Intellectual Capital has Become a Key Asset

“The Ability to Learn Faster than your competitors may be only sustainable competitive advantage” “There is less to fear from outside competition then from inside inefficiency, miscalculation, lack of knowledge. Beat your competitors with the knowledge edge! Train your staff!” A “A person who graduated yesterday and stops studying today is uneducated tomorrow” “Competitive Strategy is about being different. It means deliberately choosing to perform activities differently or to perform different activities than rivals to deliver a unique mix of value”. Michael E Porter Competitive Advantage is the Base for any Successful Business Strategies of Companies. We can create this competitive advantage through many routes. One such route is Knowledge Management. Why do we require Competitive Advantage? Competitive Advantage is required to have an edge over the competitors for attracting customers and protecting itself from the competitors. Companies need to Invest on Knowledge Management for creating sustainable competitive advantage which is the most dependable contributor to above-average profitability. In ever changing market place, where only certainty is uncertainty, corporate success come from consistently creating, disseminating and using new knowledge. Globalization, transformation of the enterprise, emergence of digital firm, and transformation of industrial economies are four powerful worldwide changes which have altered the business environment .Today business view is shifting from a product-centric to a knowledge-centric view. Companies cannot afford to under invest in using, reusing and losing knowledge that they already have. In this rapidly changing business environment, intellectual capital has become a key asset of the enterprise. The ability of companies to exploit their intangible assets has become far more decisive than their ability to invest and manage their physical assets .By managing its knowledge assets, an enterprise can improve its competitiveness and adaptability and increase its chances of success. Organizations are discovering that they need to do a better job of capturing, distributing, sharing, preserving, securing, and valuing this precious knowledge in order to stay ahead of their competition .Changing business environment has created need for the effective and efficient knowledge management. India can not lag behind in this knowledge revolution hence many Indian companies have started their knowledge management programs. This has initiated a basis for this study to be carried out to understand knowledge management in Indian organization. This paper is part of larger study which I had undertaken to study KM in Indian organizations.

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Knowledge Life Cycle Model

Defining Knowledge and Knowledge Management

Knowledge is a whole set of intuition, reasoning, insights, experiences related to customers, products, processes, markets, competition and so on that enable effective action. Knowledge Management is a systematic, organized, explicit and deliberate ongoing process of creating, disseminating, applying, renewing and updating the knowledge for achieving organizational objectives . Knowledge management has three basic elements: 1. Generation of new knowledge 2. Dissemination of the knowledge 3. Application of the knowledge

Basic Knowledge Processes


Individual /Team


Acquire Produce Integrate Knowledge Organizational Information/ Knowledge Learning Knowledge Training Validate Instruct/present Research or create knowledge. Published new Or knowledge Structure/Store Patented Knowledge. Information Expose to best Practices. Share Knowledge.

A checklist for unlocking corporate knowledge

1. Business needs-and the kinds of knowledge required to fulfill them have to be identified first before tools and processes are implemented. Many initiatives have failed where technology has dictated knowledge management (KM). 2. Successful KM is about shifting culture and behavior-technology is an important element, but is subsidiary.

Data Information Knowledge Action Results

Technology Business Value

Approach Approach


The DIKAR Model

3. A basic mechanism in large organizations is also one of the most effective: keeping tabs on who knows what-and how to get in touch with them. 4. Though improving, KM tools are often too complicated: they have to be delivered in a way executives and staff want to use them, and to adapt to the areas/depth of knowledge needed by the individual. 5. Markets, customers, technology and competition are continually changing; knowledge gets stale fast. Is the KM framework able to handle change? 6. Can the organization track whether knowledge is being acted on, and what value is gained from it? Even where knowledge flows quite efficiently round an organization, companies can often do more to ensure information is acted on. 7. Is there a means to learn from experience- good and bad-and share that learning when a similar situation occurs? A vast amount of resource is wasted in corporations just by unwittingly repeating the same mistakes, or failing to repeat useful discoveries. 8. Who leads KM? Many large organizations now have a dedicated head of KM, or at least a high-ranking sponsor, to ensure the right collaborative environment. 9. Bulletin boards and web logs have begun to prove their worth to a range of organizations: they supply an instant exchange of learning or can be used by executives to communicate and keep their ear to the ground. 10. You can only get people to volunteer knowledge-you can’t force it. However, firms that provide forums, tools and opportunities for informal networking can encourage employees actively to share knowledge.

