Across-the-Board Cost Cuts

Never let a serious crisis go to waste. What I mean by that is it's an opportunity to do things you couldn't do before. Emanuel, Rahm (2008). Quote attributed to the White House Chief of Staff

Note from 4/11: Paul Romer, economist, is credited with the witty quote, "A crisis is a terrible thing to waste." per his wikipedia article.

We’re told as the leadership of R&D to significantly cut costs, and we do not yet have in place controls to protect R&D from these mandates. The typical knee-jerk reaction is to bring in the hired guns with their cheap heuristics+ or stale game plans, and to allow them to make arbitrary cuts while deflecting criticism away from R&D management. With World Class R&D we instead take advantage of this disruption to begin or to further our build of protections for the R&D organization of the future.

Our goal is to take advantage of the cost-cutting exercise to build franchise operations+. We take the best of the best of our R&D project teams and spin them off into separate legal entities. We no longer have these expenses – they are converted into investments (see the 30-70 rule). We allocate a portion of the expense savings toward the cost-reduction goals, and we allocate the rest toward building of franchise operations. If all the corporation wants is expense reduction, then there is no net loss of R&D capability.

If the corporation wants to reduce cash flow, then we may have to sacrifice a few project teams to fund franchise operations for the rest. Don’t hire a consultant to decide this question. Draw straws. A better solution, but one that requires that you would have read this article ahead of time, is to sacrifice future revenues for current cash flow savings. We seek outside investors for a percentage ownership in the spun-off research teams. We reduce corporate cash flow, and replace it with outside investor cash.

Any solution we come up with must result in excess funds to be used to build franchise operations: 30-40% of the total cost of the spun off research teams. Do not pretend you can manage these operations using today’s structures. You need brand new decision support mechanisms (e.g., Independent Evaluation+, Trial by Jury+), corporate business and technical services, franchise operations and a host of other structural mechanisms that today are not well-formed in any R&D organization.

Sounds too foreign for your experience? We’re merely outsourcing R&D operations. Only this time we’re outsourcing to a company that we will finance, and which will be staffed exclusively by ex-employees. We’re investing into several separate outsourcing firms, and the fees they charge us for their R&D services will be pumped back into building and maintaining franchise operations.

Fait accompli!

The pharmaceutical industry has yet another option. Elimination of comparator clinical trials in Phase 1 and Phase 2 through the use of mini-clini’s. Although mini-clini’s are designed to do science more effectively than today, most likely for the same cost, we have the option of being only as effective for much less cost. And you gain the advantage that you take a giant step toward a World Class R&D capability. The statisticians and traditionalists may squawk, but recall we’re cutting costs and most people tend to keep their heads down during these teachable moments. It's an opportunity to do things you couldn't do before.

Navigation: