefit from a great innovation. You want follow-up!! You want
help in applying the innovation effectively. You want solutions
if it breaks or fails.
Customer service is often the weak link of innovation. We hear
that Apple is today facing a challenge with consumers who are discovering
that the iPod is rather fragile! It can break when someone steps
on it or drops it. After someone has just stored a lifetime of music
preferences on her iPod, when it shatters underfoot, you can imagine
the response! How Apple handles this customer-service challenge
may well become a very significant factor in the long-term success
of the iPod innovation.
These are some ways of describing innovation and of seeing why
customer focus is so important to making innovation happen.
The Engines of Innovation
Now, let me turn to the second question I’d like to look
at with you. What makes innovation happen – what are the engines
of innovation? This is a huge question, so I’ll focus today
on just a few aspects that come out of my own experience.
I think the most critical engine of innovation in any organization
is a passionate attitude of customer focus and people who are liberated
to pursue that passion. This follows from what I talked about earlier.
A truly customer-focused organization almost by definition will
drive innovation, because innovation is the means by which it satisfies
the unmet needs of its customers.
It is not uncommon to hear from a company, “Yes, we are customer
focused. Our sales people and our marketing people are deeply engaged
with our customers.” This is good – but it is not enough.
I do STRONGLY believe that sales professionals have a very special
role with customers. In high-innovation industries, sales people
are much more than a message channel. In an industry such as ours,
the goal should be to have sales professionals who act as a special
sensing mechanism for the organization. Through a strong personal
relationship with customers, sales professionals get in tune with
customer needs. They transmit customer needs back into the company.
They help identify the innovation needs and help to galvanize the
organization into the innovation action.
However, if ONLY the sales – or sales and marketing people
– are engaged, innovation will not happen. Innovation happens
when EVERYONE has a passion and is engaged with the customer. Innovation
happens when EVERYONE feels part of the team.
This passion for the customer and this engagement must begin at
the top – with the CEO. For example, I meet regularly with
doctors and other customers in our business. Just recently, I met
with a very important expert on infectious disease. He gave me some
exciting ideas on needed innovations in the treatment of hepatitis
C , an area in which we specialize. I internalized those ideas,
and I communicated them to our people working in this area. It is
important for people in the organization to see this kind of customer
engagement at the top.
I do also stay in close contact with our sales people, because
they are such an important customer-sensing mechanism! And, we seek
to have all the other units in the company also feel empathy, to
be in tune with our customers.
For example, I tell our research bench scientists that they should
be courageous in championing innovative molecules that they believe
in – even if commercial data might suggest that there is not
a big demand for that molecule.
Over my career, I have seen a LOT of important
new medicines get to patients despite the advice of marketing consultants!
This has occurred because those medicines had a courageous champion
in R&D or somewhere else in the organization – a courageous champion
who saw the customer and patient need!
So that is one powerful engine of innovation: the
right attitude. It is a passionate customer focus everywhere in
the organization – and led from the top.
Another vital engine of innovation is the right behaviors. People
are by instinct clannish. We tend to be suspicious of other groups,
and we like control. But innovation is not achieved by individual
genius or by any one unit in a company.
The challenge – especially in large, complex organizations
– is to break down the natural human and organizational barriers.
It means deliberately fostering behaviors that do NOT come naturally
to people or to organizations. Behaviors such as collaboration across
units. Behaviors such as shared accountability and transparency.
These are the kinds of behaviors that unleash innovation. They unlock
the applied creativity of many talents, so that the power of many
together is greater than many separately.
I also have found that it is extremely important to reward two
categories of people: The passionate drivers and the people who
advance innovation through failure.
The passionate drivers are those people who do not give up on their
cause in the face of the corporate pressures that might otherwise
grind them down. These are VERY important people who must be nurtured.
And so are the people and teams that achieve great
failures! They must also be nurtured.
By “great failures,” I mean the projects that do not
become successful innovations, but instead generate vital learnings
that make the successful innovation possible. We would have to ask
Steve Jobs how many great failures went into the iPod.
I can give you one of many examples from my experience. In a previous
company where I was CEO, we acquired a very exciting biotech operation.
The acquisition itself was something of an innovation. At first,
the thinking on all sides was that we should simply in-license some
of this biotech company’s compounds. But then one morning,
while I was shaving, I had the idea that we should not just in-license:
We should buy the company!! Yes, there were a lot of risks. But
buying the company would give us more than just the existing products.
We would bring in a longer-term pipeline. And we would bring in
the intellectual capital of the biotech’s scientists and technologists.
So, we bought the company!