Leveraging three types of knowledge

Knowledge Knowledge Manage Phase

As Body Of As Know-How Know – How

Informations M the Individual The Team

NATURE Explicit Tacit Tacit OF Codifiable Personal Fluid KNOWLEDGE Is can play a part Diffuse Dependent on Packaged team dynamics Diffuse KM ISSUES Finding it Establishing Formal management Validation suitable extraction of essentially free-form Value assessment processes activity Obtaining it at Tight ownership Establishing suitable Reasonable cost Reluctance to impart frameworks and processes Integration with Motivation and reward Member’s own Own system Experiential so hard perception of their role Making available to to encode Mutual trust – need The right population Trust 100% buy-in In the right form Finding suitable way Formal learning Sensible of technology of passing on learning mechanisms Ensuring subsequent Limited role for Dissemination Beneficial use technology Creating and using Knowledge repositories Technology has a Background role COMMON Knowledge about Knowledge (knowing it exists and where: KM ISSUES its context and hence its importance) Understanding the relevant business context Ownership and buy-in to KM processes Updating and reuse of knowledge Demonstrating causal link between KM activity and business benefit

The Indian Pharmaceutical industry

The Indian pharmaceutical industry represents a successful high technology based industry, which has witnessed consistent growth over the last three decades. It is the 14th largest in the world accounting for a market of US$ 2.5 billion and 4th largest market by volume. The Indian pharmaceutical industry has developed enough capabilities to make the country self sufficient in health care needs and its export ability makes it a strategic trade sector in the Indian economy. The Indian pharmaceutical industry exports generic drugs to CIS (Commonwealth of Independent States) countries, Africa, and recently to the highly regulated US and European markets. The Indian pharmaceutical industry is characterized by a low degree of concentration; a large number of firms with similar market shares, a low level of R&D intensity ratios with a high level of brand proliferation. The need and incentive for innovation was undermined by low purchasing capability of the domestic market along with the ease of imitation and horizontal product differentiation; features that are representative of an industry behind the technological frontier . The growth of the Indian industry was very slow till 1970. The Patent Act of 1972 and government investment in the drug industry infused life into the domestic pharmaceutical industry. The Act removed the product patents for pharmaceuticals, food and agro-chemicals, allowing patents only for production processes. The statutory term was shortened to seven years on pharmaceutical patents and automatic licensing put in place. It started the era of reverse engineering where firms developed new products by changing their production processes. During the last three decades the large private Indian pharmaceutical firms focused their efforts on reverse engineering oriented process R&D, and activity was limited to applying known knowledge, or to making small adjustments in the contents . A few public laboratories under the Council of Scientific and Industrial Research (CSIR) also operated in pharmaceutical R&D, specifically imitative process R&D. Production technologies were well mastered and the lag period between the launch of a new product in its first market and India was thus reduced, in some cases as low as two years. The Indian pharmaceutical industry represents a successful case of indigenous self-reliant development. But the objective of indigenization rather than innovation made R&D in Indian pharmaceutical firms more insular, with a knowledge base firmly rooted in imitative reverse engineering process R&D. As a result Indian pharmaceutical firms have accumulated extensive knowledge in process R&D (synthetic and organic chemistry) but severe weakness in other scientific disciplines like medicinal chemistry and biology. The ease of imitation in reverse engineering further resulted in intense competition among Indian firms for market share, hampering the development of a collaborative web of networks of research institutes, academia and industry . The lack of trust resulting from the weak regulatory environment further prevented the development of research networks. The 1972 Patent Act therefore changed the pattern of competition towards volume / price led competition rather than traditional pharmaceutical competition based on the development of new medical treatments. From 1970 onwards Indian pharmaceutical firms slowly started dominating the domestic market reducing the market share and influence of Western companies. Today the market share of domestic firms is around 60-70% compared to 10% in 1970 . With the signing of WTO agreements, specifically TRIPS in 1994, the Indian industry and market structure is poised to change. In a product patent regime, Indian firms will have to look for new sources of growth in the future and the biggest source will be productive R&D, which can deliver patentable innovations. Knowledge Management in Pharmaceutical Industry Pharmaceutical companies need knowledge management solutions that allow users to store, analyze, interpret and share information as part of coordinated processes. They must also provide ways to collect and manage diverse information, and use it effectively to support decision-making. This means not only text documents, but also non-text files such as molecular structures, gene sequence