1.

Outlining of master thesis

Research questions: How can pharmaceutical firms support project selection with
management control tools?

Innovation managers in pharmaceutical firms are accused of adoption of a more narrow

perception of the scope for innovation (Tidd, 2005). “Innovation is a key driver for gaining
and maintaining competitive advantage, securing survival and promoting growth” (Lynn and
Akgün, 1998; Tkotz, Wald & Munck, 2017, 185003-1). But, innovations have a high risk of
bearing failure (Heidenberg and Stummer, 1999), and they are also described as uncertain
and complex (Reid and De Brentani, 2004), due to their future-oriented nature (Tkotz, Wald
& Munck, 2017). In the years 1960-2000, a study of 1,736 new drugs revealed a long tail of
unsuccessful products in the pharmaceutical sector. The innovations were classified as
incremental innovations by two-third, while 20% were simple imitations (Achilladelis and
Antonakis, 2001; Tidd, 2005). Innovation managers in such firms are accused of doing ‘more
of the same’, instead of adapting to new challenges. This can be done by creating
complementary routines for successful innovation, but identifying and learning such routines
can be hard in practice (Tidd, 2005). Therefore, innovation management control (IMC) can
optimally support the innovation management with valuable information, additionally
recognizing and evaluating risks and challenges early on throughout the innovation process
(Adams et al., 2006).

Substation investments and significant amounts of resources are required for most
innovations (Cordero, 1990; Tkotz, Wald & Munck, 2017). In pharmaceutical businesses
there is one dominant industry logic: pharmaceutical businesses will continue to be driven by
greater and more efficient R&D, coupled with additional but more focused marketing. There
have been many significant innovations in products and processes, but analysis of patent data
suggests pharmaceutical innovations follows a conservative search strategy for innovations in
the industry, and the opportunity to broaden the innovation repertoire (Tidd, 2005). IMS is an
interdisciplinary research field that combines two disciplines: management control (MC) and
innovation management. MC can be defined as “the process by which managers influence
other members of the organisation to implement the organisations strategies” (Anthony and
Govindarajan, 2007: 17; Tkotz, Wald & Munck, 2017). MC includes elements such as
performance measurement, coordination and incentive systems and is used for planning,
information support, decision making, ex-post evaluation and motivation. Traditionally MCS
literature focused on formal financial controls, such as budgets or financial performance
indicators. But also, informal, non-financial controls, such as cultural control, has also been
discussed in literature (Strass and Zecher, 2013; Tkotz, Wald & Munck, 2017).

The dominant ‘big pharma’ model is predicated on a relatively simple linear, technology-
push model of the innovation process: a capability to perform increasingly elevated levels of
internal R&D in an efficient, ‘machine like’ manner, and coupling this with an even more
expensive global marketing and sales capability. This machine model of innovation has
resulted in the need for a proliferation of strategic alliances, particularly between major
pharma companies and small specialist biotech firms to feed the machine new inputs, and
consolidation through merger and acquisition to commercialise the outputs (Tidd, 2005). In
addition to a very long tail of unsuccessful products during the period studied, 1960-2000
(Achilladelis and Antonakis, 2001; Tidd, 2005), there were no consistent pattern in the
correlation between the scale of medical or health outcome improvement, and the commercial
success of individual products (Grabowski and Vernon, 2000; Tkotz, Wald & Munck, 2017).
It appears that developments in biotechnology are following a similar incremental path as
innovations in pharma firms, at least partly due to the dominance of large pharma in testing
and commercialisation (Nightingale and Martin, 2004; Tidd, 2005). And partly, because
larger, more experienced biotechs have become more astute at exploiting their position to sell
lower-quality projects (Rothaermel and Deeds, 2004; Tidd, 2005). As a solution,
management control tools make the firm better at identifying whether a project is to be
initiated, continued or discontinued, which gives underlining support to the selection of
projects (Chiesa, Frattini, Lazzarotti, & Manzini, 2009). Further, management control tools
make it possible to govern project selection by making strategic, technological and resource-
based choices. An optimal product portfolio is achieved by allocating resources, evaluating,
selecting and terminating [innovation] projects (Adams, Bessant, Phelps, 2006). Management
control tools makes it possible to re-orientate projects before failure by validating and
specifying key areas of use (Godener, Söderquist, 2004). R&D projects selection decision is
described as a process by which an intermittent stream of changes are made to a lists of
currently active or proposed projects. It includes generating alternatives, determining when a
decision is required, collecting data, specifying constraints and criteria, and recycling. The
decision is viewed as embedded within a hierarchical, diffuse budgeting and planning process
(Baker, 1975). However, the more recent MC literature has argued that the individual
elements of an MCS should not be used independently (IMC as a package) without
considering potential interdependencies of the elements (Simons, 1999: Malmi and Brown,
2008; Grabner and Moers, 2013; Tkotz, Wald & Munck, 2017), which can limit MC’s
effectiveness and efficiency (Chenhall, 2003, Ferreria and Otley, 2009). Therefore, the design
and use of MCS must acknowledge that the different elements of MCS may be complements
or substitutes and, as such, reinforce each other (MCS as a system) (Ferreira and Otley, 2009;
Tkotz, Wald & Munck, 2017). Some complementary routines can have been established and
are associated with successful innovation management under discontinues conditions. Basic
elements of such routines have been observed, like an interpretive schema (how the
organisation sees and makes sense of the world) and operating routines (how the organisation
responds to signals and manages innovation) (Tidd, 2005). Following this point, R&D project
selection will be used as a complement to a MCS system in pharmaceutical firms.

Fig. 1.:

RISKS: changes
in market and
technology

Management’s
selection of
innovative
projects
Initiate, continue, or
discontinue projects?

Making strategic, technological

and resource-based choices?

Evaluate, select, or
terminate projects?
 Allocation of Re-orientate projects
resources to before failure?
‘’ projects?
(Katarina Sønsteby, 2018)