There were big hopes for the lead compound of this biotech. Well
– it failed! And so did two other expensive and energy-consuming
projects. Some people lost faith. A lot of investors questioned
the acquisition. But each of the failures was a great one. Each
failure led to progress by a team of passionate drivers who would
not give up. More than six years later, the fourth compound has
become a winning innovation. This fourth compound has become an
important, innovative new treatment for cancer!
The final engine of innovation that I would like
us to look at is the engine of a powerful product flow system. What
is this engine? Basically, it is a system that channels and maximizes
the attitudes and the behaviors I just described ? with a relentless
focus on the customer!
In virtually every organization that seeks to innovate, there is
a front end of research and early creativity. There is a middle
that tests, refines and develops the early creativity. Finally,
there are the groups that move the final innovation to the customers:
manufacturing, marketing and sales. Supporting all these areas are
functions such as finance, IT and many others.
In conventional organizations, all these different
units operate as silos. Research is disconnected from Development
units. R&D is disconnected from marketing and sales.
Manufacturing sits in its own silo, and so on. Products move through
the product pipeline in handoffs over the walls of these silos.
Innovation is often lost or compromised. The flow is slow. The response
to customer need is distorted or diluted.
So, a vital task for any organization is to create
seamless interactions between these units, while having all the
units focused on the customer and in tune with the customer (see
figure below). There is free and easy interaction among all the
units. At the same time, there are strong, transparent operating
processes, strong, transparent gating mechanisms, and mutually agreed-upon
timeframes for moving products through the system.
Let me highlight one very interesting and very important feature
of an innovative product flow system. Progress through this kind
of system is not linear. There are loop backs – and loop forwards.
But it is not random, Brownian motion. It is purposeful. The looping
is creative, productive work that adds value, enhances the innovation
and makes it more responsive to the customer need.
Let me give you one example of how the combined
engines of customer-focused attitude, behavior and product-flow
system generate special innovation. In my previous company, Pharmacia
Corporation, we identified a potentially exciting molecule that
could attack infections in a new way. At the time, this was a bold
treatment area to be looking at.
Many people still believed that existing antibiotics were all that
were needed. Our people had a different vision, one that proved
to be foresighted. Yet while we had the creativity element in a
new family of molecules, we were missing the application and the
applied creativity that would transform this discovery into a medicine
that would be valuable to doctors and patients. It was a potential
innovation – but we were not sure how to get there.
What happened, then, was the ignition of innovation. The research
people, the development people, the sales and marketing people,
and the manufacturing people all came together in a seamless way.
They came together seamlessly to achieve applied creativity.
Initially, there was a hypothesis that the right approach was to
create a treatment that would be effective against a limited number
of infections, for acute cases. But through dialogues with our customers,
the teams discovered that, in fact, doctors had a big need for a
powerful new antibiotic that would work against a wide array of
infections. The teams looped back and forth, reshaping the focus
and refining the compound.
There were many further refinements of delivery mechanisms, so
that the treatment could be applied via intravenous drip or in a
pill. Clinical trial plans were developed early to support regulatory
applications for indications that would be most important to the
customers. Again, this was accomplished through cross-functional,
shared accountability work by research, development, the commercial
units and manufacturing. The result was Zyvox – a major innovation
in antibiotics. Zyvox was achieved through customer-focused attitude,
behaviors and system.
Of course, we are not alone in creating engines for innovation.
My friend at Proctor & Gamble, A.G. Lafley, the company’s
CEO, is an effective innovation leader. He inherited a big challenge
when he became CEO of Procter & Gamble in 2000. To lift stodgy
old P&G out of a flat growth pattern, Lafley stood the old product
development process on its head. The old way was to develop new
products and then test them on consumers or to survey consumers
and try to fulfill their stated needs.
Unfortunately, consumers don’t always buy what they say they
want on surveys! So, Lafley had his staff go out and observe people
using household tools and products around the world. He also created
an innovation gym where P&G managers could team up with innovative
designers from outside the company and sometimes from outside the
industry.
One new product has been the Mr. Clean MagicReach. It uses a four-foot
detachable pole to clean bathrooms. Feedback from customers –
and the commercial success of this new device – suggests that
it is a real breakthrough!
Sustaining Innovation
So far this morning, we have talked about what we mean by innovation
and the importance of customer focus. We have also looked at the
engines of innovation. In these last few minutes before our Q&A,
I would like to look at the third and final topic I said I would
address today: sustaining innovation.
You might ask, “Won’t a strong innovation organization
keep innovation in its DNA?” The answer is – no. As
the environment keeps changing, organizations must constantly adapt,
re-engineer and change how they innovate.
There are lots of examples of what happens when organizations fail
to do this. Look at the U.S. auto industry. Forty years ago, the
U.S. auto industry led the world in innovation. Detroit was in touch
with its customers. It was in tune. It kept evolving, kept changing.
