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Table of Contents

Abstract....................................................................................................................................................2

1. Introduction..........................................................................................................................................2

2. Literature Review................................................................................................................................3

3. Methodology........................................................................................................................................4

4. Lonza Case Study: Radical Product Innovation..................................................................................4

5.1 Idea Generation/Discovery Stage..................................................................................................4

5.2 Idea Screening................................................................................................................................5

5.3 Product Development and Testing.................................................................................................8

5.4 Market Launch...............................................................................................................................9

6. Discussion..........................................................................................................................................10

7. Conclusion.........................................................................................................................................12

References..............................................................................................................................................13

Appendix A............................................................................................................................................15

Appendix B............................................................................................................................................16

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Abstract

Innovation is a kind of buzzword and perceived as vital to achieve in the worldwide business environment in the 21st century. This paper is based on a case study of Lonza Ltd that wants to promote radical innovation and requires entering new, less competitive markets, without losing its focus in operating business. By addressing the gap in the company, the author designed an initiative for Lonza to develop a new implant with Polyglactine/Polypropylene Mesh technology for hernia surgery to foster long-term radical innovation. In this regard, the secondary data is collected from various authentic sources about management tools and models that support radical product innovation process. The findings of the paper suggest that to enable radical innovation, it is very important for Lonza to collaborate with other organisations or universities to employ latest R&D facilities and tools that will allow company to strengthen the innovative skills of engineers, scientists, and doctors working in the company. Also, the company needs to intensify their production capabilities for developing prototypes of their new product by employing experienced and skilled people and scientific/engineering techniques, and timely integrate them into their production operations.

Keywords: Lonza, innovation management, radical innovation

1. Introduction

A rapid growth and innovation in healthcare products and processes is one of the major

challenges for pharmaceutical companies today. This paper is based on a case study of Lonza

Ltd. which is a leading supplier of healthcare, life science, and pharmaceutical products

worldwide. The company can be considered customer-oriented mainly due to its

organisational structure and also due to supplying its products to giant multinational

companies. There is no doubt that company is very successful today but the case study of

Lonza reveals a major gap in the company which is the ‘lack of focusing on long-term radical

innovation’. The author found following three core reasons for this gap: (1) incentives to

middle management; (2) contract manufacturing; and (3) LIFT (Lonza Innovation for Future

Technology) initiative which is not functioning well. It is believed that above mentioned

reasons are the foremost barriers to radical innovation in the company. Furthermore, the

SWOT analysis of Lonza Ltd in appendix A highlights core strengths, weaknesses,

opportunities, and threats to the organisation.

This paper aims to design an initiative for Lonza that can strengthen incremental and

particularly radical innovation by recognising the need of new product development. In this

regard, a stage-gate product innovation model is selected to describe the stages and activities

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that enable innovation in Lonza Ltd. In addition, risk assessment through risk register and

risk probability matrix, lean manufacturing, and Porter’s five forces analysis are employed as

innovative management techniques.

2. Literature Review

Birkinshaw et al. (2008) define innovation management as “the invention and

implementation of a management practice, process, structure, or technique that is new to the

state of the art and is intended to further organizational goals.” (p. 825). Managing innovation

is a controversial debate in the management literature and experts and theorists are not agreed

on one or two practices that can allow firms to manage technological innovation effectively

(Mogee, 1993). This fact hinders organisations to recognise the issue of innovation

management that should be addressed systematically.

Managing innovation is a complex and multifaceted process and it is essential for the

management to understand different types or patterns of innovation. This understanding can

help management to choose appropriate patterns which will result in low cost, less

uncertainty, less time, and less sporadic during innovation process (Leigh, 2000). Two

different types of innovation are differentiated in table 1 on the basis of their underlying

features.

Table 1: Difference between radical innovation and incremental innovation

Radical Incrementalo Technology-driveno High uncertaintyo Discover innovative technology

o Customer-driveno Low uncertaintyo Exploits existing technology

o Dramatic changes in existing markets or creates new markets

o Develops or improves competitiveness within current industry or market

o Focuses on service, product, or processes with extraordinary performance attributes

o Focuses on cost reduction or improving existing products, services, or processes

Source: Leigh (2000, p. 19)

It is evident in the above table that initiating radical innovation is completely different than

implementing incremental innovation. In fact, radical innovation requires lots of experiments,

dedicated development team, separated structure from the existing business model, and huge

investments (Leigh, 2000).

