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MBA501: Dynamic Strategy and Disruptive Innovation Assessment 3
Millennium Health Sciences (MHS)
MHS was established in 1968 by two scientists who wanted to develop
dermatologically tested skincare products. They came out with several skincare
products that were ahead of its time. The innovative spirit of the founders can still be
seen throughout the company, but significant changes have taken place over the
years. Today it is a $2.2 Billion revenue company with 800 staff spread across the
country.
There are two business units at MHS. Neutrino manufacture Vitamins and Dermatech
produces advance skincare products. A General Manager heads each business unit,
and they report to the MHS CEO. The GMs have significant autonomy and tightly
control each business unit. The managerial structure is ‘top-down’ meaning that all
decisions such as project appraisal and selection are made by the GM and senior
executive team of each business unit and then filter down to the lower levels in the
organisational hierarchy. Both companies compete for resources from the holding
company MHS which is listed in the stock exchange. According to one insider “, each
unit is trying to outdo the other, and I feel the Board likes it that way, competitive,
secretive, divide and rule.”
The company culture is such they believe senior executives should come up through
the ranks. Therefore, most of the top executives have worked at MHS for an extended
period and in most cases worked at only one business unit. The average age of the
senior management team (the executive committee – fifteen executives) is 53 years,
and the next level of leadership is also not far behind. Junior executives call the
executive committee, the senior citizens club. Experience at MHS is seen as one of
the critical criteria for promotions irrespective of your experience elsewhere.
Most of the senior staff (60-70%) have a Degree in pharmacology or microbiology.
Even those who head the marketing function are scientists first and then moved into
marketing and sales. It is a standard practice that the Human Resources department,
when hiring staff, considers anyone coming from pharma or microbiology background
as having an advantage. According to an executive who joined recently “first few
months at MHS is difficult, but after you learn to ask fewer questions and follow
orders, life becomes easier, and honestly, you can stick around for a long time.”
MHS has consistently given dividends to shareholders since listing ten years ago.
Even during low-profit years, MHS did not miss out on dividends. The new CFO is of
the view that the company should build a better relationship with the shareholders so
that some of the dividends can be directed towards high-potential long-term R&D
projects. However, the executive committee and the Board of Directors are worried
to upset the status quo thinking that it would send the wrong message and impact the
share price. “last thing we want is the stock price to go down, it will take ages to pick
up and by that time we will be retirees with stock options, so, why upset the Apple
cart?” was the response given by one senior executive.
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MHS products are available over the counter. However, doctors may recommend
specific skincare products and vitamins to patients. Similarly, skincare clinics, spas,
and specialised beauticians also play a significant role in promoting the products.
About the two businesses
Neutrino
Neutrino research, develop, and manufacture vitamins and supplements. The
Neutrino R&D is known for its research and commercialisation skills of different herbal
extracts. The R&D centre is in Adelaide; the staff at the centre are older than most
other R&D staff at MHS but experienced in vitamins, supplements, and regulatory
requirements. Recently they developed and commercialised a new product that can
be orally administered to enhance the vitality of the skin. Although years of research
into a known seaweed cost the company $12.0 million, this new product
range Poseidon is expected to generate $350 million a year in revenue from 2023
onwards.
Dermatech
Dermatech is the oldest product group in the company. In recent years, export
markets have done well, where Australian made products are received positively. The
state-of-the-art R&D centre is in Sydney. According to the company website,
Dermatech defines its operating domain as “Cosmetic Dermatology” and
“Cosmeceuticals.”
Export markets are handled through distributors, and only a few staff are familiar with
the export operations. The marketing manager only visited two of the main export
markets (China and Indonesia) last year, although 30% of the profits and 20% of the
revenues are coming from export sales. According to a senior executive, “export
markets are good, but we don’t have the expertise, or the energy to run around Asia.
We are an Australian company, and our primary focus should be Australia. If we do
well here, then the distributors will come to us.”
The company has received several offers to set up R&D joint ventures that target the
Asian market. Several companies are keen on collaborating and setting up an R&D
centre in Singapore where the government regulations are favourable, and the
government is proactively promoting such investments. Some products that are not
performing well in Australia seems to have found a good market in Asia. For example,
according to Dermatech marketing manager, the CLEO product range is doing well
in Indonesia, Malaysia, and even China though the sales are stagnating in Australia.
The product is appealing to Asian skin types, and the consumers are willing to pay a
relatively premium price.
Poseidon product range
Years of research and $12 million after, Neutrino developed and commercialised the
Poseidon product range successfully. The active ingredient was developed based on
a seaweed extract. Neutrino R&D managed to develop a synthetic version of the
active ingredient for which they are seeking a patent (some believe they should keep
the process as a trade secret). The product comes in liquid and tablet form. The
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project was code-named Poseidon and kept top secret; along the way, sketchy details
were given to the Board of Directors.
Simultaneously Dermatech was also developing a skin cream based on the same
know seaweed. The company spent close to $8 million on the project, and research
is on-going. Presentation of field trial results from Project Poseidon to the Board was
a joyous occasion for Neutrino, especially given the potential of the new product
range. However, all were taken by surprise when Dermatech GM presented the
partial results of their seaweed project.
It was evident that there were significant overlaps in the research with unnecessary
duplication. Neutrino head of R&D charged a trainee lab technician who moved to
Dermatech might have revealed the existence of the project. For their part,
Dermatech vehemently denied the allegations and contested some of the field results
presented by Neutrino.
The situation has raised some serious concerns for the senior executives of MHS.
According to the CEO “it is time we reflect critically on how we operate and plan to
progress as a company.” The questions were raised as to why R&D effort was not
consolidated.
R&D and Marketing
Traditionally, MHS has been an R&D driven company. The scientist conceptualises
and develops products. Then the marketing team is expected to do the rest. Although
most marketing staff coming from a pharma or microbiology background helps, for
the most part, these two departments work independently. As noted above (Poseidon
case), the two R&D teams work separately, and so does the two marketing teams.
Most of the insights from the market (customers, pharmacists, doctors, skincare
clinics, beauticians, etc.) are recorded by the marketing team and presented during
the monthly marketing meetings; none of the other departments takes part in these
meetings. Two sales teams (Dermatech and Neutrino) approach the same
customers. Majority of the customers do not know both companies belong to MHS.
Note: This is a hypothetical case study with hypothetical market situations. You are
not expected to research the different industries mentioned in the case study. The
focus should be on researching, analysing, and applying disruptive innovation, and
organisational innovation capacity related theories, concepts, and scholarly views.
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