alignments, images, results tables, entry forms and other information. It also includes links to key internal and external resources, discussion items, key e-mails, external search results, and status and summary reports. The sheer volume of information companies must wrestle with in the course of developing new drugs. Advances in biological and chemical research techniques have caused an explosion in raw data by several orders of magnitude. This compels companies to obtain automated analytic systems to deal with such large portfolios of data. It has also placed a priority on developing and offering timely access to summary information. This requires a range of knowledge, project and portfolio management tools that promote deposition, sharing and coordination, such as: workflows, task lists, intelligent agents, portals at the personal, project and departmental level, advanced query tools, intranet spiders, etc., all of which can be tied together as part of an integrated knowledge management solution. Life science companies, collaborative software tool vendors, and industry consultants all seem to hold out great hope for this something call knowledge management. The reason is simple: With such massive data overload in the life sciences, companies realize it is to their advantage to find better ways to deal with and use this information. To use knowledge as a strategic advantage, life science companies take one of three broad approaches, which can be generically described as follows: Help scientists know what’s already been done and by whom => Extract information, relationships, or new insights from existing diverse data sources => Capture the expertise and intellectual property of scientists One approach in using knowledge management is to give researchers a means to better understand what’s already been done and who did it. A number of knowledge management projects aim to provide scientists and managers with tools that help them stay informed about what is going on within the company. This helps prevent researchers from duplicating a completed experiment or following a nonproductive path that has already been rejected. The worst-case scenario – one that happens far too frequently – is for a researcher to spend six months eliminating a particular drug candidate, only to find that a colleague had already drawn the same conclusion. Informing researchers that a co-worker is interested in the same topic is one way to avoid such duplication. Such an approach can also reap other benefits – namely, time savings. Importance of Knowledge Management in Pharmaceutical & Life Sciences Industry The only sustainable competitive advantage of a pharmaceutical or biotechnology company is the organization’s ability to efficiently create, protect and commercialize new intellectual property. Leadership in the pharmaceutical and biotechnology industry is less and less about day-to-day clinical testing, manufacturing or sales. While many pharmaceutical companies have extensive expertise in those functions, similar expertise can obtained by contracted out to specialized organizations as CROs. The key competitive advantage for firms is the research and development of new intellectual property that forms the basis of successful research, manufacturing and distribution activities. New intellectual property not only includes the development of new chemical entities that can become INDs; it includes manufacturing techniques, regulatory compliance programs, marketing program design, and so forth. The active sharing of the knowledge held within the organization is essential if new intellectual property is to be quickly commercialized and with have a high degree of commercial success. Reducing “time-to-market” depends on knowledge management. At the same time, knowledge management is necessary to avoid repeated explorations of dead-ends – unless knowledge of failures is shared, failures are repeated.

Globalization Issues In R&D

Globalization of research and development requires collaboration across time zones and language barriers. The explicit focus of knowledge management on the sharing and use of knowledge can act to bridge diverse research and development teams. Few industries span the world in their research activities, as does the pharmaceutical industry. Lead synthesis, identification, validation, animal testing, formulation, and human testing can occur in a variety of nations. Sharing of knowledge also has applicability to manufacturing and marketing. The need for global uniformity in good manufacturing practices requires that personnel involved in that aspect exchange ideas to assure the highest quality production. While marketing channels differ across markets, knowledge from one market can have applicability in other, if only to avoid costly errors.

Manpower Turnover

The pharmaceutical and biotechnology industry is in a period of rapid change, and employee turnover is increasing due to new opportunities. It is also important that organizational knowledge does not leave with an employee – the control aspects of knowledge management can act as an additional safeguard. High turnover of skilled scientists and other experts requires knowledge management in order to retain the key output of professionals: their own increase in knowledge from working within an organization. Every time a professional leaves an organization, they take with them the increase in their own knowledge that occurred during their tenure. Unless active steps are taken to extract that knowledge, synthesize and share it, so that it can be used, organizations lose the most important aspect of an employee’s contribution.