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Today companies use a variety of management techniques and conceptual models to initiate

and manage the innovation process. Some popular models and techniques include: stage-gate

framework, benchmarking practices, SMART framework, checklists, risk assessment, NPV

assessment, quality function deployment, value engineering, Gantt chart, work breakdown

structure, PERT, and CPA. These tools also help organisations to decide how good or bad

they are in managing innovation. In addition, they also enable them to improve their

performance by considering time, quality, and budget constraints (Brady, 1995).

3. Methodology

In this paper, a case study of Lonza Ltd is considered to design an initiative for the company

that wants to promote radical innovation and requires entering new, less competitive markets,

without losing its focus in operating business. In this regard, qualitative approach is adopted

to develop the initiative for Lonza that can help the company to foster long-term radical

innovation. In addition, the secondary data is collected from various management books,

journals, and authentic internet sources about management tools and models that support the

radical product innovation process.

4. Lonza Case Study: Radical Product Innovation

A stage-gate framework is used in this paper for radical product innovation for Lonza to

overcome long-term radical issues. The stage-gate framework is a project management

technique which is developed on the basis of lean manufacturing principles (Cooper, 2006). It

assists the organisations to develop new innovative products or improve current processes at

different stages, separated by gates. The product/process continuation decision is taken at

each gate by the project manager or a steering committee (Cooper, 2008). The recent research

reveals that 85% North American organisations developed a complete product innovation

system using stage-gate model in the past two decades (ibid). A typical stage-gate model is

presented in figure B1 in appendix B.

5.1 Idea Generation/Discovery Stage

This stage refers preliminary activities required to explore opportunities and a desire to

generate new product ideas (Cooper, 2006). The following discussion is based on how the

idea of new innovative product is generated for Lonza Ltd.

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Opportunity recognition: Over the past few decades, hernia patients are facing many

problems related to the growth of scar tissue due to traditional implants in hernia surgery. In

1996, a leading surgeon Professor Schumpelick developed a new implant with biocompatible

characteristics to overcome this issue (Schumpelick and Klinge, 2003). Biocompatible

implant is an innovative idea that enables optimal tissue re-growth after hernia surgery (ibid).

Need recognition: But the latest research reveals that the biocompatible implant discovered

by Schumpelick has not resulted in reducing the frequency of chronic pain in hernia patients

(Khan et al. 2010). Additionally, it also causes a higher a frequency of recurrence and

infection. Therefore, there is a strong need to develop Polyglactine/Polypropylene Mesh to

overcome issues in hernia surgery (ibid).

Initial entrepreneurial activities: In order to

address this issue, Lonza can approach

leading textile engineering companies and

research institutes to develop prototypes for

Polyglactine/Polypropylene Mesh of the new

implant. In addition, the company can

contact manufacturers producing biocompatible

materials and medical implants. In order to validate the medical relevance of this idea, Lonza

also requires a comprehensive camera system to check particular features of the abdominal

wall. It is believed that to employ above technologies Lonza may develop an innovative

implant for the hernia surgery (Lettl et al. 2008).

5.2 Idea Screening

After successfully generating innovative product idea, this stage refers to a quick and

inexpensive assessment of major risks associated with the new product development (Cooper,

2006). But before this it is the best practice to know stakeholder requirements in detail. Lonza

can conduct stakeholder analysis to build user stories by employing the power/interest grid

for stakeholder prioritization. The power/interest grid for stakeholder prioritization applied on

Lonza case study is presented in figure B3 in appendix B. Similarly, the company also

require to set interaction standards to determine how Polyglactine/Polypropylene Mesh

implant will be used in order to avoid issues of recurring pain and infection.

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The most important step in idea screen is the risk assessment of new product. In this regard,

the first step is to establish risk assessment criteria to analyse possible risks related to

Polyglactine/Polypropylene Mesh implant. Table 2 presents simple criteria for assessing

probable risks for Lonza Ltd.

Table 2 – Risk assessment criteria

Risk Rating

Probability (P)

Impact (I) Score = P x I

5 Almost Certain

Catastrophic Very high

4 Likely Major High3 Possible Moderate Modest2 Unlikely Minor Low1 Rare Insignificant Very low

Source: Cooper (2005)

The above assessment criteria is translated into a risk register in table 3. Risk register is

composed of several qualitative and quantitative techniques that can assist Lonza to rank each

risk according to its likelihood of occurrence and degree of impact. In table 3, total 11

possible risks in developing Polyglactine/Polypropylene Mesh implant are identified and

ranked according to their probabilities and impact. These risks are also categorised into three

significant categories such as Manufacturing Technology Risk (MTR), Product Technology

Risk (PTR), and Intellectual Property Risk (IPR).