Its mantra was customer focus at every level in the organizations.
Words like “Mustang” and “Thunderbird” conjured
up excitement and style.
But at a certain point, as the pace of change in the world grew
faster, Detroit fell behind and fell out of tune. Now we see the
U.S. car makers struggling with this very difficult inheritance.
They face a downward spiral of performance. They face a failure
in customer focus and a resulting collapse of innovation. It is
all summed up in the verdict in a J.D. Power and Associates survey
of buyers on a new sedan that was a big hope for the future of one
of the U.S. makers. The car, J.D. Power concluded, falls into the
category of “universally disliked.”
I think it is clear that one dimension of sustaining innovation
must come from within organizations. The key is a certain kind of
leadership. To sustain the power to innovate, organizations must
keep innovating in how they themselves operate.
It all comes back to customer focus. Customers and their needs
keep evolving. Organizations that seek to innovate must keep evolving
with the customers.
In my view therefore, constantly renewing and re-inventing the
organization is perhaps THE most important duty of the CEO in large,
global, innovation enterprises today…
from electronics, to clothing and fashion, to health care, to banking
and beyond.
In our own company, we have a model of engaging in constant, transformational
change. Our mantra is New Thinking. New Capabilities. New Urgency.
Our mindset is that this must be led and modeled from the top. And
because ours is such a long-term innovation process industry –
I will be judged on how well I am doing this today for the next
10 to 15 years!
One critical dimension of sustainable innovation is innovation
strength of enterprises through constant renewal on the inside.
But I would suggest to you that there is ALSO a need for fostering
innovation, in the BROADER environment in which we all operate.:
in government; among shareholders; among citizens; and among all
the stakeholders in our society.
Today we are hearing concerns that the United States is losing
its innovation edge. I think this is a genuine concern. We do see
some signs of innovation erosion., and we do see some signs of innovation
migration. For example: signs that countries such as China and India
may be building special headroom and attractiveness for innovation
– at our expense.
Last Friday, the New York Times reported that 38% of multinational
corporations surveyed plan to shift substantial portions of their
research and development work to centers in China and India over
the next three years.
In response to this trend, some people advocate investing massive
amounts of government funding in science and other building blocks
of innovation. I say: Money is not the only solution! From my perspective,
the best answer lies in our mindset and culture.
Historically, the United States has been almost synonymous with
innovation – from the creation of a new kind of democracy
right through to Google. But just as companies must keep reinventing
themselves, so must our society reinvent itself. Our society must
reinvent itself in order to respond to new and changing needs for
innovation. Who is the customer when it comes to society? It is
ourselves and our future generations of citizens.
My sense is that we need to revitalize and re-energize the innovation
climate in our country. Just one symptom of this need may be the
increasingly short-term perspective of the financial markets. Complex
innovation is a long-haul investment. In my industry, we place multi-billion
dollar bets over the 10- to 15-year cycles required to transform
a molecule into a medicine. It becomes very hard to keep placing
those bets when many in the investment community seem to be focused
more on quarterly numbers than on long-term high performance.
Another symptom of this need to revitalize our innovation climate
is the failure of Americans to save. Individually and as a society,
we are spending more than we earn.
As of September 2005, the U.S. government owed China $252.2 billion!
And the Chinese buy about $4 billion more in Treasury bills every
month!
Another symptom of the need for innovation is the
declining numbers of science students.
Time magazine just ran a cover article asking if that decline doesn’t
represent another Sputnik. Shouldn’t we be alarmed?
Today, most Americans have a remarkably high level of financial
literacy. This has been the result of many converging factors, including
the increasing responsibility more and more people feel for their
own long-term financial decisions.
The time may be ripe for working on the challenge of a new frontier:
achieving much greater “innovation literacy” throughout
our society. This innovation literacy would include such dimensions
as a fuller understanding of what innovation is; what innovation
does for society; and how innovation can be sustained.
For example, on the subject of health care, we must find and apply
major new health care innovations in this country in order to have
health security for the future. This will be an innovation challenge
that is as big as any that we have seen in recent decades!
Overall, I am certain that if we can revitalize the understanding
that our fellow citizens have about innovation and what sustains
innovation, we would see a renewed and strengthened excitement about
FOSTERING innovation. New thinking. New capabilities. New urgency.
The passion to innovate for customers keeps business enterprises
alive, energized and growing. We must rekindle this same passion
in our society – so that this country continues to be an innovation
light for the rest of the world. Alive. Energized. Growing. We all
have a stake in this, because as citizens, we ARE the customers!
Thank you.
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