Knowledge Management Solutions & Its Challenges

While the industry is driving the development of new knowledge management solutions (And finding better solutions to choose from), the industry’s biggest challenge is increasingly the user. Many of the human-factor challenges (and costs) of moving to a knowledge management system come from the industry’s long dependence on paper and paper processes. Pharmaceutical companies have very detailed, document intensive processes and approval procedures which, when combined with strict FDA rules and the common human-factor challenges, are a bad mix in a very high-stakes game. The biggest issues are proper use of systems to ensure compliance and user acceptance.

Access Rights

Pharmaceutical companies must have to ensure that only authorized and expected people can access records, and that any actions that they take which impact the records in any way are captured in an audit trail. When it comes to electronic signatures, FDA rules are very strict, so companies must carefully manage who can apply an electronic signature through workflows and password authentication to apply a signature. But they must also make sure that management staff understands that an e-signature is equivalent to signing in ink. Password policies should require that staff acknowledge this. In addition, a system that adds an image of a manager’s signature to a record, while not required under FDA regulations, reinforces that message. The other major factor is the tendency for employees to write down their passwords, and sometimes share them with colleagues. Rigorous password policies are a necessity to prevent this, but companies must find ways to constantly reinforce the message with employees.

User Friendliness

Critical information comes from the lab, so pharmaceutical companies must ensure that it’s easy for lab workers to use and contribute to a knowledge management system, while working in their unique environment. Systems must offer features that allow workers to add data by simple drag-and-drop, or preferably by automatic agents that capture key information and transfer it to the system without extra effort. Ultimately, these workers have to recognize that depositing information into the system is part of their job, like using a lab notebook. But systems can be designed to offer lab workers added value to encourage use of the system. For example, a comprehensive listing of hyperlinks to all available databases and application tools is helpful, but this can be extended by providing online discussion groups and training manuals. A lab protocol repository covering standard and company lab methods and procedures may also be attractive to lab workers, while also serving corporate goals. This would include being able to find methods used by other workers in the company to accomplish specific experimental tasks, and ways to search for recognized experts across the company.

The Transformation Process of Indian Pharmaceutical Industry from Imitative to Innovative R&D Structure

In case of pharmaceutical R&D, the process and product R&D capabilities can be differentiated on the basis of complexities of knowledge base as basic, intermediate and advance level. Based on Bell and Pavit (1992), a basic level innovative capability is taken here as an ability to make minor adaptations to production and assimilate technology to firm’s environment. Intermediate innovative capability refers to the ability to generate incremental technical change in product design, quality and production processes, it also includes ability to search and evaluate external sources of technology. Advanced innovative capability refers to the ability to generate new products and process innovations. Knowledge base is categorized as simple and complex based on the nature of technological challenges involved in development of products and capabilities to develop those products. Traditionally, pharmaceutical R&D has two distinct phases; product research and later, process development for production. Process development occurs in parallel with the product development and is responsible for producing the compound in relatively large quantities, in extremely pure form, at an economically feasible cost and by following all the regulatory requirements. Product development research has two distinct components; discovery and development. In the discovery stage, drug molecules are obtained, screened and promising lead compounds are selected for development. The development stage involves a series of tests to determine safety, efficacy and proper dosage strength and form. The discovery stage represents the innovative phase in the pharmaceutical product R&D. Learning or Absorptive Capacity Own R &D Technological Knowledge External Knowledge Model of Sources of firm’s technological knowledge (Source: Cohen and Levinthal, 1990) In case of process R&D, the capabilities in reverse engineering, generics R&D and new drug delivery systems are mapped as basic, intermediate and innovative. Reverse engineering involves copying the manufacturing process using indigenous sources of technology while generic R&D includes producing the product with non-infringing and innovative processes. New drug delivery system (NDDS) involves the development of technology to introduce a drug at diseased site in a novel way. New drug delivery system research has definitive and well defined boundaries of complexities. It represents an advance level of capability in terms of formulation research part of the process R&D. In case of product R&D analogue research, new target or new leads and original NCE research can be characterized as basic, intermediate and advanced level capabilities. Analogue research involves the modification of existing molecule which can provide better efficacy or reduce the side effects of existing molecules. This research involves use of already discovered molecules and targets so the requirements of skills in lead optimization or target validation are limited in it. The intermediate capability in product R&D represented by new target or new leads requires higher skills than analogue research. The novelty in terms of new leads or new targets will demand deep knowledge about areas like structure activity relationship. Finally the total original research will involve putting up whole new hypothesis about the disease and its treatment. It will require in-depth knowledge about biological and chemical aspect of disease as well as skills in areas like target validation and lead optimization. In case of a pharmaceutical firm, the product platform can be at many levels. For example, an aggregated classification of a pharmaceutical firm may be as an organic or inorganic molecule form. The other dimension involves the breadth of ‘disease’ segments targeted. A firm could pursue only organic molecules for say two or three diseases or alternatively it can be one diseased focused firm. The analysis of innovative Indian pharmaceutical firms’ capabilities in process and product R&D suggests that in terms of process R&D, firm B has acquired advance level of capability in process R&D while other firms are at intermediate level. In terms of product R&D, firm A has acquired the capabilities to conduct research involving new leads or new molecules whereas other firms are at analogue research stage. This classification of process and product R&D capabilities assist in tracking the intricacies involved in transformation of capabilities to move from imitative process R&D capability (reverse engineering R&D) to innovative process and product capabilities. The difference of knowledge base, organisational processes and capabilities required in imitative R&D and innovative R&D shows that firm having advance level competencies in imitative process R&D may start with no or basic level capabilities in innovative product R&D. Innovative Indian pharmaceutical firms have developed basic level of process R&D capabilities through imitative R&D and as a response to change in patent law innovative Indian pharmaceutical firms are moving towards the development of advance level process and product R&D capabilities. This movement involved integration of existing capabilities with newly acquired knowledge but crucially it also involved the unlearning of non-relevant capabilities or rigidities.