In table 3, the risks with more than 10 score are considered as high risks for Lonza in

developing new product; and therefore require appropriate risk response strategy. According

to Chapman (2001) and Garlick (2007), risks can be treated by adopting four types of risk

response strategies such as risk avoidance, risk reduction, risk transfer, or risk acceptance. In

the risk register, top three risks are critical and require risk avoidance strategy; and due to the

severe impact of those risks, Lonza can either engage in alternative activity or otherwise can

stop the production of the new product. On the other hand, the consequence of next four risks

i.e. R4, R5, R6 and R7 can be reduced by arranging adequate resources for production, and

adopting safety and quality procedures during manufacturing, storage, and transportation.

The remaining risks can also be treated effectively if Lonza can acquire comprehensive

knowledge of the new implant development process and patent issues.

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Table 3 – Risk register for Lonza new product (Polyglactine/Polypropylene Mesh implant)

Ran

k

Ris

k C

ateg

ory

Risk Description

Lik

elih

ood

Con

sequ

ence

Scor

e =

PxI

Risk Response Strategy

R1 MTR Availability of desired raw material (Polyglactine/Polypropylene) 4 5 20 Avoid

R2 PTR New biocompatible implant fulfils intended purpose 4 5 20 Avoid

R3 PTR Acceptance of new biocompatible implant in medical industry 4 4.5 18 Avoid

R4 PTR Product stability in terms of storage, implant, or transportation 4 4.5 18 Reduce

R5 MTR Safety and quality requirements of production system 4 4 16 Reduce

R6 PTR Performance parity like other successful products 3 4 12 Reduce

R7 MTR Availability of production resources (e.g. tools and equipments) 4 3 12 Reduce

R8 MTR Fully known and understood product development process 3 3 9 Reduce

R9 IPR Potential of Trademark registration 3 3 9 Transfer

R10 MTR All time availability of required production capacity 2 3 6 Reduce

R11 IPR Understanding of significant patent issues 2 2 4 Reduce MTR – Manufacturing Technology Risk Source: Created by author (2012) PTR – Product Technology Risk IPR – Intellectual Property Risk

The risks mentioned in the risk register are also rated in the risk probability matrix in table 4

by considering the risk assessment criteria as a thumb of rule.

Furthermore, all possible risks to Lonza for developing Polyglactine/Polypropylene Mesh

implant are plotted on a risk map in figure B2 in appendix B.

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Table 4 – Risk probability matrix

Probability

Impact

5.3 Product Development and Testing

During this stage, Lonza needs to build a basic prototype for Polyglactine/Polypropylene

Mesh implant for the patients. Today, lean product development is gaining popularity among

medical device manufacturers in order to reduce costs by identifying and eliminating waste

from the entire development process. Miscitelli (2006) considered lean product development

as philosophy rather than a technology because it includes several disciplines and procedures.

In developing prototypes for Polyglactine/Polypropylene Mesh implant, Lonza must consider

lean manufacturing implementation for successfully completing the development process by

eliminating waste. Eliminating waste in biocompatible implant means avoiding issues that

can cause a higher frequency of recurrence of hernia pain or infection after the surgery.

Developing Polyglactine/Polypropylene Mesh implant is a sensitive project and need to cover

several aspects such as biocompatible characteristics, safety and regulatory compliance, and

miniaturisation. Lonza as a medical device manufacturer can drive more and more workflow

optimisation in order to achieve its strategic goals. In fact, the company must be demanding

when it comes to expectations around developing prototypes for Polyglactine/Polypropylene

Mesh implant.

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Almost Certain >80% (5)

5 10 15 18(R3, R4)

25

Likely50 – 80% (4)

4 8 12(R7)

16(R5)

20(R1, R2)

Possible30 – 50% (3)

3 6 9(R8, R9)

12(R6)

15

Unlikely10 – 30% (2)

2 4 6(R10)

8 10

Rare<10% (1)

1 2 3 4(R11)

5

Risk Criteria Insignificant (1)

Minor(2)

Moderate (3)

Major(4) or (4.5)

Catastrophic (5)

High Moderate Low

After developing the prototype successfully, it is inherent to verify the new product’s vision

with the key stakeholders. This means that the prototype will be tested by the doctors and

scientists in the lab and then on living creatures. The cost of developing prototype is low at

this stage as compared to the whole project, so Lonza can still absorb issues with the new

product without losing a large portion of developed material and sunk costs.

5.4 Market Launch

Market launch is the last step in a stage-gate framework which refers to the beginning of full

production and commercialisation of the product (Cooper, 2006). Market launch is a critical

step and requires deep industry analysis before commercialising the end product. Prior to full

market launch of Polyglactine/Polypropylene Mesh implant, Lonza may employ Porter’s five

forces framework for analysing the medical industry in terms of five governing forces such as

supplier power, barriers to entry, buyer power, substitute threat, and competitive rivalry

(Porter, 1985). A general Porter five forces analysis for Lonza’s new product is presented

here mainly assuming radical innovation in implanted devices.

In the beginning, buyer power will be extremely high as the physicians are careful in instantly

adopting new innovative technology especially when they are unfamiliar with product’s

features and long-term consequence. In contrast, the power of buyers tends to be medium if

hospitals or other healthcare organisations will purchase in bulk on the basis of preferences of

doctors and surgeons. Lonza may have substantial negotiating power for its new innovative

product to capture the market share and owing limited market control to some extent.

Generally, medical device manufacturers buy ordinary materials and transform them into a

valuable product (Mehta, 2008). In this case the supplier’s importance and power are

relatively low. But Lonza requires special materials i.e. Polyglactine/Polypropylene, modern

equipment such as camera system, and latest biocompatible technology to develop its new

product. In this regard, the power of supplier’s will be high to produce specialised products

on demand. But the use of very latest equipment, technology, and materials will be major

barriers for the new firms want to enter into the industry. Similarly, the copyright issues also

cause to restrict new entrants as well as lessen the rivalry among existing firms. Therefore,

Lonza can take benefit by protecting patent rights of new product in order to establish

temporary controls in the market (ibid). In this way, new product will be recognised until the

patent will be expired and competitors can enter into the market.

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6. Discussion

Radical innovation requires many changes at structural and organisational levels particularly

in three areas of concern: skills development, production means, and business model. In this

regard, Lonza can use the idea of ‘Capability Triad’ which recently emerges in the product

development domain for gaining competitive advantage. The concept is given by Best (2001)

which is based on achieving breakthrough advances in the business model, production

capabilities, and skill formation for radical innovation. The capability triad is an innovative

and comprehensive framework that highlights systemic aspects of organisational change at

production and enterprise levels. The intersecting circles in figure B4 in appendix B

demonstrate that these three areas are not separable and they are equally dependent

subsystems of a new product development process. The following discussion justifies the

questions, what Lonza requires to develop these new innovation capabilities.

Innovative Skills formation is inherent for Lonza as the company has redundancies in

innovation mainly due to lack of external networks with universities and other organisations

in the biotech industry. Also, LIFT framework of Lonza is not functioning well. Therefore, it

is appropriate for Lonza to collaborate with other organisations or universities to employ

latest R&D facilities and tools that will allow company to strengthen the innovative skills of

engineers, scientists, and doctors working in the company. In this regard, the company can

also employ a skills matrix to verify the skills, knowledge, and interest of the team members.

A sample skill matrix for Lonza team members is presented in figure B5 in appendix B where

left column contains the knowledge and skill areas and top row contains the name of the team

members. The intersection of columns and rows identifies the level of each team member’s

knowledge, skills, and interests.

Lonza case study also demonstrates that the company lacks in entrepreneurship thinking and

behaviour. The business model aspect of the capability triad illustrates how firms can

generate entrepreneurship thinking based on technological capabilities, product specialisation

and open system (Best, 2001). The business model of Lonza with reference to the success of

the new product requires structural changes in the organisation. In addition, the new business

model of Lonza must be based on the independent production system rather than contract

manufacturing where opportunities for innovation are limited. Table 5 contains new roles of

key individuals in Lonza for the successful implementation of radical innovation.

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At present, Lonza is extremely market-oriented company. In order to intensify their

production capabilities for developing prototypes for Polyglactine/Polypropylene Mesh of the

new implant, the company needs to access or employ experienced and skilled people and

scientific/engineering techniques, and timely integrate them into their production operations.

Also, Lonza can encourage employees to increase their production capabilities by providing

them latest equipment and conducting training programs for them. In addition, company can

provide a platform to their employees to enrich their problem solving skills.

Table 5: Key roles of individuals

Key individual Role

Technical innovator Lonza may hire or identify technical innovator in the organisation who is specialised in one or two areas of concern. This will help the Lonza in generating new innovative ideas in the future

Technical/commercial scanner

Currently, Lonza has lack of external networks with universities and other organisations in the biotech industry. The role of technical/commercial scanner is critical for Lonza as he/she acquires useful information from outside organisations often through networking. This will help Lonza to achieve innovation by carrying out R&D activities

Gatekeeper Similar to a technical/commercial scanner, the role of gatekeeper is also significant who acquires information from journals, companies, conferences, and colleagues and serve as an information resource for others in the organisation

Product champion Lonza really needs new innovative ideas from idea sellers so-called ‘product champion’.

Project leader The role of project leader is vital in Lonza particularly for developing new innovative products. He/she usually ensures many requirements of the project such as administration, management, production, resources, and fulfilment of goals and strategic objectives

Sponsor Finally, sponsor always plays a crucial role in providing power based within the organisation. In case of Lonza, the sponsor can help the company for providing legitimacy and patent basis for new Polyglactine/Polypropylene Mesh implant

Source: Roberts and Fushfield (1981)

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7. Conclusion

In this paper, a major gap in the Lonza Limited Company i.e. lack of focusing on long-term

radical innovation, is addressed by providing a basis for radical product innovation. In this

regard, stage-gate framework is used to develop a new implant with Polyglactine/

Polypropylene Mesh technology for hernia surgery. It is found from the risk analysis at idea

screening stage that Lonza needs to adopt risk avoidance and risk mitigation strategies to

avoid the impact of probable risks.

Overall, the medical product market has high competition with low profit margin and most of

the manufacturing firms look to reduce production costs by applying lean manufacturing

techniques. In developing prototypes for Polyglactine/Polypropylene Mesh implant, Lonza

must implement lean manufacturing theory for successfully completing the development

process and also to avoid issues that can cause a higher frequency of recurrence of hernia

pain or infection after the surgery.

It is also found from the industry analysis that Lonza must be careful in securing patents for

establishing temporary controls in the market, and also to hold back new entrants and reduce

the impact of rivalry. To enable radical innovation, it is very important for Lonza to

collaborate with other organisations or universities to employ latest R&D facilities and tools

that will allow company to strengthen the innovative skills of engineers, scientists and

doctors working in the company. Also, it is found that Lonza is very market-oriented

organisation, so in order to intensify their production capabilities for developing prototypes

for Polyglactine/Polypropylene Mesh of the new implant, the company needs to access or

employ experienced and skilled people and scientific/engineering techniques, and timely

integrate them into their production operations.

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References

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Birkinshaw, J. and Hamel, G. and Mol, M.J. (2008). Management innovation. Academy of Management Review. 33(4), pp. 825–845.

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Khan, N., Bangash, A., Sadiq, M., Hadi, A. and Hamid, H. (2010). Polyglactine/ Polypropylene Mesh vs. Propylene Mesh: Is There a Need for Newer Prosthesis in Hernia? Saudi Journal Gastroenterol, 16(1) pp. 8–13

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Appendix A

Table A1 – SWOT analysis of Lonza Ltd.

STRENGTHS WEAKNESSESFAVOURABLE UNFAVOURABLE

INT

ER

NA

L

o Very good customer oriented companyo Supplier of big multinational organisationso Strong organisational structureo Successful operating businesso Improved sales performanceo Strength in customer services and business

operationso LIFT (Lonza Innovation for Future

Technologies)o Each business unit focusing on R&D

efficacy and customer orientation

o Extremely market-oriented companyo Redundancy in innovationo Lack of external networks to universities

and other organisations in biotech industry

o Lack of focus on long-term radical issues

o Lack of entrepreneurship thinking and behaviour

o Last year sales decline due to lack of contribution of activities

o Business units are strictly organised along product groups

EX

TE

RN

AL

OPPORTUNITIES THREATS

o Collaborate with universities and other companies in biotech industry

o Grow significantly in the areas of bioproducts, biopharma, and human health

o Technological breakthrougho Focus on long-term radical innovation

without losing competence in current business environment

o Customer requirements are not innovative

o Copyright issueso Lack of availability of standardised raw

material for developing innovative products

Source: Created by author (2013)

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Appendix B

Figure B1: Stage-gate model

Figure B2: Risk map for Lonza’s new product development

Source: created by author (2013)

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Figure B3: Power/interest grid for stakeholder prioritization

Source: Henri (2008)

Figure B4: Capability Triad

Source: Best (2001)

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Figure B5: Skills Matrix

Source: Aswathappa (2005, p. 99)

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