How Reverse engineering Resulted scientists in discovery of R & D?

The success in imitative R&D drew on branches of chemistry like synthetic chemistry, organic chemistry and basic pharmacology. Firms in their R&D laboratories employed organic and synthetic chemist who could reverse engineered any molecule or developed efficient and cheap processes for any patent protected molecule. However, the innovative R&D is about motivating scientists to think ‘out of box’ or think differently in novel and creative way. For example if there is anti-diabetic molecule already in the market, then discovering a different molecule to cure disease with new therapy or fewer side effects and better efficacy. Firm E’s head of new drug discover explained “for new drug discovery you can get good chemist here but they don’t have expertise of how to design molecule, how to look at receptor, how to look at molecular modeling . If you are not trained then it’s difficult to understand the interactions”.


Mindset Culture of innovation

Understanding of the Pharmaceutical a. Short term vision of R&D R&D management R&D b. Domestic market focused mechanism thinking Complimentary technological Research talent Assets: Skills in Pharmacology, Reverse Engineering a. expertise in medicinal Analytical chemistry, process R&D experienced scientists in chemistry and biology (for development phase) discovery R&D b. Scientists with experience -Sources of knowledge created in product R&D through distribution, marketing R&D management c. Incentive Schemes for routes in overseas markets Practices Scientists R&D Infrastructure a. Resource allocation Product R&D Infrastructure b. Project review Existing Relationships with research institutes In-house nature of R&D Networking and collaboration capabilities The researching skill required in innovative R&D differs from imitative R&D in terms of design and conduct of experiments as firm B’s former R&D president elaborates “the organic chemist in process development lab works on or run the batches of 10 kg or 20 kg whereas in drug discovery laboratories he does the milligram jobs and this switch can be difficult”. The process R&D is about developing scale intensive manufacturing processes, so experiments involve changing solvents temperature, pressures and studying their impact on the output, safety and cost. Due to working on these parameters scientists creates his own biases and ways of working which are suitable for process R&D but becomes irrelevant in innovative product R&D. Firm E’s head of new drug discovery explains “There is this scientist; he was head of one group of the generic people. So I tried this scientist for eight months in new drug discovery, he couldn’t able to deliver anything to me. Finally I have to ask him to please go back to generics now. This is my personal experience, with reverse engineering experienced scientists, it is difficult”. Innovative R&D requires scientists skilled in a wide range of disciplines and scientists working in innovative Indian firms lacked the knowledge in those of disciplinary areas. Firm F’s strategic planning director explains “what you need is innovative chemistry so which is not same as reverse engineering. So in fact we do not prefer the people in discovery chemistry who have the experience of reverse engineering. If the scientist has done some non-infringing work or he has done some original work then we will take him but not only process development because you just can’t take a good process chemist and try to make him a good medicinal chemist or a chemist who is able to deliver on an innovative chemistry or chemistry which he is not done before”. Therefore the innovative Indian pharmaceutical firms have not employed process development scientists for new chemical entity research and have hired the product R&D experienced scientists or fresh scientists for innovative product R&D. Firm D’s R&D president suggests “I mean they have to break the routines, they are aware about that. So that is why they have to hire people who are not already mentally set for the routines”.

R&D Projects Management

The reverse engineering method of product development required relatively little communication of knowledge across the boundaries of the firm or across disciplines or therapeutic areas within the firm. Firms were organized R&D functionally with chemist at the heart of the process and pharmacologist working down stream. However, according to Henderson et al., (1999) innovative pharmaceutical R&D needs the exchange of knowledge across the boundaries of the firm and across disciplinary and therapeutic class of boundaries within the firm. The innovative R&D requires the input from various disciplinary knowledge bases and success in product R&D is linked with organizational ability to integrate knowledge across disciplines. Therefore innovative R&D requires different mechanisms to manage, design and review research project than imitative R&D. Firm E’s head of new drug discovery suggests “your mind is set for reverse engineering and to transform that mind into new drug discovery you need to know lot of pharmacology, toxicology and pharmacokinetics. If you know only chemistry, you can not design the molecule. You have to look at the total pharmacology of that particular disease, then bioavailability issue, toxicology issues”. This need for integrating different disciplinary knowledge bases shows that the organizational practices and routines accumulated in imitative R&D can not be applied in innovative R&D. The other important issue is R&D infrastructure required for innovative R&D. The present R&D infrastructure in Indian pharmaceutical firms is adequate for process R&D research but will need up-gradation in case of innovative product R&D projects. The innovative R&D requires the state of the art instrumentation specifically in key disciplines like chemistry and biology. The emergence of drug discovery technologies like combinatorial chemistry or high through put screening has transformed the drug discovery process.

Change in Mindset – The Need Of The Hour

The most important issue that has emerged is mindset to migrate from reverse engineering towards creating and generating innovation led products. Indian pharmaceutical firms have over the year gain immediate returns on the R&D investments and mostly competed in domestic market on the basis of cheap albeit efficient production processes. But in case of innovative product R&D the life cycle of product development is long and takes 10-15 years. So firm have to be mentally prepared for committing the resources for 8-10 years without returns on those investments. Former R&D president of B comments “it is a mind set problem; those making profits don’t want to invest in product R&D. The costs involved in drug discovery and development are really enormous and returns don’t come fast. Most of Indian firms have this habit of getting quick returns and so if a firm wants quick return on the investment, its not going to be there”. Although the innovative Indian firms have increased R&D investments from 1995 but there is wider consensus about potential to increase R&D investment. Firm B’s R&D vice president defends the gradual increase of R&D investment saying that ‘every company needs to develop its own comfort zone of risk’ and links the issue to the mindset problem. He accepts the difficulty of convincing people to make a commitment of huge investment without any foreseeable returns for 8-10 years, and cite this as a reason for the gradual increase in R&D investment. In case of innovative Indian pharmaceutical firms, mindsets shaped by practices of getting immediate return on R&D investments, inferior technology and domestic market focused thinking has emerged as one of the main rigidity to move from imitative R&D to innovative product R&D.

Change Required In – In-house nature of R&D

In the reverse engineering era Indian pharmaceutical firms built process R&D capabilities in-house as profits were totally linked to the efficient and cheap production process. The intense competition and lack of trust due to weak regularity environment shaped the in-house nature of R&D, resulting in total lack of collaborations between industry and academia. However the areas of innovative R&D require contribution from various disciplinary areas like medicinal chemistry, biology and pharmacology which are advancing at an extraordinary rapid rate. The scientists working in innovative R&D need to be current with a wide range of specialized knowledge. The Indian pharmaceutical firms are chemistry based but biological knowledge and talent in India is concentrated in research institutes like Indian Institute of Sciences, National Institute of Immunology, Centre for Cellular and Molecular Biology and others. The analysis points out that in case of Indian pharmaceutical firms the main rigidities that have emerged are a. imitative R&D organizational routines, b. in-house nature of R&D and c. organizational mindset shaped by short term vision of R&D investments and domestic market focused approach. The difference of knowledge base, organizational practices in imitative and innovative R&D implies that the processes and capabilities that served firm well in the past may not be relevant in new environment. According to Leonard – Barton (1994) core rigidities are flip side of core capabilities and represent the gap between current environmental requirements and a firm’s core capabilities. The deeply embedded knowledge system sets actively create problems and so the firm has to get rid of these rigidities. In case of Indian pharmaceutical firms the important part of learning is ‘unlearning’ or forgetting the past behavior, which is redundant or unsuccessful. Hedberg (1981) points out that knowledge grows and simultaneously it becomes obsolete as reality changes. Understanding involves both learning new knowledge and discarding obsolete and misleading knowledge. The discarding activity – unlearning – is as important part of understanding as adding in new knowledge and slow unlearning is crucial weakness of many organizations in development of new capabilities. So in case of innovative Indian pharmaceutical firms getting rid of ‘rigidities’ accumulated in reverse engineering era formed the important part of learning in development of innovative R&D capabilities. The analysis of innovative pharmaceutical firms suggests that R&D infrastructure, complimentary manufacturing and marketing assets, linkages with research institutes and understanding about the pharmaceutical R&D are relevant capabilities in innovative R&D. In addition to that firms added new knowledge in key product R&D disciplines like medicinal chemistry, biology and build product R&D infrastructure to facilitate the development of innovative R&D capabilities and created culture of innovation in their R&D to foster the innovative R&D. To sum up, some of the processes and capabilities accumulated through imitative R&D can actively create problems in innovative R&D where projects are designed to develop new, non traditional products and capabilities. This indicates that as firms move from imitative process R&D to innovative product R&D, they will have to get rid of those capabilities which are useful in process R&D but can become rigidities in product R&D. Therefore in case of innovative Indian pharmaceutical firms unlearning of obsolete abilities formed an important constituent in transformation of capabilities from imitative R&D to innovative product R&D. Firms were also needed to acquire new capabilities and combine it with existing relevant capabilities to create capabilities in innovative product R&D. Next section elaborates on the learning processes involved in development of innovative R&D capabilities in firms under study.

Knowledge base

Innovative Indian firms gradually created the capability for generic R&D by assimilating and improving on process R&D capabilities. The exposure to global markets, realization of future regulatory changes and creative orientation to imitative research, all facilitated the development of the ‘research tradition’ in these firms. The influence of accumulated knowledge and strong chemistry skill is reflected in the R&D strategies employed by all innovative Indian pharmaceutical firms in product R&D. All these firms choose analogue research to venture in new drug discovery as this research strategy involves chemistry base in terms of modifying the molecular structure to produce the drug with more efficacy or less side effects. At the same time these firms began increasing their investment in R&D from 1995 but this gained momentum in 2000, which resulted in building the absorptive capacity required in understanding the advances happening at the technological front. The R&D intensity of Indian firms is consistently growing from 2000 although it is still much less compared to the R&D intensity of large pharmaceutical firms. But according to some respondents, the cost of development of a drug in India could be a tenth of the international cost.

New Knowledge Acquisition By Various Processes And Methods

Innovative Indian firms started building innovative capabilities by hiring Indian scientists working overseas on innovative R&D in laboratories of multinational pharmaceutical firms.In India only a handful of scientists had experience in innovative R&D and these scientists became the ‘guides’ for the transformation. According to the pharmaceutical consultant, these firms focused on R&D scientists and started investing in them . The main constraint was lack of scientists trained in areas of medicinal chemistry and biology. To over-come this constraint, firms targeted returning post graduates and post doctorates from overseas universities. Currently around 20% of scientists working on innovative research projects have either trained at overseas universities, or have working experience abroad in MNC laboratories. Firm A’s R&D president explains “Our target was returning post grads who have gone abroad to do either PhD or post docs, they were returning and were very good.” Collaborative R&D has emerged as one of key mechanisms for knowledge acquisition for Indian pharmaceutical firms. These firms didn’t have the skills, infrastructure or resources in-house to carry out certain functions and activities in innovative product R&D. In such cases these firms collaborated and interacted with the Indian as well as overseas research institutes, universities and got work done. Firm A’s R&D president explains the rationale behind the collaboration with research institutes and universities, “Drug discovery is very complicated and you may not have everything in house, we can’t and we don’t have everything in house so you have to. It’s a sort of collaborative approach, a collaborative process.”

How To Gather New Knowledge?

To create an environment for creative research, firms are changing their approach towards publication and have started to understand its importance for the growth of R&D. Scientists’ publication in conferences is now valued and encouraged more. As one senior R&D scientist from firm D suggests, “publication is certainly an incentive to the scientist, there is no doubt about that and we also need to showcase our science, it stimulates scientists to think.” These firms are encouraging scientists to take training in new scientific tools or allowing them to pursue their academic ambitions while working in organizations. These firms have manufacturing and marketing centers all over the world including US and Europe and as a result, they could make the best research facilities accessible to their scientists. This allows scientists from these firms to pursue their academic interests and this are also encouraged by firms. These firms set up separate R&D centers with ‘state of the art’ analytical instruments, totally dedicated to innovative R&D. These firms changed R&D structures, started new divisions to manage IPR, as well as established new disciplinary divisions and adopted ‘matrix’ style of project management in R&D. Some firms even opened laboratories in developed countries to make use of the knowledge spillover and attract research talent which was reluctant to shift to India. These firms concentrated on providing more experience to these scientists by giving them opportunities to design research projects, as well as freedom to work on chosen therapeutic areas. To increase the quality of the interactions with international scientists, these firms have set up scientific advisory boards (SAB) which meet every quarter or half yearly to review the research. The SAB contains well known scientists from overseas as well as Indian academia. This forum provides an opportunity to scientists from these firms to have closer interactions with these experts, and as one of the research scientist from firm A suggest ‘all of which generates valuable feedback and built the confidence of researchers’.

Knowledge Transfer Mechanisms

Innovative Indian firms are building research networks by involving themselves in lot of joint projects with Indian as well as overseas research institutes, and research companies. These firms have set up different departments to scout opportunities for collaboration. During collaboration, these firms are sending their scientists to work in collaborators’ R&D. This has changed the nature of the R&D in these firms; from insular in-house R&D, to the collaborative network model. The analysis of innovative Indian pharmaceutical firms’ knowledge transfer mechanisms suggest that the collaboration with research institutes and universities formed an important constituent in innovative Indian pharmaceutical efforts to develop innovative capabilities.

Assimilating Various Knowledge Bases

It was not enough to just hire the scientist or build new R&D centers, the difficult part was to increase the cross disciplinary understanding of the scientists. To achieve that these firms focused on increasing the interactions and communications between different specialized knowledge groups by building cross-disciplinary teams of scientists from different disciplines like biology, pharmacology, medicinal chemistry, intellectual property rights. This firm level analysis of R&D in Indian pharmaceutical firms shows that Indian firms are developing the capability in innovative R&D by acquiring new components of knowledge and reconfiguring the architectural linkages between these components in a new way. The new components of knowledge were acquired by hiring new product R&D experienced scientists, adopting network model of collaborative R&D and increasing R&D investments.


Challenges facing the industry revolve around manpower and early stage funding. There is severe paucity of trained personnel, the only solution being recruiting fresh graduates and training them on the job. Such a situation leads to rampant poaching of trained people from other companies. R&D in the pharmaceutical industry is multi-faceted and draws upon the expertise of molecular biologists, synthetic and analytical chemists, genomics and proteomics specialists, pharmacologists and medical practitioners. Closely associated with these are regulatory and quality assurance functions. However, according to industry sources, pharmaceutical companies find a huge dearth of skilled resources in the critical areas of early stage drug discovery as compared to chemistry or analytical chemistry wherein the talent is easily available. A considerable challenge faced by the industry is venture capital (VC) funding, which in India is severely limited. Funding pertains to private equity (PE) players that invest when the candidate reaches the development phase. The focus is more towards the ‘D’ rather the ‘R’ in R&D. Most venture capitalists are unwilling to invest in biotech R&D. Rather, they want to fund companies whose products and markets are clearly identified or commercialization of technologies already developed.

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Intellectual capital has become a key asset. (2017, Jun 26). Retrieved November 30, 2022 , from

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